Growth and Consolidation Is Running Rampant in E-Commerce Order Fulfilment

The e-commerce phenomenon has changed the world of fulfillment, driving growth and consolidation throughout the industry. The legacy 3PL service provider, once focused on supporting B2B distribution via an LTL transportation model, has had to morph into a B2C service provider that supports parcel-based, residential delivery solutions.

Growth and Consolidation Is Running Rampant in E-Commerce Order Fulfilment
Photo: Tiger Lily on Pexels

Now with boatloads of investment dollars flowing into the segment, e-commerce order fulfilment is the place to be right now. Not only are we seeing the development of new, fully automated, parcel fulfillment centers, but we are also seeing the consolidation of legacy 3PL organizations. So, what is driving all the change and disruption?

Continued Growth of Ecommerce

E-commerce grew over 14% during 2021. This growth rate is expected to continue for the foreseeable future, with more merchants looking to support fulfillment via relationships with e-commerce order fulfillment service providers.  This condition will drive growth and consolidation is driving the need for more fulfillment capacity.

Amazon’s Influence

Amazon continues to push the e-commerce order fulfillment envelope with more fulfillment centers closer to the consumer and faster transit times. Competing fulfillment companies have no choice but get closer to the consumer via acquisition or facility expansion.

The Race to Grow Market-Share

This needs no explanation.

Real Estate Cost Entry Barrier

The cost of shovel-ready commercial real estate is skyrocketing which in turn favors acquisition of existing service providers instead of building new.

Technology—the Haves and Have-Nots

Many small to medium sized order fulfillment service providers have still not invested in new technology automation and as a result, are ripe to being acquired by larger competitors that have the financial capacity in implement new technology and expand existing facilities.

Faster Transit Time Demands

Larger fulfillment service providers backed by investment capital are buying smaller competitors to improve transit times by getting closer to consumer.

Plethora of Investment Dollars

The venture capital firms are tripping over each other racing to invest in e-commerce, order fulfillment service providers, fueling expansion and acquisition by these service providers, loaded down with cash.

The Big and Small of it All

The growth of on-line purchased, low value consumer goods and high value, large & bulky items, is driving the expansion of specialty fulfillment centers that best handle and manage distribution of these specialty items.

Labor Shortage

The difficulty specific to hiring new and retaining existing employees is forcing the development of the near fully automated fulfillment center model.  Such existing fulfillment centers are targets for acquisition for cash-rich competitors banking on the future of new, nearly fully automated order fulfillment centers.

Intense Retailer Competition

More retailers are realizing they are not expert in state-of-art fulfillment solutions and looking to 3rd party order fulfillment service providers to support new-age fulfillment solutions with faster transit times.  This need is driving acquisitions and new construction.

Micro-Fulfillment

Numerous and smaller new-micro-fulfillment centers are being developed to support ultra-fast and same-day delivery.

The Pursuit of Profit

The consensus among most e-commerce order fulfillment service providers is that larger fulfillment center networks will result in improved economies-of-scale that will eventually drive improved profit margins. However, managing more clients and higher volume is a complex exercise, and does not always result in improved efficiencies or better service for the client.

Many of these changes are being driven by the evolving ecommerce value proposition, so change is inevitable and should be a good thing, right?   Well, it should be—if growth and consolidation are also driving improved savings across all the stakeholders, the consumer, merchant, and fulfillment service provider. That may not be happening quite yet, but we need to let this play out.


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.


Photo by Tiger Lily on Pexels

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