Many thought that 2021 would be the year that we finally poked our head out from the fog of the pandemic. The projections were that manufacturing would get back on track, cargo ships would be unloaded on time and efficiently, and carrier surcharges would subside— basically, we were anticipating some sense of normalcy. Boy were we wrong.
3PLs and merchants had to manage many layers of supply chain issues while trying to keep up with unprecedented demand from consumers (yay ecommerce growth!). In the third quarter of 2021 ecommerce made up 13% of total retail sales in the US, which was down from a high of 15.7% in the second quarter of 2020, but still up from pre-pandemic levels of 11.3% in the fourth quarter of 2019.
2022 is trending in the same direction as 2021. Merchants and 3PLs will need to continue to get creative this year. Success will come from finding a balance between keeping costs down and maintaining a steady flow of inventory to meet (what will likely be) another record year for ecommerce demand. Reliance on technology and automation to improve efficiency has accelerated over the past few years, and it’s only just begun. Here are the top 3PL trends of 2022.
1. Last Mile Delivery
Getting your product to a customers’ doorstep has never been easier. The blue chip, asset-based carriers, like FedEx and UPS, have poured billions of dollars over the last decade to improve their small parcel infrastructure to get packages to households faster and cheaper. However, last year, hampered by labor shortages and operational bottlenecks, carrier fees climbed and peak surcharges became commonplace.
Regional carriers with a primary focus on domestic shipments have become major players in the last mile delivery space. As the larger carriers have shifted their focus away from lighter packages to heavier, more profitable cargo, the regional carriers have jumped on the opportunity and gained significant traction in winning more small parcel business. The likes of Pitney Bowes, OnTrac (soon to be LazerTrac after their acquisition of Lazership), and DHL will continue to win the hearts and minds of merchants looking for fast and cost-effective domestic shipments.
2. Costs Will Continue To Rise
When it comes to supply chain costs, 2022 will be a continuation of the last two years with all aspects of supply chain costs pointing up and to the right. Economics 101: demand continues to outpace supply and as a result, cost will rise.
If you look across the supply chain, relief from high costs doesn’t seem to be close on the horizon. Labor rates in the US, the biggest cost center in the supply chain, continue to rise for skilled workers. According to a recent study conducted by McKinsey, job openings rates are approximately 50% above the pre-pandemic levels despite the fact that the workforce has shrunk.
3PLs and merchants are also experiencing a dramatic rise in carrier fees which is material considering up to 70% of fulfillment costs is tied to shipping. Historically, peak surcharges would be tacked on during the holiday season but it’s becoming more common for carriers to add year-round surcharges, also known as demand surcharges.
3. Fulfillment as a Service
Over the last few years, the number of ecommerce stores have exploded. Shopify, one the largest ecommerce platforms, grew 46% year-over-year in Q3 2021. The barriers for merchants to cost effectively and quickly open a digital storefront has never been easier. Platforms like Shopify allow any seller in the world to launch a fully functioning web store in less than 30 minutes.
The fulfillment industry has followed closely behind, making it far easier for sellers to outsource their fulfillment with little to no capital investment. Recently, Fulfillment as a Service (FaaS), a fulfillment model where online sellers use the resources of a fulfillment service on-demand, has grown in popularity with online merchants.
In 2021, there were significant investments in FaaS focused companies, including Deliverr, Flowspace, Flexe, and Stord. These companies typically tap into a network of warehouses to leverage unused space to provide sellers with an easy and cost effective way to fulfill their products.
While cost, speed, and convenience have been the core selling points for many of these businesses, they can be at the expense of service, flexibility, and quality.
4. The Amazon Effect
Amazon has continued to dominate the US ecommerce space as the premier retailer with an estimated 41% share of all US ecommerce sales in 2021. The largest big box retailer, Walmart, is a distant second with just 6.1%.
Amazon has continued to invest heavily in their infrastructure and service offerings to keep their stranglehold in the US and widen their lead. Case in point: Amazon’s shipping division. Amazon Logistics surpassed FedEx in 2020 and is on pace to surpass UPS in 2022 in terms of total parcels shipped. Amazon is the largest US marketplace, fulfillment company, and soon to be shipping service. Let that sink in—that’s power.
Being the leader in the space (or multiple spaces in Amazon’s case) isn’t without its downsides. Starting at the beginning of the pandemic and throughout 2021, Amazon put heavy restrictions on inbound shipments and the quantity of goods they were willing to store and fulfill for a lot of their two million plus sellers. As a result, Amazon sellers experienced major delays of shipments and often experienced out of stock items in their Amazon store leading to loss of sales or a poor customer experience.
Amazon’s ongoing changes have led to many Amazon sellers scrambling to find alternative sales and fulfillment options. In 2022, sellers will look to diversify their sales channels by building their own ecommerce stores, leverage other online marketplaces including Target.com and Walmart.com, or use alternative Amazon fulfillment options.
5. 3PL Consolidation
In the first three quarters of 2021, supply-chain technology startups raised over $24.3 billion in venture funding, 58% more than all of 2020. These tech-centric startups are using the capital to modernize a somewhat archaic infrastructure across freight, delivery, and warehousing.
Coming into 2022 there’s an acceleration of 3PL mergers and acquisitions as these companies look to gain market share and increase operational efficiencies. OnTrac’s acquisition of LaserShip in the delivery space and Shipmonk’s acquisition of RubyHas in fulfillment are just the tip of the iceberg of what’s to come in 2022.
Another key driver for 3PLs to buy versus build is the skyrocketing demand and cost for warehouse space in the US. According to CBRE, one of the largest US commercial real estate firms, there was a record 100 million square feet of space acquired in the first quarter of 2021. Even retailers have entered the 3PL buying fray as they look to solve supply chain issues by gaining more control of their logistics operations. Late last year, American Eagle bought Quiet Logistics and at the beginning of this year BJ’s Wholesale bought Burris logistics.
The creation of larger 3PLs comes with some inherent challenges and it will be interesting to see how these mergers play out. Stitching together technology stacks, combining company cultures, and achieving true operational efficiencies is a tough task at scale. With so many shifts in the global retail landscape, agility and flexibility are becoming necessary values for 3PLs and merchants in the ecommerce industry.
If you’re looking for a 3PL with fulfillment centers in cities across the US, we own and operate facilities in the Bay Area, Los Angeles, Kentucky and the East Coast. Use DCL’s national footprint of warehouses to distribute your inventory across the country to reduce transit times and save on shipping costs. If you need fulfillment or shipping support and want to partner with DCL Logistics, we’d love to hear from you.
Tags: Expert Advice & Tips