Third party logistics (or 3PL) providers are in the midst of breakout growth. The retailer or shipper ecosystem is burgeoning with more delivery orders, more inventory to be managed, more deliveries and more services than ever before. The global 3PL market, valued at $830.99B USD back in 2019, is expected to reach $1,789.94 BILLION by 2027. While 3PL providers want to adapt to this new market opportunity, their existing logistics operations often have a hard time keeping pace with these growing demands.
In this increasingly challenging environment, technology has become an integral part of expanding and maintaining competitive third party logistics services. The industry giants are capitalizing on this opportunity, with FedEx, DHL and UPS investing in supply chain technology and autonomous delivery services that enable more, faster, and more efficient delivery options for customers.
In order to successfully provide the services that both eCommerce businesses and customers expect, 3PL providers must first understand what is driving the rapid growth in delivery volume, the skyrocketing demand for specialized 3PL services and the new competitive environment.
For many retailers, one major result of the COVID-19 pandemic was having to scale rapidly and introduce new delivery options, leading shippers to understand the importance and convenience of working with third party logistics service providers.
In Third party logistics, retailers, ecommerce businesses or D2C manufacturers outsource part of their logistics and supply chain operations to a third party logistics company. 3PL Services go far beyond daily operations. 3PLs allow ecommerce businesses and brands with high online order volumes to outsource their order fulfillment, in an effort to provide customers with the best online shopping experience possible, with faster delivery and greater variety of services.
Third party logistics companies give retailers access to integral 3pl warehouses, inventory management, logistics technology and more in order to manage the entire logistics operation, something that most retailers simply do not have the resources to do themselves while scaling their delivery and fulfillment capacity. For this reason, a wide variety of brands and retailers with online stores, as well as to D2C manufactures and eCommerce marketplaces, use 3pls to manage their eCommerce order fulfillment.
Competition between different 3PL providers and carriers has become intense, with insufficient resources available to meet retailer needs. This has resulted in carriers upping their prices, and eCommerce businesses looking for the best deals possible while not compromising on service and reliability.
3PL pricing works based on SLAs between shippers and the third party logistics provider. An SLA lays out the terms and metrics that are agreed upon between the two parties. Pricing is largely dependent on what is included in the SLA and therefore is very situation specific.
The demand for premium last mile delivery is booming – but so are the expectations around it. Amazon and other eCommerce giants know the location of each piece of inventory item and exactly where every order is across every supply chain. That end-to-end supply chain data and insights allows them to accurately offer cheap or even free same and next-day delivery, with the assurance that they can deliver on their promises. As a result, end-consumers now expect faster, less expensive deliveries.
Given the expectations around speed, convenience and cost, shippers and 3PLs that service them should focus on improving these delivery factors while maintaining the related logistics costs to a minimum. The incentive for change is simple: customers will go to the shipper that offers better delivery options. According to Metapack, 70% of US consumers have purchased goods from one store over another because of better delivery options, as would 58% of consumers overall.
With the right strategy and processes in place, 3PLs are uniquely suited to empower shippers in this highly competitive market.
The effects of COVID-19 on the world have been vast, and eCommerce logistics operations are no exception.
In 2020, eCommerce experienced 30% year-over-year growth. This drastic increase was expected to occur in 5-10 years, while in reality it happened in 6-12 months. While this is an exciting boost for eCommerce, it requires shippers and 3pl logistics companies to reassess their supply chain technology. By 2024, 19.2% of all retail sales are expected to go online, forcing retailers to prepare their supply chain management, freight forwarding and up their 3pl logistics. Customers want their deliveries quicker than ever, with omnichannel options to suit their needs.
COVID introduced a new factor into 3pl logistics, and the supply chain in general: safety. Today, social distancing, contactless delivery and the desire for self pickup from stores or even curbside are a reality that every shipper and third party logistics provider must take into consideration if they want their services to be competitive.
What has changed since the beginning of the pandemic? A Bringg survey of 1000 retailers looked at current fulfillment methods, what retailers have been focusing on during the pandemic and what they are planning in 2021. The results show a major shift in adjusting to customer needs and demands, many of which require new vision for warehouse space, logistics operations, distribution centers and more.
Looking at where retailers stand today, the survey found that 60% currently offer BOPIS (buy online pickup in store), 55% curbside pickup, 39% alternative pickup locations and 37% same-day delivery.
