COVID-19: Catalyst for Digital Transformation for 3PLs

Editor’s Note: The following is an excerpt of a research report published last week, “2020 3PL Survey: Shifting Priorities in an Unprecedented Year.” The research, conducted by Adelante SCM and commissioned by Nulogy, was conducted to explore the impact of COVID-19 on the 3PL industry and the continuing growth opportunities in 3PL value-added services, such as co-packing and eCommerce fulfillment. You can download the full report at https://see.nulogy.com/2020-3pl-survey-report/

The current COVID-19 pandemic is making agility, flexibility, and responsiveness even more critical for success. This is not only true for manufacturers and retailers, but for third-party logistics providers too.

According to Armstrong & Associates, ecommerce is the fastest growing segment of the 3PL industry. The firm expects 3PL ecommerce revenues to grow 28% through 2020 “as ecommerce purchases continue to expand during the pandemic and companies continue to outsource logistics activities.”

Among the outsourced services being transformed due to the pandemic and ecommerce is packaging. As the authors of a May 2020 McKinsey article state: 

“If, in the long term, the majority of products across all categories go through the online channel, e-commerce as the next normal will have significant implications for the packaging industry—particularly for primary and secondary packaging, given that most packaging has yet to be optimized for the e-commerce channel.”

In the 3PL industry survey we conducted in 2019, over 80% of the respondents described their  Contract Packaging Value Added Services (VAS) operations as an “Important” or “Very Important” part of their overall growth strategy. In addition, more than 90% of the respondents agreed that “over the next three years, Contract Packaging Value Added Services will become a greater competitive differentiator” in the third-party logistics industry. The pandemic, along with the accelerated growth of ecommerce, has only increased the role and importance of 3PL Value Added Services over the past year.

In light of these trends, are 3PLs increasing their investments in digitizing their operations? Is digitizing their Contract Packaging Value-Added Service (VAS) operations a high or low priority? Which ecommerce fulfillment capabilities are the most important to succeed in the market?

Those are the questions we explored in this year’s 3PL industry survey. A total of 38 leading third-party logistics providers responded to the survey, with 50% characterizing themselves as Innovators or Early Adopters with regards to technology adoption and 50% characterizing themselves as Early Majority, Late Majority, or Laggards.

COVID-19: Catalyst for Digital Transformation for 3PLs

The vast majority of the respondents (73%) are planning to or are currently “Increasing” or “Significantly Increasing” their investments in digitizing their operations in response to the pandemic. Considering that many companies tend to freeze or cut back on spending during economic downturns, as has happened this year due to the pandemic, it is notable that none of the respondents reported decreasing their investments in digitization initiatives. 

Source: “2020 3PL Survey: Shifting Priorities in an Unprecedented Year,” Nulogy, November 2020 (n=38)

Interestingly, a much greater percentage of Innovator/Early Adopter companies (26%) said that they are “Significantly Increasing” their investments compared to Early Majority, Late Majority, and Laggards (11%).

Source: “2020 3PL Survey: Shifting Priorities in an Unprecedented Year,” Nulogy, November 2020 (n=38)

The findings suggest that Innovators/Early Adopters remain aggressive in leveraging technology to drive profitable growth and differentiate themselves in the market.

However, the majority of Other companies (69%) are also “Increasing” or “Significantly Increasing” their investments in digitizing their operations. This suggests that even those further back on the technology adoption curve recognize the need and importance of keeping pace with market changes and requirements.

Other Research Findings and Industry Perspectives

For additional key findings from the research, please download the full report. Also, watch the webcast “Become a One-Stop Shop – How to Scale Up Your Value-Added Services,” where Greg Wren (CEO, AmeriPac) and Michael Copeland (Director, DHL Supply Chain) provide their perspectives on the research results and share how COVID-19, e-commerce, and digital transformation are impacting the industry.

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