The Competitive Landscape for 3PL in 2024 and Beyond

In an era of constant change and evolving consumer expectations, the realm of logistics has become more complex and demanding than ever before. Within this fast-paced landscape, third-party logistics (3PL) providers are playing an increasingly vital role, helping businesses streamline their supply chains and overcome operational challenges.

As we head into 2024, ensuring you have a firm understanding of the 3PL industry as it currently stands, and where it’s likely to go in the coming months, is the key to preparing for changes to come. Below, we’ll delve into the industry trends, transformative technologies, market dynamics, and shifting consumer demands that are set to shape the way 3PL providers operate in the coming years.

So whether you’re a 3PL provider looking for insights from a top-down strategic point of view or from ground-level, this post is for you. Let’s dive in.

3PL Industry Challenges in the Near Future

The 3PL industry has become an integral part of modern supply chains, facilitating the movement of goods and providing value-added services for businesses across various sectors. As of 2023, the industry finds itself at a critical juncture, facing both persistent challenges and new opportunities.

A number of issues, in particular labor shortages and limited warehouse property, will require long-term strategies and changes in marketplace conditions to solve. Here’s what to expect in 2024 and the years to come.

1. Labor Shortages and Retention

One of the key challenges that has carried over from 2022 is the persistent issue of labor shortages. Recent research shows that labor costs made up more than 40% of total operating expenses for 59% of 3PL providers and 25–39% of costs for a third of the respondents. As a result, labor is placing significant pressure on profit margins.

In an economy shaped by ongoing disruptions, finding, retaining, and training workers has proven to be a significant issue for 70% of logistics providers, placing it second only to warehouse capacity limitations as a concern among providers surveyed. Additionally, in the same survey, 79% of respondents reported concern over increasing labor costs.

Contributing to rising labor costs is pressure from larger companies such as Amazon, which recently raised starting hourly pay for warehouse workers to $19. Given the scarcity of labor and the subsequent increase in wages across the board, 3PL providers struggle to attract and retain the staff they require.

The Solution

In response to the spike in demand, a growing number of 3PLs are responding with automation, enabling them to scale their operations efficiently, minimize errors, and decrease operational costs.

For example, Yusen Logistics, a Japanese company employing the AutoStore system, reduced its workforce by 60% after implementing an automated warehouse system. What’s more, automated solutions like the AutoStore system can reduce labor costs while at the same time enhancing performance by a factor of ten, as was the case with 3PL provider Geodis.

2. Warehouse Space Constraints

The e-commerce boom has been a major contributor to post-COVID economic recovery across the globe. But it’s also driven rising real estate costs as logistics providers at all levels compete for available warehouse space, now at historic lows in profitable markets such as Germany, the UK, and the United States.

Providers already struggling with slim profit margins consequently have fewer options when it comes to larger or better-equipped premises, making more efficient use of existing space a critical factor in overcoming current industry-wide issues. Currently, almost 40% of warehouses in the 3PL sector are running at 90–99% capacity, and the number of 3PL warehouses operating at above 100% capacity has climbed to 20%. This poses a significant challenge for 3PLs to accommodate increasing customer demands and inventory levels.

The Solution

Automation helps optimize space utilization in warehouses. Automated systems can make use of horizontal and vertical space effectively, maximizing storage capacities and removing the need to move to a new location.

For example, Zeek Logistics, a US-based 3PL and e-commerce fulfillment company, is one of many that have had to contend with a shrinking pool of available warehousing space. Implementing the AutoStore solution not only allowed the company to remain in its existing premises, but the AutoStore system ended up taking just 30–40% of the area previously occupied by rack storage, freeing up large spaces within their warehouse.

Netherlands-based 3PL company Active Ants saw an even more dramatic increase in space efficiency by automating with AutoStore; they achieved a 75% increase in storage capacity. On top of that, the modular design makes AutoStore highly customizable and adaptable to users’ needs, giving them the option to expand or modify their automated systems as efficiently and quickly as possible without increasing warehouse space.

