At the beginning of 2020, there was a lot of optimism about the overall health and growth with third party logistics providers. We were coming off an all-time high in total US retail sales and ecommerce sales was growing at a steady pace. However, a few short months into the new year, the global economy was turned on its head by the COVID-19 pandemic.
Logistics and supply chain businesses had to quickly adapt their operations and strategies to meet the ever-changing demands of retailers and consumers. As some retailers were forced to close and customer foot traffic declined, ecommerce sales skyrocketed. Ecommerce sales increased an estimated 45% in the second quarter of 2020 compared to the same period in 2019. While some 3PLs struggled due to operational challenges or lack of expertise in growing sales channels, others seized the opportunity and experienced record growth.
As we enter 2021, the supply chain has stabilized and 3PLs have a better understanding of how to operate during the COVID-19 pandemic. The last year has reshaped and in many cases accelerated many 3PL trends.
Fulfillment as a Service
Over the last few years, the number of ecommerce stores have exploded. Shopify, one the largest ecommerce platforms, grew 71% in Q2 2020 compared to the previous quarter! The growth has largely been driven by consumer demand for fast, convenient ways to shop and receive their goods while never leaving the comforts of their home. On the flip side, the barriers for sellers 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. It’s become the norm for shopping platforms to offer APIs for partners, including fulfillment companies, to build inventory management apps and custom connections to bridge the gap between the shoppers site and the fulfillment of their orders. In addition, it’s common for these new direct-to-consumer brands to have small teams, relative to their overall sales, so they lean heavily on outsourced fulfillment to support their business.
Last year alone, the industry saw large investments in fulfillment companies, like Shipmonk ($400M), to keep up with the acceleration of ecommerce sales and growth of digital storefronts. Other companies, like Deliverr and FlowSpace, 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.
The Amazon Effect Continues
Amazon has continued its domination in the US as the #1 ecommerce retailer with an estimated 38% share of all US ecommerce sales. It is one of very few companies to surpass a 1.5 trillion dollar market cap. It’s estimated that there are over 2 million sellers on Amazon, leveraging both the Amazon Vendor and Seller Central platforms. Amazon has continued to invest heavily to support the growing demand of shoppers and sellers and now boasts over 100 fulfillment centers and 300 delivery centers to handle last-mile deliveries.
The stranglehold that Amazon has on the US ecommerce space isn’t without its pitfalls. Shortly after the pandemic started, Amazon temporarily prioritized inbound shipments of household staples, medical supplies, and other high demand products for both Amazon Seller and Vendor Central. As a result, Amazon sellers experienced major delays of their shipments and often experienced out of stock items in their Amazon store leading to loss of sales or a poor customer experience. Furthermore, Amazon restricted storage and fulfillment for FBA sellers during the 2020 holidays.
Amazon’s ongoing changes have led to many Amazon sellers scrambling to find alternative sales and fulfillment options. In 2021, 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. You can read a more detailed breakdown of FBA alternatives here.
End to End Visibility
Until recently, big data was a term commonly used by 3PLs but rarely practiced as supply chain data was inaccessible and difficult to interpret. Companies across supply chain verticals have developed platforms to make it easier than ever to pull, aggregate, and analyze your entire supply chain. From tracking cargo crossing the ocean to measuring delivery speeds to a customer’s doorstep, complete visibility across a brands supply chain is no longer a pipe dream.
The amount of data collected has been further accelerated by the growth of industrial Internet of Things (IoT) within the supply chain. Companies like Keep Truckin, Samsara, and Flexport have been paving the path to modernize their respective industries by demonstrating the benefits of using IoT. Brands and retailers can now quickly identify problem areas in their supply chain to increase output and ultimately, reduce cost and waste.
More than ever, it’s become critical that 3PLs, retailers, and brands are able to adapt quickly to consumer demand in order to be successful. By leveraging big data and IoT, these companies now have the visibility to help them pivot or optimize their supply chain.
The Gig Economy and Crowdsourcing
The logistics industry has begun to see the emergence of technology-based solutions that utilize crowdsourcing and the gig economy to deliver products to the end customer. This has come to be known as the Uberification of the fulfillment space. Independent owners of delivery vehicles can be connected with companies that need their orders delivered in specific areas. The technology that enables this doesn’t require upfront capital investment required in traditional fulfillment and so there are less barriers to entry. Essentially, if you have a car or truck you can become the last mile part of a company’s supply chain. Companies like Postmates have opened up their network of 500K delivery drivers to outside companies to provide turnkey solutions for 3PLs who are looking to expand their last mile delivery options.
Crowdsourcing fulfillment isn’t without its challenges. There is some concern that you will have less visibility with crowdsourcing than they would with traditional fulfillment methods, since it requires a web of independent contractors that you will have to rely on. Quality control and reliability tends to be the biggest hurdle these crowdsourcing platforms face to truly challenge the larger carriers.
Micro Warehousing and Urban Fulfillment
Renting additional commercial space and utilizing it for your companies fulfillment operations is another growing trend in logistics that can improve order fulfillment operations. This is because, with an increase in order volume, you will need a larger footprint to be able to fulfill the spike in orders. With more facilities dedicated to fulfilling orders, you can dedicate different micro warehouses for different types of deliveries and distribute your inventory accordingly. You could have one space for next-day and same day deliveries stocked with your most popular products and another one that provides a slower fulfillment time frame.
Another way to increase delivery speed and to offer benefits like same-day delivery is to increase the number of warehouses or fulfillment centers you utilize in your fulfillment operations. This works best in major cities where the fulfillment centers will be located close to the maximum number of customers. Amazon has driven this trend with their two-hour delivery option, especially with their Amazon Fresh offering. Other companies have started to utilize this strategy which gives them easy access to their customers and allows them to provide same-day or next-day delivery.
Coming off an unprecedented year, 2021 3PL trends will be a reflection of last year’s changes. 3PLs who provide omnichannel fulfillment and are equipped to manage the surplus in ecommerce demand are well positioned to have a successful year. Additionally, the increase in capital investment in fulfillment facilities and supply chain technology will allow brands and retailers to get the products in the consumers’ hands faster and more cost effectively.
If you are interested in working with an experienced 3PL, send us a note to connect about how we can help your company grow. You can read DCL’s list of services to learn more, or check out the many customers we support to ensure great logistics support.