Demand for distribution services boosts growth for thriving 3PLs

With demand for distribution services strong, 3PLs have expanded their customer base and are poised for further growth this year, according to a study by 3PL Central, a provider of cloud-based warehouse management solutions.

The firm surveyed more than 300 logistics professionals that owned or operated 3PL warehouses based in the US, Canada, the UK, Australia and New Zealand.

More than third (37%) operated just one warehouse, with 45% running between two and five.

Although most respondents faced challenges – notably labour and capacity constraints – they did not prevent them from growing their business.

The report says: “3PLs overwhelmingly grew order volumes, profits and customers.”

While profitability improved last year for 79% of those surveyed, 33% reported improvements of 25% or higher, while 30% saw profitability rise between 10% and 24%.

Order volumes increased between 10% and 24% for 31% and 21% reported growth between 25% and 49%. Of the 3PLs that handled omnichannel fulfilment, nearly 92% saw increases in orders.

And many 3PLs expanded their client base: new customer acquisition was reported by 71% of the respondents, while 48% saw growth from increased e-commerce ordering and 33% managed to expand their business through diversification of fulfilment activities.

By broadening their industry focus last year, on average 3PLs served 3.5 industries, up from 3.3. in 2020.

The biggest growth played out in pharmaceuticals and nutraceuticals, which expanded nearly 65% year on year.

Interestingly, the B2C sector did not dominate fulfilment activities for 3PL warehouses, according to the study. B2B fulfilment was the largest fulfilment type for 72% of respondents, but it declined 14% on the year before, while e-commerce continues to gain ground.

The chief services for 3PL warehouse operators were inventory management and order pick, pack and ship activity. Not surprisingly, operators intend to expand in these areas.

Three-quarters (76%) of the respondents reported new business from referrals, which indicates that customer experience and loyalty are critical, the study’s authors note. And for 67%, the company website was the second-biggest channel for growth.

The importance of customer experience and loyalty sharpens 3PLs’ focus on meeting, or exceeding, client expectations. One manifestation of this is a greater use of key performance indicators, the authors found.

“For 3PLs which have implemented greater success measurements, it shows in their volume and profitability growth. High profitability growth companies were nearly 4.5 times more likely to use inventory and order volume reports, and 6.5 times more likely to use labour hours reporting, than negative-profitability 3PLs,” they wrote.

To maintain customer satisfaction, warehouse operators are under pressure to expedite the pick, pack and ship process – 53% claim to fulfil orders in less than 90 minutes, 22% under 30 minutes and 17% taking 30-60 minutes. At the tail end, 10% take one or more days.

The study points to a correlation between this and profitability. Of those that fulfilled orders within 30 minutes, 72% experienced medium to high profitability growth.

Technology has a role to play: robotics were implemented by 5% of those surveyed last year, but more was spent on systems to improve visibility and inventory tracking capabilities. Warehouse management systems were the biggest priority, followed by mobile barcode scanning and order management systems.

This year, 35% of the participants are looking to spend on mobile barcode scanning technology, 30% on reporting and analytics capabilities and 28% are eyeing billing and invoicing.

Automation will be necessary to cope with labour and capacity constraints. Many facilities are at, or near, maximum, with 15% reportedly operating beyond capacity, 40% at 90-99% utilisation and another 26% between 80% and 89%. One in five respondents (21%) described finding available space one of their biggest challenges.

Despite these hurdles, the study concludes the outlook for 2022 remains optimistic for both customer acquisition and order volume growth.

2022-05-27T12:38:07+01:00 May 27th, 2022|