3. Falling Profit Margins, Rising Fulfillment Costs

As the global market becomes more saturated with 3PL providers, the intensity of competition has heightened, putting pressure on profit margins industry-wide. Adding to this are the rising costs of labor, real estate, and fuel.

Most notably, labor costs have been steadily rising in recent quarters, posing a significant challenge for profit margins in the industry, along with rising real estate costs and limited warehousing space. In addition, rising fuel costs have had a substantial impact on transportation operations, and the volatility of global oil prices directly affects profitability for logistics providers who offer last-mile transportation solutions.

The Solution

One of the primary drivers of rising fulfillment costs is the increased complexity of order fulfillment operations. As consumer expectations evolve, there is a growing demand for customized solutions, faster delivery times, and enhanced order visibility.

To meet these demands, 3PL providers must invest in automation, along with technology systems such as warehouse management systems (WMS), order management systems (OMS). Automated technology is particularly important: solutions like the AutoStore system and automated picking and sorting equipment offer speed, efficiency, and scalability.

Unlike conventional warehouses designed for use with older logistics models, facilities equipped with the AutoStore system can quickly ramp up speed to accommodate demanding order processing and fulfillment needs. Consequently, businesses can scale capacity up or down to keep customers satisfied, without the heavy cost of additional equipment or staff.

Furthermore, the AutoStore system can be adapted to warehouses of a wide range of sizes and configurations, enabling more effective use of existing space, and thus reducing the need for investment in expensive new facilities. Finally, a key feature of warehouse automation solutions like AutoStore is their ability to accommodate sudden spikes in demand and order activity, positioning users to take advantage of high-profit periods with minimal notice and helping them to capture profits ahead of the competition.

Take 3PL company Prime Cargo. After installing the AutoStore warehouse automation solution, Prime Cargo’s daily order processing capacity doubled compared to their previous manual warehouse. As for speed, ColliCare Logistics was able to shorten the period in which 80% of IKEA customers could expect to receive their orders from an average of three to seven days to just two.

4. Pressure from Competition

The growing number of 3PL providers entering the market has intensified competition, leading to a growing emphasis on differentiation and specialization. Providers are striving to establish unique value propositions and carve out a niche, leading to a diversification of services such as automated picking, packaging, customization, and inventory management.

Furthermore, competition has fueled a stronger focus on customer experience and satisfaction. To secure and retain clients, 3PL providers are investing heavily in technology, process improvements, and supply chain visibility. This emphasis on customer-centricity has led to the development of sophisticated tracking systems, real-time updates, and enhanced communication channels.

The aim is to offer comprehensive solutions that meet the specific needs and demands of their clients. And, with a growing number of clients placing more confidence in logistics providers who have invested in the latest advanced technology, automation can fulfill customers’ expectations while elevating 3PLs’ competitiveness in themarketplace.

Moreover, increasing competition has put downward pressure on pricing structures and profit margins. Providers are engaged in pricing wars as they vie for contracts, leading to narrower margins and price sensitivity within the industry. This heightened competition has made it imperative for 3PL firms to optimize their streamline processes, seek ways to enhance efficiency without compromising service quality, and reduce operating costs.

Leading 3PL Trends in 2024 and Beyond

Several key trends are shaping the 3PL industry in 2024 and beyond, revealing a transformative landscape driven by changing market dynamics and evolving client expectations. Let's delve into four significant trends to understand their implications for the industry.

Outsourcing from the E-Commerce Sector

The e-commerce sector has witnessed remarkable growth over the past few years, further accelerated by changing consumer behaviors during the pandemic. As of 2023, for example, online sales accounted for 20.8% of retail purchases, a number which is expected to rise to 24% by 2026.

In response to rising logistics costs and the increase in order volume, e-commerce companies are increasingly turning to 3PL providers to handle their logistics operations. Outsourcing offers numerous benefits, such as improved inventory management, enhanced customer service, and the ability to meet on-time delivery expectations. By partnering with 3PL providers, e-commerce companies can focus on core business functions while leveraging specialized logistics expertise.

To cope with the resulting increase in demand from e-commerce clients, a growing number of 3PL providers are embracing warehouse robotics and automation. These technologies equip them with the capability to handle a higher volume of orders in a shorter time frame.

