Category Scan: Fulfillment Services Market Growing at a CAGR of 4-5 Percent
The global fulfillment services market is growing at a steady pace and is expected to reach a value of $55.6 billion by 2021. Retail and e-commerce expansion in emerging markets along with growth in online buying is expected to strongly drive the fulfillment services market.
Regions such as Western Europe, North America, Australia, Japan, Hong Kong, and Singapore, have a high market maturity while APAC and parts of Latin America are expected to be the future growth driven markets.
Currently, North America has the biggest market share with a value of $13.5–15.5 billion growing annually at 4–6 percent, while Australia has the fastest growing market with a market share of $1.5–1.9 billion growing annually at 8–10 percent. The Middle East and LATAM have low adoption due to the challenges in delivery because of low infrastructure and connectivity.
The numerous benefits of outsourcing fulfillment services to a dedicated supplier are driving the growth of the market. By outsourcing fulfillment services, buyers can focus on core business and avail of reduced shipping costs, best of technologies in the market, and allow buyers to standardize the level of services across various locations.
However, the market faces challenges due to the risk of presenting an ineffective customer support system that may have a negative impact on the overall brand name.
The logistics industry is on an upswing due to increase in competition and higher customer expectation, adding to advanced technology. Furthermore, micro-fulfillment, a new method known as Airbnb for Logistics, has eradicated the pains of commuting to warehouses situated on the outskirts of the city, enabling speedy last-mile delivery by turning personal garages into company storage spaces. For instance, Walmart and Amazon Prime’s selling point of under two days' delivery for free is a result of adopting the micro-fulfillment methodology.
- Global suppliers are enhancing their service capabilities through M&A and expansions to achieve fulfillment contracts from large buyers. Logwin extended its network in South America by configuring its own branch in Bogota’s Free Trade Zone.
- Customized services help in increasing the integrity of services and bring a high level of expertise. Suppliers provide training through management development programs by partnering with training agencies.
- Supply chain managers and IT service providers are exploring and implementing the use of data analytics for business intelligence, to improve and leverage the overall supply chain.
- The prominent sourcing model is of Strategic Partnerships which focus on long-term aspirations, enhanced functioning of the customer’s supply chain and improvement of competitive positions with both the buyer and agency investing in this relationship and sharing the ROI.
- Around 50–53 percent of first-generation fulfillment contracts are based on the cost-plus pricing model with 42–47percent of second-generation fulfillment contracts based on a fixed/transactional pricing model.
The major cost components in the fulfillment services market are labor, accounting for 40-45 percent of costs, warehousing for 30-35 percent, and freight for 10-15 percent.
The labor cost is one of the drivers that impact the average package cost, as labor costs contribute substantially to the overall cost and may increase the average package cost if the 3PL service provider does not use technology optimally.
Complex specifications may require additional resources, time and integration among phases, which might increase the cost to the supplier.
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