Bullish Flexport will 'hit the ground running' as it integrates Shopify logistics
Volumes will increase for Flexport after it yesterday completed the deal to take over Shopify’s ...
Increasingly, e-commerce providers and online merchants are turning to logistics firms to manage their fulfilment.
James Gagne, CEO of Seko Logistics, has seen a “really serious uptick” in a trend that shows companies abandoning their efforts to manage the fulfilment component of their supply chain in-house.
They are looking for help to make their inventory more fungible across wholesale, retail and direct-to-consumer channels to make it more agnostic, he reported.
The trend has been building up over the past four to six months, particularly in North America, he noted.
Mr Gagne views this development as a lasting, structural shift, pointing to the mid-term outlook for industrial real estate prices for logistics infrastructure and the mid-term needs and cycles that these companies go through.
“There is a systemic, structural shift I see in outsourcing more of a customer’s-end consumer experience through fulfilment in the supply chain that is here to stay,” he said
The recent decision by Shopify to align itself with Flexport for its fulfilment appears to reflect this trend. The e-commerce enabler had struggled to build up in-house fulfilment capabilities over the past couple of years despite a string of acquisitions, including the Deliverr platform bought for $2.1bn, and a range of software solutions as well as dozens of warehouses and sorting centres. Evidently the results of this endeavour fell short of management’s objectives, so it decided to stop tinkering and just hand over the whole fulfilment component to Flexport.
The pair have been working together since last year. The first tangible result of this has been an app introduced in February that allows merchants using Shopify to book and track inbound ocean shipments, as well as to obtain customs clearance, insurance and financing services.
Faced with slowing sales momentum and thin margins, online sellers have been looking to trim costs. Fulfilment costs have become an increasing burden, and the impact was seriously exacerbated by overly optimistic projections of rapid growth in online shopping that led to excessive recruitment, especially for warehouse personnel. Adjusting their setups, Walmart, Amazon and others have laid off thousands of employees, and the cull is not over yet. According to one report, Walmart was looking to eliminate more than 2,300 warehouse jobs last month.
Industry experts confirm that logistics costs have been a massive headache for merchants. They were already an issue before inflation took off, given broad expectation of free shipping. With inflation factored in, they are widely described as unsustainable.
One US start-up skincare brand that recently outsourced its fulfilment found that the move saved it $2 per order. At the same time, this reduced average delivery time from five days or more to under three, the company reported.
The need to offer different fulfilment speed options – augmented by the need to charge consumers for faster deliveries – is stretching the logistics management capabilities of merchants and their systems. Rather than invest in more sophisticated systems or upgrades, some merchants prefer to farm out the entire fulfilment element and concentrate on the core aspects of their business.
The trend is likely to continue, some observers believe.
According to a study released last September by India-based market research firm Straits Research, the e-commerce fulfilment services market was valued at $85.32bn last year and is projected to reach $207.87bn by 2030, growing at a CAGR of 10.4%.
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