COVID is responsible for many of these changes. When asked which services retailers added during the pandemic,. 51% said curbside pickup, 33% have added BOPIS (buy online, pickup in store), 28% have added alternative pickup locations and 27% have added same-day delivery eCommerce orders. When zeroing in on same-day delivery, a trend made popular by Amazon, and hitting a real pain point felt by customers, two-thirds of retailers have plans to add same-day delivery to their roster of fulfillment options by the end of 2021.
Innovators in the commoditized and competitive world of B2C parcel eCommerce made next-day delivery, short and convenient delivery windows, real-time tracking and other premium services the new standard. Now, people ordering deliveries for their business expect experiences and services that are on par with – if not better than – those in their B2C lives. This creates an imbalance between expectations for delivery, and the time needed to build and fine-tune the operations supporting them.
Most logistics operations and supply chains were built to manage long-distance deliveries via large commercial vehicles. Rising urbanization has changed the rules, with deliveries increasingly made in urban areas that necessitate different methods of transportation and adjustments to the last mile of the supply chain. These changes also require that 3pl providers take new criteria into consideration, including traffic congestion, narrow streets, parking availability and more drop offs per route.
Whereas third party logistics companies once primarily delivered from decentralized warehouse locations, they are now being challenged with delivering from local fulfillment centers and even retail locations, which require entirely different logistical and supply chain considerations. These hyper-local middle mile and last mile deliveries require a different approach than that traditionally used in long-haul logistics.
While urban deliveries are surging, COVID has changed consumer preferences. 26% of Americans have plans to move to less densely populated areas in the future. At the same time 35% of consumers plan to continue to BOPIS (buy online pickup in store), an option that has taken off in the pandemic.
To successfully offer services in urban environments, carriers and 3PLs must make significant adjustments to the way they deliver today.
Shippers are increasingly turning to their 3PL providers for the capabilities needed to meet delivery expectations. According to Korn Ferry’s 2019 third party logistics report, an overwhelming 93% of shippers believe 3PL IT capabilities are a very important factor in success – but only half are satisfied with those capabilities. It’s a simple equation: Consignees expect more, shippers feel the pressure to serve them, and transfer that pressure to 3PLs, who are rushing to capitalize on this demand.
Now more than ever, 3pl logistics providers should adapt their operations and logistics solutions in order to maintain a competitive place in the market.
The drive to reduce costs amongst shippers has led to an emphasis on sustainability initiatives (which also suits customers who are also looking for sustainable options in their lives). 40% of retailers today are making efforts to prioritize and incentivize eco-friendly fulfillment options. Examples include offering free pickup or paid delivery at checkout, or higher pricing for multiple day delivery as opposed to same day.
Third party logistic providers that can prioritize sustainability efforts across their supply chain – for example, reducing carbon emissions through route optimization, batching, and the use of zero-emission vehicles – will be at an advantage in the eyes of shippers.
For the 3PL world, digitization provides opportunities to reduce costs and efficiently expand with competitive new services:
✓ Providing businesses and the end customers with a variety of service packages and convenient delivery options.
✓ Instant quotes for both the retail business and their end customers
✓ Branded notifications for the business and end customers when the package or item has arrived or left the final warehouse, and when it reaches its destination.
✓ Real-time delivery updates to businesses and consignees, including live tracking.
✓ Tracking chain of custody and providing visibility to the ecommerce business
✓ Tracking performance data from the 3pl warehouse to proof of delivery, in order to identify issues and improve your services.
✓ Contactless order fulfillment options (e.g. threshold, curbside delivery) including digital methods of confirmation such as photographic proof of delivery
✓ Flexible assembly and installation services on demand – even allowing the consignee to request and pay for them at their door.
✓ offering reverse logistics services such as removing and recycling old products as part of an eCommerce fulfillment flow.
This list doesn’t include the basics of a good customer experience: on-time deliveries, pleasant drivers or technicians, and a consistent experience that customers and businesses learn to identify with your services.
None of this is new information to the 3pl market. But while the opportunities from digitizing and optimizing delivery are clear, it’s not always easy to do. Nor is facilitating the level of visibility and control which shippers are looking for from a 3PL provider.
3PL providers often participate in large ecosystems and supply chains of warehouses, distribution and fulfilment centers, shippers, contractor and subcontractor fleets spread over large geographical areas. Each of these bodies generally has its own IT system and processes. Connecting all the data across the supply chain in order to understand and improve the delivery experience is no easy feat, especially when providers don’t always know where the data silos are (i.e. you don’t know what you don’t know).
