F. Curtis Barry & Company Blog

As ecommerce, retail, and wholesale companies continue to grow, so do the challenges they face in terms of fulfilling orders. These challenges include investing in warehouse systems, automating processes, managing warehouse space requirements, and staying competitive. 

Fortunately, third-party logistics (3PL) distribution can help address these challenges by outsourcing product fulfillment. We will explore the benefits and advantages of 3PL distribution and how it can help businesses scale.

Fulfillment is a crucial aspect of any ecommerce, retail, or wholesale business. With the continued rise of online shopping, businesses must ensure that they have a reliable and efficient system in place for fulfilling orders. One option is to handle fulfillment internally but outsourcing to third-party logistics (3PL) companies has always been a strong alternative.

In this article, we will explore the benefits of outsourcing fulfillment operations to 3PLs and why it can be an advantage and a key to success for businesses. We will also address common misconceptions and challenges associated with internal fulfillment operations.

As 3PL consultants, we have helped many businesses find their first fulfillment partner as well as switch to a new partner that may be more aligned in their goals or provides additional services.

As inventories pile up, warehousing and inventory management continue to be a significant challenge for businesses.  This environment is continuing to drive up costs and hurting profitability.  We explore the impact of excess inventory on companies and discuss strategies to address this issue. 

For context, according to a recent CNBC Supply Chain Survey, many companies are struggling to manage their warehouse inventories, which are putting pressure on their bottom line. The survey, conducted between March 3-21, involved 90 logistics managers.   Respondents provided insights on current inventory levels, inflationary pressures, and strategies for managing excess inventory.

Current State of Freight and Inventory Positions

Freight companies are experiencing a decrease in demand for their services, and they are dialing back their expectations for a strong recovery in the second half of the year. Economic uncertainty and signs of caution from retailers are contributing to this trend.

The volume of goods moving through supply chains has not met expectations for the beginning of the year, and retail sales figures are causing concern about the direction of the economy. As a result, freight companies are feeling less optimistic than their customers.

Container Shipping Profitability Creates Risk

The container shipping industry has swiftly transitioned from a state of prosperity to one of decline. The sharp drop in prices is leading major container ship operators to incur losses on previously profitable trans-Pacific routes, as reported by the WSJ's Costas Paris.

This is an alarming indicator for the sector as it gears up for its busiest period. As per the Freightos Baltic Index, the average daily freight charges from Asia to the U.S. West Coast via the Pacific now stands at approximately $1,500 per 40-foot container, a drastic decrease from over $14,000 last year.

The rate from Asia to Europe has also tumbled, currently at around $1,400 compared to nearly $11,000 the previous year. Despite the free-falling prices that marked the earlier part of spring seeming to stabilize, the rates for both these trading corridors are currently similar to those of 2019. With shipbuilders set to introduce more capacity into the market, shipping companies find themselves with little leverage in a container market increasingly dictated by the buyers.

Major Retailers Taper Inventory Reduction Initiatives 

Major retailers are concluding their inventory reduction initiatives that have exhausted distribution networks and crippled freight carrier revenues. Both Walmart and Target have recently indicated that their stock levels are healthy, as reported by the WSJ Logistics Report, a positive turn of events following a year that saw merchants reduce orders due to overcrowded warehouses and lagging consumer demand.

Target's executives suggest that the era of overstocking is behind them, and the focus now shifts towards introducing new merchandise into stores for the autumn and holiday seasons. This shift would be a welcome change for freight carriers, who have been anticipating a restocking phase to uplift the currently suppressed cargo volumes.

Some operators have reported that customers are indicating that inventory reduction is essentially complete, although new consignments are not yet being dispatched towards distribution centers. The extent of restocking, however, is still uncertain: Target mentions that its strategy will center around "inventory efficiency."

