The ongoing transition to remote work, the demand for flexible shipping choices from retailers, and the imperative for warehouse operations to optimize inventory management and enhance throughput are driving laser-focused 3PLs to make substantial investments in automation to meet these evolving needs.
Before the pandemic, e-commerce fulfillment was already on an upward trajectory. However, when COVID-19 struck, this favored shopping method saw a rapid acceleration, a trend expected to persist. Consequently, e-commerce continues to present lucrative opportunities for third-party logistics (3PLs) providers, serving as a robust growth driver for the industry.
Despite a 5.2% year-over-year contraction in the e-commerce logistics market in 2022, as reported by Transport Intelligence (Ti), the firm maintains that this decline should not overshadow the entrenched e-commerce buying behaviors prevalent in the global economy and society.
According to Insider Intelligence, global retail e-commerce sales totaled $3.351 trillion in 2019. Analysts project a 13.8% increase in sales this year, with a total of $6.169 trillion expected in 2023, constituting a 22.3% share of total retail sales.
Evan Armstrong, president of Armstrong & Associates (A&A), points out that e-commerce can yield higher margins for 3PLs offering integrated fulfillment and transportation management operations. He notes, “Its volatile volumes play well for 3PLs that can flex labor and capacity more quickly than those with more static operations.”
The opportunities in e-commerce fulfillment are prompting traditional providers like Maersk to venture further into the e-fulfillment space. Spencer Shute, principal consultant at Proxima, describes the current state of 3PLs’ e-commerce fulfillment as one of “adaptation,” with providers investing in technologies—both software and hardware—to enhance operational efficiencies.
Shute identifies three key drivers behind the growth of 3PL e-commerce fulfillment services: the ongoing shift of consumers towards remote work and increased home delivery orders, the imperative for shippers to remain competitive by offering flexible shipping options, and the importance of warehouse operations in reducing inventory while boosting product throughput.
To meet the demands of e-commerce logistics, 3PLs are heavily investing in logistics capabilities and overhauling their e-logistics offerings comprehensively.
To capture market share and expand their service offerings, 3PLs are engaging in significant merger and acquisition (M&A) activities. A notable example is DHL’s acquisition of a majority stake in Monta and a minority stake in Link Commerce in 2022, alongside the acquisition of a Turkish parcel delivery group in 2023.
However, according to Ti’s Hudson, M&A activities have slowed down in 2023 due to declining profits amidst a more challenging economic environment.
Amazon’s Fulfillment by Amazon (FBA) services continue to drive e-commerce fulfillment. Through FBA, Amazon takes charge of the entire fulfillment process for third-party sellers, including inventory storage, order picking, packing, shipping, customer service, and returns processing.
Hudson notes, “Amazon’s expansion of its FBA services has been extensively documented, and the company is constantly seeking ways to enhance its services and extend Prime benefits to more merchants.” She predicts that 3PLs will continue to vie for a share of Amazon’s market, given other retailers’ efforts to compete with Amazon’s fast, often free or low-cost delivery, despite narrow profit margins.
Overall, speed is paramount, and faster delivery times significantly influence e-commerce purchase decisions. Hudson emphasizes that 3PLs must adapt to changing operational demands to handle both the volume and speed of shipments effectively. She states, “Shippers increasingly prefer to outsource their logistics services, especially with end-consumers demanding quicker and more convenient delivery processes. Meeting these demands can be challenging when logistics operations are managed in-house.”
Driving e-commerce fulfillment forward are Amazon’s Fulfillment by Amazon (FBA) services. With FBA, Amazon takes on the entire fulfillment process for third-party sellers, handling inventory storage, order picking, packing, shipping, customer service, and returns.
Hudson remarks, “Amazon’s continual expansion of its FBA services is well-documented, as it constantly seeks to enhance its offerings and extend Prime benefits to more merchants.” She anticipates ongoing competition among 3PLs to capture a share of Amazon’s market, driven by other retailers’ efforts to match Amazon’s fast, often free or low-cost delivery, despite thin profit margins.
This trend has spurred the emergence of specialized e-fulfillment logistics providers like Shipbob and Shipmonk, pressuring 3PLs to diversify their services to stay competitive.
In the e-commerce landscape, speed reigns supreme, with faster delivery times influencing purchase decisions significantly. Hudson stresses that 3PLs must adapt to evolving operational needs to handle both the volume and velocity of shipments effectively. She explains, “Shippers increasingly prefer to outsource their logistics services, especially as end-consumers demand faster and more convenient delivery processes. Meeting these demands can be challenging when logistics operations are managed in-house.”
