Third-party logistics (3PL) has become a significant force in the global supply chain. According to the Mordor Intelligence Industry Report, it remains a growing market segment, valued at "approximately $1.16 trillion…and projected to grow substantially, reaching around $1.9 trillion by 2030." The 3PL industry is now a key strategy for many successful companies that prefer to focus on strengthening their operations and core business functions. These services include warehousing, transportation, procurement processes, and fulfillment services. 

At first glance, the role of 3PL might seem like a simple process - moving goods from Point A to Point C. However, this industry is much more complex and involves delicate workflows that must be seamless, efficient, and timely. A single mistake or delay can directly impact a company's bottom line, leading to customer loss and a damaged reputation.

Like any business with wide variability, various challenges can affect daily operations and create potential roadblocks for future growth. The constant rise in e-commerce and consumer demand pushes many companies to their limits. Therefore, 3PL has become the key solution for operational expansion, as many companies face storage and warehouse capacity constraints.

While many companies outsource distribution and logistics to streamline their operations, the 3PL industry faces challenges due to its volatility.  From relentless demand to seasonal fluctuations, the pressure is persistent, which makes it crucial to conceptualize and implement competitive strategies for this dynamic industry. 

Let's explore further as we identify key obstacles affecting the 3PL industry.

The Human Factor:  Battling High Turnover and Talent Shortages

Employee recruitment and retention continue to be ongoing challenges for 3PL, a common issue across many industries. The logistics sector faces a persistent shortage of qualified workers, whether behind the wheel or on the warehouse floor. This shortage increases labor costs and complicates efforts to maintain efficient operations, as "labor costs make up more than 40% of total operating expenses." The key difference with other businesses is the sophisticated detail required on the front end of third-party logistics, which demands human intervention. From the receipt of Advanced Shipping Notifications, there is virtually no room for error, and the need for flexibility and meticulous attention to detail is essential. Tasks such as order processing, inventory management, and direct customer contact require personalized and flexible approaches to be successful. 

Along with the precision required for the role of the 3PL worker, the fast-paced and demanding nature of this business often leads to burnout and stress among employees. From drivers to warehouse staff, the shortage of workers increases labor costs and disrupts daily operations. A staggering 70% of logistics businesses surveyed say that acquiring and retaining talent is a significant challenge for their company. These issues include physical strain, stressful environments, long shifts, and repetitive motions. Besides the physical toll of logistics work, this sector is highly competitive, creating intense competition for workers within the industry. When companies face these challenges and lose experienced workers, maintaining profitability becomes increasingly difficult.

As e-commerce continues to grow and more companies shift to outsourcing their logistics, 3PLs must plan beyond past strategies by using technology to address those employment gaps.

The Cost of Doing Business

While retaining talent significantly contributes to this industry's bottom line, transportation costs are equally impactful. Fluctuating fuel prices—often driven by globalization—are just one of many challenges outside an organization's control that directly affect profitability. Distribution expenses influence the final steps of connecting goods to customers and can create a ripple effect within a company, negatively impacting pricing strategies, inventory management, and logistics planning. It is also crucial to recognize the effect of unexpected supply chain disruptions, which often happen without warning and leave minimal response time. Managing these challenges can result in a volatile operating environment and make controlling costs more complex.

To stay productive and competitive, the logistics industry must find ways to reduce costs internally by implementing solutions that provide a good ROI and help manage operational expenses in a fluctuating market.

Diminishing Warehouse Capacity

E-commerce has significantly transformed the 3PL industry, especially since the pandemic, opening up huge opportunities for logistics and distribution firms. However, growth brings operational challenges, as many warehouses struggle to meet increased demand during expansion, leaving little room for adapting to changing logistics needs. According to the 2022 Third-Party Logistics Warehouse Benchmark Report, "nearly 60% of warehouses are utilizing more than 90% of their space, and another 28% are running between 80%-89%." While the obvious solution might be to upgrade to larger facilities, this has become difficult as real estate prices rise and space availability hits historic lows. 

Managing Consumer Expectations

Meeting and exceeding consumer demand keeps customers satisfied, but maintaining that pace can be challenging without the right solutions. E-commerce continues to influence the logistics industry, as about 59% of global consumers prefer shopping online. In addition to online shopping, social media platforms are offering buyers extensive shopping options – from Instagram to TikTok, these platforms have become actual marketplaces. This convenient shopping experience results in higher order volumes and raises consumer expectations for real-time delivery updates, fast shipping, and easy returns.

Consistent demand is one thing, but peak and slow seasons are another. The fluctuating nature of this industry requires quick maneuverability and flexibility to adapt to sudden changes in order volume. Working within this ever-changing environment means having solutions that integrate smoothly into the workflows of 3PL. From streamlining equipment needs for seasonal demands to optimizing vertical space utilization, the logistics industry needs flexible and dependable capabilities to meet the ongoing demands of end-users. 

Smart Solutions for a Demanding Industry

3PL has become a vital and thriving part of the supply chain and will continue to grow steadily. However, while business expansion creates many opportunities, it also introduces obstacles and complexity. From warehousing, order processing, packing, shipping, to tracking, the 3PL industry always needs a precise and coordinated approach to succeed. The turbulence shaping this sector shows that logistics faces various headwinds that can easily impact it. Workforce shortages, fluctuating energy prices, warehouse capacity issues, and increased demand directly influence this industry’s bottom line. These challenges can ultimately derail an operation if the right strategies are not put in place. At Linde Material Handling, we understand the complexities of managing delicate logistics workflows while staying productive and competitive. That's why we develop customized solutions tailored specifically for this industry—so you can focus on what matters most: maintaining a healthy, successful operation. Let's work together to optimize your operations, improve your efficiency, and see how Linde Material Handling can help you stay ahead in this constantly changing industry.

Let's keep the world moving together.