Supply chain disruptions are expected to continue as demand remains strong, but they should start to moderate by mid-2022, according to a recent report on the state of third-party logistics.
The 3PL Central report shows the Ports of Los Angeles and Long Beach, which handle 40% of shipping containers entering the United States, have operated nonstop to relieve supply chain bottlenecks. Meanwhile, third-party logistics companies have faced significant challenges to meet demand, including the port bottlenecks, labor shortages in warehousing and transportation and consumer expectations for faster shipments – often referred to as the Amazon effect.
“In 2021, supply chain disruptions cost the world an average of $184 million, with the United States topping the list with an average of $228 million,” the report shows.
According to insurance company Euler Hermes, logistics bottlenecks are impacting 25% of global trade volume. However, the issues are expected to improve by mid-2022 as inventory levels return to pre-COVID levels, consumers begin to shift to sustainable consumption and shipping capacities start to rise, according to the 3PL Central report.
More than 41% of companies that experienced supply chain disruptions received customer complaints and over 36% lost revenue, the report shows.
Third-party logistics companies looking to increase profits must consider distribution for multiple channels to remain competitive, according to the report. Omnichannel fulfillment is a strategy of having a unified approach to manage inventory and order processing from a variety of sales channels.
Before the pandemic, third-party logistics warehouses were focused on diversifying fulfillment for e-commerce, especially business-to-business providers looking to take part in the rise of online shopping. This surge is expected to continue through 2022 with retail e-commerce revenue rising to $502.5 billion.
The report noted, however, that many third-party logistics companies have been slow to adopt a complete omnichannel approach. Business-to-business fulfillment remained the largest fulfillment type at 72% for third-party logistics companies, with e-commerce at 68% and business-to-consumer fulfillment at 56%. But 22% of the companies cited omnichannel as a fulfillment type. Still, 92% of the companies that offered omnichannel fulfillment increased their order volume in 2021.
The report also showed that many warehouses have ramped efforts for e-commerce, which is important in omnichannel distribution.
According to a survey by McKinsey & Co., consumers care about delivery cost, speed, control over delivery and returns. Also, 85% of consumers prefer interacting with omnichannel brands that have digital and physical channels.
According to 3PL Central, a third-party logistics warehouse will be the most important asset for businesses looking to implement or enhance an omnichannel fulfillment strategy. Third-party logistics companies can help customers with omnichannel fulfillment through delivery choices, technology and reverse logistics.
By 2027, same-day delivery is expected to reach $20.36 billion, the 3PL Central report shows. Third-party logistics companies can prepare for this by offering a variety of delivery options, including buy online, pick up in-store; dropshipping; and buy in-store with delivery from the warehouse.
According to the report, third-party logistics customers are looking to their warehouse for help with electronic data interchange for compliance issues and chargebacks, inventory management tracking and order management systems, shopping cart integrations, warehouse management system software, and technology to automate processes and workflows.
Third-party logistics companies that offer complete omnichannel fulfillment must have smooth reverse logistics processes to help return items, regardless of how a customer received them, the report shows.
The rise in e-commerce has led companies to outsource their logistics operations, and according to the report, users of third-party logistics said 40% of their total logistics costs could be attributed to outsourcing in 2021. Over the next six years, the global third-party logistics market is expected to be valued at $1.1 trillion as online sales continue to rise. This is an opportunity to expand for the 20,605 third-party logistics companies in the United States, according to the report.
As their customers grow and demand rises, the companies might look to fourth-party logistics, which are networks that offer visibility across the entire logistics journey for their customers. Fourth-party logistics might offer many of the same services as third-party logistics but are often the sole contact point for customers, can provide additional insights into data analytics across the supply chain, can work directly with manufacturers or suppliers and manage larger distribution networks, the report shows.
Many third-party logistics companies are looking to collaborate with other warehouses to integrate operations and establish a fourth-party logistics network, according to the report. This might include using multi-warehouse distribution or alternative carriers and transportation networks, offering integrated technologies for deeper insights into daily activities and larger growth opportunities. Third-party logistics companies are looking to partner with each other, and according to an Inbound Logistics report, 54% of the companies cited fourth-party logistics or lead logistics provider partnerships as a strategic initiative.
Still, fourth-party logistics networks are new territory for growing third-party logistics companies looking to expand, according to the 3PL Central report. However, many warehouses are operating at capacity, with U.S. vacancy rates at less than 3.6%, and are facing labor issues.
Third-party logistics companies can use fourth-party logistics networks to help customers in their relationships and to ensure supply chain resiliency. The report shows that 98% of third-party logistics companies said they have successful relationships with shippers who say that they have 90% successful relationships with the companies. Effective relationships can lead to reduced costs, improved service and additional data to contribute to long-term customer goals, according to the report.
The companies that have a network offering additional space for inventory overflow, shipping centers near customer “hot spots,” or access to additional supply chain analytics can help to minimize supply chain disruptions, the report shows. This can help the companies to grow or try new marketplaces.
According to the report, 84% of the companies implemented warehouse management system software as the most implemented technology for the companies. They cited that it was installed to accommodate for real-time inventory tracking and management. The report shows the market for warehouse management systems is expected to reach $8.1 billion by 2028, up from $3 billion in 2021. Consumer demand and e-commerce are contributing to the rise in the systems.
By 2025, 80% of all business-to-business sales will be digital as e-commerce expands beyond business-to-consumer distribution, according to Gartner.
3PL Central also highlighted the importance of the internet of things (IoT), which refers to any technology, from mobile scanners to warehouse management systems, that are connected to the internet. The top three reasons third-party logistics companies invested in IoT were to increase workforce productivity, improve real-time decision-making and create a competitive differentiator.
“Technology is a requirement to offer intelligent data analytics and automation – especially for (third-party logistics companies) looking to create smart warehouses to combat continuing labor shortages,” the report shows.
According to DHL, “5G is expected to revolutionize supply chains around the world as the industry shifts to a data-driven mindset.” It’s also expected to be able to monitor real-time transactions, including the location and condition of shipments.
Technology can help third-party logistics companies meet demand, scale operations at a lower cost and share partnership benefits with customers, according to the 3PL Central report. The report also shows that 73% of third-party logistics users said that the companies are providing new and innovative ways to improve logistics effectiveness. And, 64% of the users said that the companies have reduced overall logistics costs.