2020 has completely transformed ecommerce, and more consumers are buying online than ever before. In fact, the pandemic has accelerated the shift from physical stores to online shopping by about five years. Despite some truly unprecedented challenges, the October 2020 Logistics Manager’s Index Report shows hopeful signs for the logistics industry — thanks in part to the huge online retail boom. Let’s go over some of the report’s findings and what they mean for ecommerce retailers.
Gaining perspective from the long view
This year has presented an unusual challenge for forecasters across various industries and disciplines. As the year comes to a close, leading logistics and supply chain professionals are circling back to a tried-and-true wayfinder for the industry: the Logistics Managers Index, which started documenting market conditions in 2016 and has consistently had a finger on the pulse of a changing ecommerce-driven world. This long-term survey was established with the goal of pinpointing shifts and growth in the logistics industry. By processing data on trends and developments, researchers have been very successful in generating relevant insights and knowledge for shipping and warehousing firms. The LMI score sources data from eight unique systemic indicators to build a comprehensive report for the industry. Those components include utilization metrics, capacity, and cost as related to inventory, shipping, and transportation. Shifts and imbalances in these key indicators are studied to diagnose current trends in the larger logistics marketplace. So, what does the October 2020 report say?
Inventory levels are up, warehouse capacity is down
It’s no surprise that after months of lockdowns and soft reopenings, ecommerce has reigned supreme in 2020 — and chances are good that the holiday season won’t be any different. Early indications suggest that a majority of holiday retail shopping will be done online this year due to the pandemic. Even in areas where stores are nominally open, many holiday shoppers are still wary of public spaces. Beyond that, the online shopping experience is becoming more familiar and efficient for more people as part of the transition to contactless retail. In all, this bodes well for companies that have a well-established ecommerce infrastructure. Companies are increasing their stock to prepare for an influx of holiday orders that may exceed anything they’ve ever experienced before. In other words, inventory levels are high and warehouse capacity has hit an all-time low.
What does that mean for ecommerce retailers?
Warehouse rent was already rising when we wrote about it last year, thanks to growth in the sector and increasing real estate prices in popular high-density urban markets. Add in trends toward smaller, localized micro-fulfillment warehouses to meet next day or same day fulfillment demand, and you can see how rents on high value logistics real estate are climbing fast. Higher capacity and smaller warehouses creates a unique tension for many companies (and an opportunity for others). According to the LMI report, warehouse capacity is expected to continue to go down over the next year. That means warehouse space will be in even lower supply, just as it will continue to be in higher demand as long as the pandemic continues to boost online sales.
Building out versus strategic partnerships
Given this evolving (and growing) marketplace, many midsize and large ecommerce retailers are looking to expand operations. However, many are gun-shy about putting major investment into infrastructure that may become burdensome if the pandemic augments market conditions yet again. More and more ecommerce retailers are finding a third path to building or buying their own warehouses. 3PL partners that own and manage warehouse space near urban ports can store stock and manage fulfillment for a quick, seamless solution to a number of inventory management concerns. 3PL warehousing is flexible to meet changing demand, which allows companies to stock up for holiday shopping (or anticipate pandemic surge buying on cleaning and personal products) without a long-term commitment. Plus, many portside warehouse partners are situated closer to the urban core of major cities than regional fulfillment centers in far-flung exurban locales. GlobeCon, for example, provides warehouse space from just outside the Ports of Los Angeles and Long Beach. This proximity to both the LA metro and Orange County consumer bases can help enable fast, seamless fulfillment to warehouses, regional hubs, or a customer’s front door.
If the LMI report’s predictions are accurate, increasing inventory and decreasing warehouse capacity will put pressure on a lot of ecommerce retailers to compete in a tight logistics market. Even as consumers reduce spending out of anxiety about market conditions, these trends are likely to hold true into next year (and maybe well beyond that.) Ecommerce retailers can bolster their own fulfillment apparatus and diversify their logistics infrastructure to compensate for changing conditions with a trusted 3PL partner like GlobeCon.