3PL warehousing sector expands strongly in 2020

Demand is up with 50% of 3PL warehouses running at 90%+ capacity, leading to the sector running up against constraints and looking for solutions

The 3PL warehousing sector experienced an extremely strong 2020 according to the 3PL 2020 Third-Party Logistics Warehouse Benchmark Report.

The report, which surveyed 273 warehouse operators, primarily based in the US, found that 79% of those surveyed had experienced growth over 2020, with 64% reporting double digit growth in their business of 10% or more.

The report noted that this was being heavily driven by the dynamics of 2020, as online shopping drove the need for a massive expansion in order fulfilment services and many needed to stock key goods as a result of the pandemic, heavily benefitting 3PL operators. They note in the report that those “3PLs with declining or no growth were 271% less likely to perform omnichannel fulfilment,” and that the top three drivers of growth were new customer acquisition (66%), increased e-commerce ordering (48%) and fulfilment of essential goods as a result of demand resulting from COVID-19 (43%).

Warehouse operators believe that this will continue into 2021. They see the top opportunities in the coming year deriving from the acquisition of new customers (77%), e-commerce growth (65%) and from automation (54%).

This last point is increasingly important, as warehouse operators are coming up against significant constraints that impair the potential to reap rewards from this boom and will need to squeeze every efficiency they can out of existing facilities.

In the survey 77% of respondents noted that their organisation has five or fewer warehouses, and 65% report that they have less than 250,000 square feet of warehousing space, showing that many already have immediate limits. Some 27% said that one of their top business challenges is finding more industrial space. On top of this, the warehousing market is currently tight, with facility rent and costs noted as the top expense for 3PL warehousing operations, and rents rising by 2.5% on average in 2020.

The growth in the market, alongside capacity constraints, means that 50% of those in the survey are utilising 90% or more of their current space, and 13% say that they are at the extremes of using more than 100% of their typical capacity.

Although warehouse operators are looking for the most obvious solution – space, with 41% saying that they want to add warehouses in new locations, even more are looking at automation (54%).

There is plenty of room to improve in this area, and warehousing technology in general, as aside from a warehouse management system (87%), no technology had been installed by more than half of the survey population. Only 49% had put in place an order management system, the next most popular technology, and just 23% had shopping cart or marketplace integrations and 6% some form of robotics.

These will become more important to overcome not only space constraints, but also a labour market that remains difficult to hire in, even with current economic conditions. Forty-three percent of respondents said that finding and retaining warehouse workers was a key business challenge and 58% said that labour costs had increased over the course of 2020.

In 2021 the top technologies 3PL warehouse operators said that they were looking to implement in the coming year are reporting and analytics (36%), mobile barcode scanning (31%) and billing and invoicing support (30%).

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