3PLs report increased sales in spite of continuing disruption

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by Emily Atkins

Third-party logistics providers saw increased sales in 2022 over 2021, in spite of continuing business disruptions.

This is one of the findings in Extensiv’s seventh annual State of the Third-Party Logistics (3PL) Industry Report, highlighting best practices and key trends for companies in the supply chain and logistics industry. This year’s report details market shifts, automation trends, fulfillment innovations, the state of 4PLs, and customer service opportunities to help 3PLs respond to developments in warehousing, shipping, fulfillment, and overall supply chain management.

Despite facing continued challenges of capacity constraints, labour shortages, and rising operational costs, 94 percent of 3PLs reported an increase in sales within their last measurement period, an increase from the 88 percent who reported the same in 2021.

To sustain market momentum during expected 2023 market turbulence, 3PLs will need to focus on meeting evolving consumer demands and optimizing technology throughout the coming year. Extensiv’s report offers insights into industry trends and guidance for 3PL warehouses looking to successfully navigate sustained market uncertainty. 

The report finds there are four substantial trends that will affect 3PLs in 2023. 

Digitization

Digital automation will accelerate through 2023, creating opportunities for supply chain leaders to build a tech stack that cuts costs, increases visibility, and improves the customer experience. The report notes that “digital automation – especially WMS software – provides clarity within the supply chain by acting as a sole source of data referenced by other systems through integrations like electronic data interchange (EDI) and application programming interface (API). These connections create
visibility across the whole supply chain when systems communicate with each other freely.”

Furthermore, being able to use real-time data and predictive analytics from digital automation software is particularly important when historical data is complicated by COVID trends that skewed supply and demand patterns in recent years, the report said.

It recommends that 3PLs get moving on their tech purchases immediately, learn how to get the most out of them, and reconsider the deployment of human employees in the context of the automation. “You should see your automation investment as a way to create a new class of jobs rather than replacing human employees,” the report counsels.

The boom in 4PL

The fourth-party logistics (4PLs) – a 4PL is a 3PL that networks together groups of 3PLS, and manages the client relationship on behalf o the other service providers –market will continue to grow, and collaboration between 4PLs and 3PLs will help counter industry consolidation, relieve warehousing space constraints, and support sustainability initiatives. “The rise of 4PL networks can benefit 3PLs looking to partner with others across the country, providing a counter to the consolidation within the
industry around bigger players,” according to the study.

To take advantage of this trend, 3PLs need to be open to partnering with others, while making sure there are concrete benefits from the collaboration, the report suggests. Another recommendation is to ensure that your customers are aware that you are operating within these types of networks. “You will want your customers to know that you have this arrangement
and what benefits they will reap from it as well.”

Specialization

3PLs will create value through vertical specialization and finding ways to deliver premium customer service, in part by evaluating customer fit based on workflow alignment. According to the Extensiv 2022 3PL Warehouse Benchmark Report, 3PL warehouses served on average 2.9 industries in 2022 compared to 3.5 in 2021. “3PLs are focusing on playing to their strengths rather than trying to accommodate everyone – because overwhelmingly they can’t,” the report said.

This means only keeping the customers whose order volumes and requirements fit their niche. “Specialization makes the customers you want to keep even more precious, and serving them in this economic climate to make sure their brands succeed can be challenging. While 3PLs may serve fewer verticals, they can offer more value-added services to their clientele to make the partnership even more attractive,” the report suggests.

Omnichannel fulfillment

Omnichannel fulfillment will continue to grow for direct to consumer (DTC) and business-to-business (B2B) markets as 3PLs look to leverage technology, experiment with trends like micro-warehousing, and optimize fulfillment times. This also means embracing reverse logistics. “Relying on the latest technology and analytics, prioritizing reverse logistics in your omnichannel strategy is a realistic goal for 2023,” said the report.

“Omnichannel, micro-warehousing, and JIT fulfillment strategies aim to increase speed in shipping out orders, but your warehouse will still only be as fast as your workflows allow. Optimizing and refining your pick and pack processes will be essential to getting the most out of your fulfillment strategies as well as dealing with peaks in order volume. You will also need to consider how to deal with capacity constraints/stale inventory and how to balance customers with slow moving inventory in your fulfillment strategies,” the report concluded.

“The growth of 3PLs and the acceleration of 4PL business models last year clearly shows that the logistics industry has reached an inflection point fueled by global disruption and uncertainty,” said Andy Lloyd, chief executive officer of Extensiv. “3PL warehouses are at the convergence point of technology and fulfillment strategy transformation. There’s never been a greater opportunity for 3PLs to create value and drive innovation, and the State of the Third-Party Logistics Industry report offers critical analysis to help 3PLs position themselves for success in this ever-evolving market.”