The 3PL Business Model Is Ready for Last Mile
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Until recently, the 3PL business model has been to contract with 3rd parties to provide transportation services for parcel, LTL, expedited, and truckload service providers. The 3PL could negotiate aggressive rates with service providers, driven by the aggregation of business from all their customers, and add on a modest profit margin. This model worked, and generally resulted in most folks in the 3PL supply chain being happy.
However, like all legacy business models, times they are-a changing.
3PLs are now pursuing direct control of some transportation and delivery services to offer faster and an overall superior service experience for their clients. Newegg Express is one example of this in action.
Types of last-mile services
Truckload Services – To drive savings for their clients and profit for their pockets, large 3PL’s have been expanding their own truckload capability in specific lanes to directly serve their clients truckload needs. Taking truckload services in-house permits the 3PL to provide more control over the solution and can result in faster transit times and an overall superior service experience.
Expedited Freight Services – For clients that have regularly scheduled freight moves that require an expedited delivery solution, savings can be significant by taking these services in-house as these contracted services are costly.
Residential Large and Bulky Last Mile Delivery – As more ecommerce merchants turn to distributed fulfilment solutions for large items, the opportunity for 3PLs to offer local, last-mile, large & bulky, residential delivery services is rapidly growing. These types of deliveries require added value services that can drive significant additional revenue per delivery for services such as over-the-threshold inside delivery, unpacking, debris removal and assembly.
Market conditions spark interest in last-mile service offerings
Five years ago, it would be nonsense to suggest that a parcel-focused, ecommerce order fulfillment service provider could support local, last mile residential delivery. However, with the rapid growth of ecommerce distributed fulfillment and micro-fulfillment distribution models, the opportunity now exists for some 3PL order fulfillment service providers to support local, last mile residential delivery.
Today, there is a tremendous focus on moving ecommerce fulfillment centers closer to the customer, usually adjacent to large urban markets, and sourcing last mile delivery products directly from these forward stocking order fulfillment centers. Many of these micro-fulfillment centers are managed by 3PLs that can provide bundled, local last mile delivery across multiple merchants and contract with either local delivery contractors or crowd sourced delivery platforms, to make the last mile delivery. For 3PLs, the challenge is to create the necessary stop density to drive affordable last mile delivery cost for the merchant.
Last-mile delivery models
Now, let’s look at three last mile delivery models sourced from a forward stocking, 3PL order fulfillment center:
Crowd Sourced Delivery Models
Numerous crowd sourced service providers support this last mile delivery model in major markets, and that is the problem. Due to intense competition, it has been difficult for the app driven, crowd sourced delivery solution to scale the residential delivery, so delivery charges are high, and can wreck merchant profitability requirements.
Local Delivery Companies
These types of delivery solution providers can easily comingle/bundle last mile delivery across numerous clients to drive scale, possibly resulting in an affordable last mile delivery experience for the ecommerce merchant.
3PL Driven Last Mile Delivery
Here-in lies the opportunity for a 3PL to drive more income/margin and offer a superior delivery experience to their clients. However, like any other distribution solution, a certain level of delivery stop density is a requirement to make this last mile delivery solution profitable for the 3PL and affordable for the ecommerce merchant.
Dean Maciuba is the Co-founding partner of Crossroads Parcel Consulting and contributing editor to the Newegg Logistics blog. This content has been republished with the permission of the author and Newegg Logistics, where the article originally appeared.