‘We’re Going to See a Lot More’ 4PLs, Logistics Expert Says
The logistics landscape has too much capacity but too little growth. And despite their growing popularity with brands and retailers, third-party logistics (3PL) providers aren’t immune to these problems.
Although 36 percent of 3PL respondents showed more than a 25 percent increase in order volume growth year over year and 42 percent indicated an increase of up to 24 percent, another 22 percent said their orders either remained the same or declined, according to a survey by omnichannel fulfillment provider Extensiv.
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The number of 3PLs with no change or declining order volumes more than doubled in this year compared to 2022, the survey said.
Of the 3PLs that said their volume declined, 62 percent blames both a dip in customer orders, as well as current economic fluctuations. Forty-six percent said they have lost customers.
Rachel Trindade, chief marketing officer at Extensiv, noted that this is the first year since the survey launched in 2020 where the company started to see headwinds hitting 3PLs.
“As you went into 2023, you had tons of excess inventory, so a lot of the 3PLs were significantly over capacity. As some of that’s starting to free up a bit, and they’ve sold through a little bit of the inventory, people are a little bit cautious about what the economy is going to do,” Trindade said. “You add in inflation, and I think that has made it a little more difficult for 3PLs this year to really change what they’re doing.”
In line with the volume and customer declines, acquiring new customers is the top opportunity in 2024 for 3PLs, according to 86 percent of respondents. Coming in second, 50 percent of 3PLs see automating warehouse processes as another major opportunity for the industry, especially with rising labor costs. Seventy percent of respondents said labor costs are higher than last year, with 64 percent expecting to hire more workers in 2024.
“Even if you aren’t necessarily adding a lot of people, the cost of labor is going up,” Trindade said. “So even with your same people, you’re having to pay more from a labor perspective. Being able to have the reporting and analytics and see how much time is taken for every single activity can then improve your overall efficiency and productivity.”
Creating a fourth-party logistics (4PL) network nearly doubled as a top opportunity among the respondents, jumping to 20 percent in 2023 from 11 percent in 2022, demonstrating increased focus on creating geographically dispersed fulfillment networks.
Management of 4PLs, which are integrated networks of 3PLs used to coordinate large-scale logistics for a retailer, brand or manufacturer, saw the largest increase in year-over-year adoption—jumping to 17 percent in 2023 from 9 percent last year.
“We are starting to see a bit fewer single warehouses in this survey, and I do think part of that is based on brands really wanting to be able to fulfill from multiple locations to reduce shipping costs and to be able to get things to consumers faster,” said Trindade. “This concept of a 4PL network where a lot of these single warehouses band together and create these nice geographically dispersed networks—we’re going to see a lot more of that happening.”
While 4PLs are growing, warehouse capacity now lags compared to previous years as facilities are still in a downturn from peak 2022 numbers.
In 2021, when 3PL warehouses were in the thick of elevated Covid-era fulfillment demand, 55 percent of sites were operating at more than 90 percent capacity. The next year, the number with that capacity level jumped to 59 percent of 3PLs. This year, that has plummeted to just 33 percent of the 242 respondents surveyed.
Trindade noted that most organizations believe that 80 percent to 85 percent is the ideal warehouse utilization rate, since numbers above that range can make it more difficult to take on new clients or flex to support seasonal volume fluctuations.
“Part of this is just also normalizing as a market. There were way too many organizations that were over capacity the past couple years,” Trinidade said. “We saw behaviors like buying shipping containers and putting them in the parking lot because there’s just no more room in the warehouse for the slow-moving inventory. It’s not necessarily healthy to be running at the 100 percent and it makes it hard for the people to find things working inside the warehouse.”
