The industrial real estate shortage has become a critical challenge for e-tailers and retailers alike as e-commerce activity continues to hold at record levels. Online vendors need to locate inventory closer to their customers to reduce shipping costs and accommodate consumer demand for quick delivery, but warehouses and fulfillment centers around the United States have record low vacancy. When good properties do become available, they are asking for record high rents—especially in urban markets. Given these facts, keeping product close to customers is easier said than done.

U.S. markets will need 330 million square feet of new fulfillment space to keep up with e-commerce demand through 2025. Meanwhile, COVID-19 and supply chain disruptions have slowed the pace with which new supply can enter the market. With limited ability to access industrial real estate directly, many online sellers have turned to their third-party logistics (3PL) providers for help.

Stronger Together

The e-commerce boom may have been caused by the pandemic, but this higher level of e-commerce sales looks more and more like it will become standard in a post-pandemic world. As a result, Amazon, big-box retailers, and 3PLs are all vying for new industrial real estate as it becomes available.

Think of a 3PL as a force multiplier for e-tailers and retailers. A logistics partner grants access to space in or near dense consumer markets—the same markets where the retail giants constantly throw their buying power around. While most small- and medium-sized enterprises can’t compete with the likes of Amazon or Walmart, 3PLs provide an opportunity to compete for space in tight-capacity industrial markets.

Where a retail giant would need the entire fulfillment center, a 3PL can divide the space for use by several tenants of varying size. Without a quality asset-based 3PL partner, any business that doesn’t fit into the big box mold will have trouble placing inventory anywhere near busy urban markets.

Advantages of a 3PL Fulfillment Provider

Using an experienced 3PL offers significant benefits for e-commerce sellers, omnichannel retailers, direct-to-consumer (D2C) manufacturers, subscription box services, multi-level marketing operations, and any other business that needs to reliably move high volumes of parcels to customers. Some of the advantages that come baked into your 3PL partnership include:

  • Scalability. For retail businesses going it alone, this is a bad time in history to outgrow a fulfillment operation. With a 3PL, sellers can more easily accommodate growth by expanding fulfillment operations across several 3PL facilities.
  • Focus on core competencies. By partnering with a fulfillment 3PL, the seller can free up internal resources to focus on core competencies, such as marketing and sales. Meanwhile, the 3PL can leverage its expertise in order fulfillment to streamline processes and improve the experience for your customers.
  • Market access. Consumers have become increasingly impatient and want the items they buy online to arrive within a day or two. Choosing a 3PL with a national real estate footprint ensures that a business can locate inventory near virtually any important customer market.
  • Better returns management. Poorly handled returns can create a financial black hole for any fulfillment operation. When a 3PL handles fulfillment, it can also handle and optimize your customer return process.
  • Reduced shipping costs. 3PLs can leverage the combined shipment volumes of all their customers to negotiate discounted rates with national and regional parcel carriers. These savings are often significant enough on their own to justify the use of a 3PL.
  • Labor management. The logistics sector was experiencing a labor shortage long before the pandemic began. Staffing a warehouse isn’t easy, but using a 3PL puts the burden of recruitment, hiring, and retention on the 3PL instead of the shipper.

About Phoenix Investors

Founded by Frank P. Crivello in 1994, Phoenix Investors and its affiliates (collectively “Phoenix”) are a leader in the acquisition, development, renovation, and repositioning of industrial facilities throughout the United States. Utilizing a disciplined investment approach and successful partnerships with institutional capital sources, corporations and public stakeholders, Phoenix has developed a proven track record of generating superior risk adjusted returns, while providing cost-efficient lease rates for its growing portfolio of national tenants. Its efforts inspire and drive the transformation and reinvigoration of the economic engines in the communities it serves. Phoenix continues to be defined by thoughtful relationships, sophisticated investment tools, cost efficient solutions, and a reputation for success.

Frank P. Crivello is a Milwaukee-based developer and Chairman & Founder of Phoenix Investors.