Warehouse robots streamline picking, sorting, and packing processes, reducing the likelihood of errors and expediting order fulfillment. By leveraging automation, 3PL providers can offer fast and reliable customer order fulfillment.

Digitization and Supply Chain Visibility

Across the 3PL industry, automation, artificial intelligence, and data analytics are being used to optimize operations, increase efficiency, and enhance supply chain visibility. The use of digital platforms, data analytics, and cloud-based solutions is enabling 3PL providers to optimize operations and meet the evolving demands of their end customers.

According to recent research from McKinsey, for instance, 67% of companies surveyed had implemented digital dashboards to increase visibility throughout their supply chains, leaving them half as likely to suffer disruptions as organizations that hadn’t followed suit.

Data Visibility

A notable benefit of implementing warehouse automation and management systems is the potential to significantly increase data visibility. The ability to access and analyze real-time information about the movement of goods throughout the supply chain enables enhanced decision-making, improved efficiency, and better collaboration between all parties involved.

By providing accurate and timely visibility into inventory levels, transportation status, and other critical metrics, data visibility empowers logistics providers to proactively address potential issues, streamline operations, and ultimately deliver a seamless and transparent experience for all stakeholders. Specific actionable benefits of increased data visibility include:

• Inventory optimization: By having real-time visibility into inventory levels and movements, logistics providers can accurately forecast demand, avoid stockouts or overstocks, optimize warehouse space, and reduce carrying costs.
• Performance analysis: Access to a comprehensive dataset allows logistics providers to evaluate the performance of various carriers, warehouses, and routes, enabling them to make informed decisions on partnerships and operational strategies that can drive cost savings and efficiency improvements.
• Demand planning: By analyzing customer data, including order patterns and regional variations, logistics providers can better anticipate demand fluctuations and align their resources, staffing, and inventory levels accordingly, leading to improved customer satisfaction and cost efficiency.
• Risk mitigation: Data visibility helps identify potential bottlenecks, vulnerabilities, and risks in the supply chain, such as delays, damages, or compliance issues. These insights allow logistics providers to proactively devise contingency plans, enhance security measures, and mitigate disruptions, thereby safeguarding profitability and customer relationships.
• Stakeholder collaboration: With data visibility, logistics providers can share relevant information with all stakeholders, including suppliers, customers, and carriers. Consequently, gathering and monitoring data in real time can foster collaboration, improve communication, and enable timely decision-making, ultimately driving operational efficiency and reducing costs throughout the supply chain.

Integration of Artificial Intelligence and Automation

In recent years, AI and automation has revolutionized the way logistics companies operate, streamlining processes, improving efficiency, and enhancing customer experiences. This is among the most widely-held views in the industry; in fact, 84% of 3PL providers in one survey described AI and machine learning as among the technologies most likely to have industry-wide impacts.

Warehouse automation technology has also played a crucial role in transforming the third-party logistics industry. Automated systems such as robotic picking and sorting machines have made order fulfillment faster and more accurate, resulting in improved customer satisfaction. These technologies can handle repetitive tasks that were previously time-consuming for human workers, making operations more efficient and reducing the risk of errors.

The integration of AI and automation technology in warehouses has led to increased productivity and reduced labor costs. As the demand for faster, more efficient logistics operations continues to grow, we can expect further advancements in AI and warehouse automation in the third-party logistics industry.

How Automation Can Prepare You for the Future

The challenges and trends facing today’s 3PL industry are too complex and numerous for a single, simple solution. However, automation is emerging as a preferred solution, given its potential to address concerns related to labor challenges, space management, shrinking profit margins, and rising competition.

As the global 3PL industry continues to evolve, warehouse automation remains one of the most reliable solutions to making the most of your space and resources. Fast, dense, scalable, and flexible, the AutoStore system is tailored to meet your most pressing concerns and requirements as you adapt to the rise of e-commerce and the changing face of logistics worldwide.

To find out more about how AutoStore can meet your needs, get in touch with our industry experts today.