For many 3PLs, creating an integrated logistics ecosystem is the first step towards understanding and optimizing delivery operations. By creating 3pl warehouses and distribution centers, 3PL companies may be able to centralize the supply chain, creating a more efficient system for themselves and shippers, which in the long-term means benefits for the customers.
As discussed above, opening fulfillment centers close to population centers can support larger delivery capacity and faster order fulfillment. However, real estate in these urban areas is often at a premium. While adding square footage quantity isn’t an option, warehousing automation is – but it can be costly. Every 3pl provider experiences different inefficiencies, and needs to research where their most pressing paint points are. Automating warehouses may speed up the flow of inventory, but automating other parts of the supply chain – such as dispatching and routing, or fleet and driver management – might have a greater impact on efficiency and cost savings.
Do you know how often your delivery packaging rips? Or how it impacts an end-customer’s return rate? What is the rate of later deliveries per driver? Where is inefficiency costing you the most across the supply chain? If you can’t answer these questions, you’re not alone. Nothing brings more return business than a high delivery satisfaction rate – and that includes satisfaction from shippers as well as their customers. But many 3PL logistics providers lack the capabilities to track, collect and measure the impact of delivery on the consignee’s experience or return rate.
A logistics provider must be able to benchmark and improve every step in the delivery flow, in order to ensure you’re providing the services and delivery experiences expected by both shippers and consignees alike.
For 77% of 3PLs, increased transportation and logistics costs are the top cause of disruption in logistics. To create better experiences, shippers have to find a balance between efficiency and price point. The two go hand in hand: the more efficient and cost-effective the logistics services around delivery are, the more 3PLs will be able to offer the delivery services that shippers and their end-customers expect.
3 Ways to introduce cost savings into 3PL Logistics:
According to Bringg’s 2021 survey of enterprise retailers, the top challenge with delivery is working with multiple delivery fleets (crowdsourced, 3rd party, owned, etc.). 30% discussed scheduling delivery times with customers as their biggest pain point, 21% cited lack of real-time visibility on orders en route and 13% discussed inefficient manual processes for order planning and dispatching.
When looking specifically at external fleets, 39% cite lack of visibility as their biggest pain point, 32% discuss lack of brand control and 29% claim that cost is their biggest issue.
Retailers are quick to move towards 3pls when scaling and expanding delivery options in order to help manage new fleets and to integrate technology for greater visibility and control. 3PL providers must recognize and meet the pain points of shippers, to make their processes more efficient and ultimately earn more business.
Whether you take a pen-and-paper approach to inventory management, dispatching, and routing, or boast a complex in-house management software, your logistics activities will need to quickly advance and adapt in order to capture additional business. If the first step is to identify your business needs, then the second is to identify the right technology solution to address these needs.
Any logistics solution for 3PLs should include the following:
Integration – Technology should function as a middle-man that helps your different operational systems and units to communicate with one another and perform their individual functions as part of a larger, coordinated effort.
Business and Performance Insights – Unifying and standardizing how data is measured across disparate sources (internal and external) in order to accurately track your delivery performance, understand how it is impacting your business, and take decisions to improve it accordingly.
3PL Automation – Automating the delivery flows speeds up processes and creates the flexibility necessary for offering more premium 3PL services.
Shipper and end customer experience – Shippers rely on their third party logistics providers to help them offer customers standout experiences: branded deliveries and branded communications; tracked delivery, consignee feedback, shorter delivery windows, and easier returns. Good delivery orchestration software will make it easier to answer these needs and the costs around them.
Dispatcher and Driver Efficiency – The right 3PL software provides solutions for onboarding, driver data and other tools that increase efficiency and retention rates for drivers and dispatchers.
The relentless focus on customer experience has set a new bar for shippers and delivery providers. Pre-COVID standards for reasonable delivery windows, times and services are no longer enough. Carriers, 3PL logistics companies and other providers face an unprecedented challenge, which is also an unprecedented opportunity to grow business: how to take the same levels of flexibility, convenience and speed presented by eCommerce, and translate it into the optimal delivery experience. To compete, 3PL providers will need to rethink their technology, rethink distribution center and fulfillment center location, and digitize their services for speed, convenience and cost savings.