3PL Fulfillment Prices! (Infographic)

Fulfillment prices

Growing e-commerce fulfillment demands and costs have collided to bring about an uptick in average 3PL fulfillment prices within the outsourced fulfillment industry, as was evidenced by FulfillmentCompanies.net’s annual poll of 500+ warehouses across the US.

Each year, the online fulfillment match-making service surveys their network of 3PL companies to gauge the industry’s average costs of doing business, as well as what prices they charge users of fulfillment services. 

Below are the survey results at a glance.

3PL Fulfillment Prices & The Cost to do Business are Rising

Data from 2017 to 2019 polls conducted by FulfillmentCompanies.net shows that the main costs for an outsourced fulfillment company, warehouse leases and employee wages, have both risen from 2017 to 2019. Costs per square foot of warehouse space on average have increased from $6.53 to $7.79 per square feet.

Labor costs saw an increase as well, with the cost of warehouse management staff having increased on average from $47,500 to $50,500 and the cost of an average hourly worked having increased from $11.44 to $13.32. As a result, overall profitability in the industry has taken a hit across the board with profits decreasing from an average of 8.83% to 7.25%.

Warehousing Costs Rise as a Result of Explosive Growth

The third-party fulfillment industry has been riding the wave of significant growth in e-commerce sales, impacting 3PL fulfillment prices. According to the U.S. Department of Commerce, total e-commerce sales for 2018 were estimated at $513.6 billion, an increase of 14.2% from 2017. Fulfillment warehouses benefit mightily from this sizeable growth by earning revenue for shouldering the logistical challenges of fulfilling and shipping orders for sellers of online goods.

This growth has attracted a new wave of fulfillment competitors­­­­—from single location warehousing companies that cater to fulfilling orders for online retailers and Amazon preparation and fulfillment services, to multi-location providers offering on-demand warehouse solutions.

Along with this growth in 3PL fulfillment prices and the fulfillment industry has come increased competition for warehouse space and labor. Warehouse space is becoming difficult to come by in many markets, and rental rates are growing rapidly. According to JOC.com, nationwide commercial rental rates have risen to the highest level ever seen since tracking began for this statistic in 1989.

Furthermore, growing demand for warehouse staff and the increased need for higher level warehouse management personnel are putting further strains on the industry’s overall profitability, which doesn’t have a ton of wiggle room due to being a historically low margin, high volume niche.

3PL Fulfillment Prices Rise with Costs

In response, 3PL fulfillment companies have had to react with some modest increases in pricing. The three largest components of 3PL fulfillment prices all saw increases in average pricing.

First, fulfillment pricing per order for a single item direct-to-consumer order have increased from $2.64 to $2.86 (and from $3.74 to $4.17 for B2B orders) on average.  Second, storage charges have increased on a pallet basis from $13.02 to $13.20, and from $2.14 to $2.85 per bin. Third, 3PL fulfillment companies are also giving away less of their negotiated small parcel freight discounts.

Average discounts off of retail rates for ground shipments have decreased from 24% to 20.02%, and express shipments discounts have decreased from 31% to 29%.

Quality of Service Increases Along with Prices

Of course, 3PL customers are demanding more from their 3PLs, and the industry is responding positively. A historically archaic industry that hasn’t invested heavily in technology is being transformed into an industry that relies on microscopic level data to survive and compete. FulfillmentCompanies.net found that most companies are now measuring their performance in some way (82.93%) and reporting these findings to customers.

Furthermore, overall accuracy of services performed saw an increase. The most widely used metrics for performance within the fulfillment industry are order fulfillment accuracy (the percentage of orders shipped correctly) and inventory shrinkage (the amount of inventory lost due to error and theft).

Order fulfillment accuracy was up slightly from the previous year to an average of 99.19%. Inventory shrinkage decreased from the previous year to an average of 1.26%. Not surprisingly with this performance, 3PLs are retaining a larger percentage of their customers overall. 

Pricing Pressures and Competition Will Only Intensify

With once seemingly unbreakable brick-and-mortar businesses going out of business, e-commerce retail doesn’t show any signs of slowing in the foreseeable future. Similarly, competition in the fulfillment industry should continue to intensify, forcing fulfillment houses to find ways to not only deliver on increased consumers’ demands but also differentiate from competitors and operate profitably in an industry without much room for profits.

Companies in the industry will have to continue to employ logistics technology solutions and innovate to keep pace with the rapid shifts in the industry.

But one thing remains true going forward – with as much emphasis as consumers are dictating on low priced shopping habits through online purchasing and demanded shipping discounts, fulfillment providers will be challenged with walking the tight line of delivering at a high level while at the same time keeping costs competitive.

Article and permission to publish here provided by Adam Robinson at cerasis. Originally published on Supply Chain Game Changer on May 2, 2019.