E-commerce, 3PL Drive Up Warehousing Rentals

E-commerce enjoyed a steady trend as consumers enjoyed its fast delivery times, lower cost, and convenience. The COVID-19 pandemic boosted the trend when consumers were stuck indoors and needed the means to buy groceries, supplies, and other goods. Although societies are starting to relax pandemic restrictions, consumers will likely keep using e-commerce to purchase goods, even though brick-and-mortar businesses are returning to the market.

The rise of 3PL

The rise in e-commerce and 3PL services is pushing up rentals in the warehousing segment. As companies realize they need an e-commerce strategy, they gravitate toward 3PL companies. A 3PL offers logistics service; the company will provide online retailers transport, storage, and inventory management services. The 3PL companies will also handle the final delivery to the customer. The advent of 3PL services has been a boon for small companies as they can access the same service level as larger companies with financial muscle. To get the level of service that a 3PL company offers, a business must invest significant capital in infrastructure, assets, software, and staff.

E-commerce is getting more complex.

According to McKinsey, e-commerce grew by 25 per cent in 2020, a boon for 3PL services but also increased costs. The rise in cost comes from the complexities of serving customers shopping online through a more significant number of product categories and wanting faster delivery times.

Customers are shopping online more often and for more categories than ever before. The change in buying behaviour puts pressure on 3PLs to meet customer demand. Matching the demand across product categories will require warehouse inventory management, picking, and packing flexibility. 3PLs must manage expectations while delivering faster delivery times, and delivery speed is a key differentiator. 25 per cent of customers are willing to pay a premium for same-day delivery.

McKinsey further speculates that the rise in e-commerce and 3PL services will result in a scarcity of warehouse space. They forecast a 190 million square feet warehouse space shortage within the next five years. A shortage may lead to further increases in rental prices and put additional pressure on 3PLs.

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