Technology Offerings
“These encompass a wide range of technologies, from AI-driven software for forecasting to robotic automation for fulfillment,” says Shute. “Delivering real-time and predictive data to clients while enhancing fulfillment efficiency has become a competitive race in today’s marketplace.”
Shippers and 3PLs, in particular, are striving to become more proactive and resilient to prevent supply chain bottlenecks encountered during the pandemic, according to Shute. Therefore, to effectively manage market drivers and the 3PL relationship, shippers must rely on data visibility and transparency throughout the supply chain.
“Data transparency enables better operational forecasts, enhances fulfillment, and shifts the network to a more proactive stance,” Shute emphasizes. “Enhancing the 3PL relationship through data sharing can be facilitated by new technologies implemented by 3PLs, but it’s crucial to assess these offerings to ensure they meet not only current needs but future requirements as well.”
Robotic fulfillment automation aids 3PLs in expanding and optimizing services, particularly in addressing human resource challenges, especially within warehouse operations. “Automation allows for better planning and more efficient use of talent, particularly as 3PLs increasingly rely on real-time data to meet stringent delivery timelines, including two-day or even two-hour windows,” explains Armstrong.
Robotics contribute significant value to warehouse operations by reducing or eliminating errors, accelerating order fulfillment, cutting overhead and operational costs, and enabling improved inventory management.
According to a recent report by McKinsey & Company, it is projected that by 2025, over four million commercial robots will be deployed in more than 50,000 warehouses globally. Additionally, the global warehouse automation market is expected to reach $51 billion by 2030.
Warehousing Market Trends
Robotics play a pivotal role amidst the significant impact of e-commerce on creating a constrained real estate market for warehousing space.
Armstrong notes, “Nearly every major trend in warehousing—such as a tight labor market, adoption of new technologies, rising rents, low vacancy rates, and growing demand—affects both private and outsourced e-commerce warehousing.”
Consequently, there has been an emergence of more multi-client warehouses with shorter-term contracts, providing 3PL customers with enhanced flexibility. However, there may also be an uptick in longer contracts due to inflation, escalating lease rates, and pressure on warehousing space.
There is also an increasing demand for verified-accredited wholesale distributors (VAWD) warehouses that offer various e-commerce fulfillment services, including order picking, packing, and direct shipping to customers.
“Many of these warehouses provide value-added services such as bagging, labeling, bubble wrapping, drop-tests, and ensuring goods are ready-to-ship,” Armstrong explains. “Such labor-intensive tasks require three times as many employees per square foot compared to traditional contract warehouses.”
Customers are increasingly requesting 3PLs to provide diverse delivery options, including access to networks of pick-up-drop-off (PUDO) locations and parcel lockers. “DHL e-commerce Solutions recently announced a partnership with Cainiao to install parcel lockers across Poland,” Hudson mentions.
Cold chain warehousing is also witnessing unprecedented growth due to the rapid expansion of online grocery shopping spurred by the pandemic. “E-commerce’s demand for one-day or eve
The proliferation of robotics plays a critical role amid the substantial impact of e-commerce on the warehousing landscape, leading to a constrained real estate market for warehousing space.
Armstrong highlights, “Nearly every significant trend in warehousing—such as a tight labor market, adoption of new technologies, rising rents, low vacancy rates, and escalating demand—affects both private and outsourced e-commerce warehousing.”
Consequently, there has been a surge in the emergence of multi-client warehouses with shorter-term contracts, providing 3PL customers with enhanced flexibility. However, there may also be an uptick in longer contracts due to inflation, escalating lease rates, and the strain on warehousing space.
“Shippers are keen to deploy e-commerce fulfillment parcel shipping from warehouses located as close to the customer as possible to elevate service levels,” Armstrong adds.
There is also a growing demand for verified-accredited wholesale distributors (VAWD) warehouses offering various e-commerce fulfillment services, including order picking, packing, and direct shipping to customers.
“Many of these warehouses offer value-added services such as bagging, labeling, bubble wrapping, drop-tests, and ensuring goods are ready-to-ship,” Armstrong elaborates. “Such labor-intensive tasks require three times as many employees per square foot compared to traditional contract warehouses.”
Customers are increasingly requesting 3PLs to provide diverse delivery options, including access to networks of pick-up-drop-off (PUDO) locations and parcel lockers. “DHL e-commerce Solutions recently announced a partnership with Cainiao to install parcel lockers across Poland,” Hudson mentions.
Moreover, cold chain warehousing is experiencing unprecedented growth due to the rapid expansion of online grocery shopping catalyzed by the pandemic. “E-commerce’s demand for one-day or even two-hour delivery windows has led to an increase in cold chain facilities near population centers,” Armstrong concludes.
n two-hour delivery windows has led to an increase in cold chain facilities near population centers,” Armstrong concludes.