Shopify Sells Fulfillment & Logistics Along with 6 River Systems

Flexport, a San Francisco-based freight forwarder, has acquired Shopify's fulfillment and logistics operations, expanding its services to include warehousing, packing, and shipping for Shopify's merchants. The acquisition will enable Flexport to establish itself as a direct competitor to Amazon's fulfillment services. This move is part of Flexport's strategic plans to expand its offerings and capitalize on the growth of e-commerce during the pandemic.

The combination of Flexport's technology platform and Shopify's logistics capabilities will allow merchants to simplify and optimize their supply chain operations, so they can focus on designing and selling great products. Shopify's fulfillment network has grown to over 20 fulfillment centers across the U.S. and Canada, with the ability to ship to 99% of the U.S. population within two days. With the rise of e-commerce over the past year, Shopify has seen increased demand for reliable and affordable fulfillment solutions.

Flexport's revenue grew 56% in 2020, despite the challenges posed by the pandemic. According to eMarketer, e-commerce sales in the U.S. grew by 32.4% in 2020, reaching a total of $794.50 billion. With the continued growth of the e-commerce market, this strategic move by Flexport will likely benefit both companies and their customers, as they seek to streamline supply chain operations and provide reliable and affordable fulfillment solutions.

According to the WSJ, the sale includes warehousing automation firm 6 River Systems, effectively ending Shopify’s attempt to stand up its own logistics fulfillment operation alongside the e-commerce sales technology platform it offers merchants.

Warehouse Jobs Fall to a 15 Month Low

Based on the latest data, warehouse jobs have recently reached their lowest level in 15 months.  This trend is driven by several factors including increased automation, labor shortages, and a shift in business focus towards value-added activities within the supply chain.

Between February and March, U.S. employers eliminated 11,800 warehouse and storage positions, based on the preliminary jobs report from the Labor Department, which has been adjusted for seasonal variations. Since June, warehousing companies have cut close to 50,000 jobs, as retailers with excessive inventory began scaling back due to uncertain consumer demand, according to WSJ.

Economically, we are certainly in some grey areas, where even the most intelligent economic minds are unsure of what will happen. Most recently, MarketWatch published an opinion piece on the feds ability to execute a soft landing with the economy, and the chances of stagflation. To understand the potential impacts of stagflation on retailers and supply chain models, we first need to understand what stagflation means.

3PLs play an integral part of many ecommerce and wholesale distribution supply chains. But if your company has ever researched costs, you will find that no two vendors have similar models when it comes to storage fees. Understanding how vendors charge for storage can be difficult, especially if you are starved for data.  

At a high-level 3PL storage costs follow one of two pricing models, on demand type storage, and dedicated space models which are more fixed cost. To understand which model is more advantageous for your ecommerce business or whole distribution, we need to look at each option further.  

Peak season brings unique supply chain and operational challenges that are not experienced at other times of the year. The need to improve warehouse operations during non-peak times is critical. It can be very difficult to improve order fulfillment during the peak season. However, just because you can’t make changes, it doesn’t mean you shouldn’t be looking for changes to make.

Most distribution center operations have seen significant increases in warehouse labor costs, as well as all time high lease costs for a new facility. These factors have driven more companies to consider warehouse automation to remain in the current facility longer and reduce the labor costs. These two cost components can radically increase your cost per order. However, this does not mean that companies should simply employ automation without achieving a cost-effective warehouse automation ROI.

One of the first aspects in determining the warehouse automation ROI is to ensure that the automated solutions being considered are realistic for your business. Many companies begin their process with some “YouTube shopping”, becoming enamored with a certain automation system. That skips over any detail consideration of current process, systems and costs.

Labor is typically one of the largest distribution expense items, along with freight costs, for most companies. According to Indeed.com, the job employment website, the average base pay for warehouse workers is $16.78 in the U.S. However, when you factor in benefits such as healthcare, training and more – the fully loaded cost balloons to $28.86 per hour. Companies typically have the following costs over and above the base pay:

• Benefits and healthcare: 35% of payroll costs
• Workers comp and unemployment: 8% of payroll costs
• Training: 4% of payroll costs
• Recruitment, hiring and HR: 25% of payroll costs