Fulfillment Services Australia Market Intelligence

Industry Outlook & Drivers

Regional Market Outlook on Fulfillment Services

• The Australia fulfilment market was valued at $1.5 billion in 2018
• The market is forecasted to grow at a CAGR of 12–14 percent to $1.68–1.72 billion between 2019 and 2023
• Global Regions, such as Western Europe, North America, and some parts of APAC, including Australia, Japan, Hong Kong, and Singapore, have a high market maturity. In Australia, the high matured regions are Sydney, Melbourne. The Medium matured regions are Perth, Adelaide and  Brisbane. The low matured regions are New Castle and Mackay

Market Drivers and Constraints

• Retail and e-commerce expansion in emerging markets is expected to strongly drive fulfillment budgets in these markets and also growth in online buying due to the increase in adoption of mobile and online technology by consumers and service providers

Drivers

Tactical Benefits:

• By outsourcing fulfillment services to a supplier, buyers can exploit service providers' abilities and focus on core business. Outsourcing has also reduced shipping costs due to consolidated shipment and negotiation (with the carriers) of rates on bulk shipments and also helped eliminate shipping mix-ups

Technological Benefits:

• Outsourcing allows buyers to avail the best of technologies implemented by service providers. Technology is changing continually and constantly; 3PL companies invest a huge portion of their budget in maintaining and upgrading their technology and warehouse equipment

Operational Benefits:

• Outsourcing to a fulfillment service provider would allow buyers to standardize the level of services across various locations. Productivity and efficiency could be enhanced through the introduction of various critical performance indicators and compliance clauses in the contract
• Centralized procurement through global/regional service providers will save costs and efforts in paying for additional warehouse space, hiring and training employees and managing inventory

Constraints

Subcontracting Practices:

• Subcontracting of storage and delivery is done in case the supplier does not have a network in a particular region. This practice indirectly affects the buyer since subcontractors charge a margin from the service provider, which is eventually passed on to the buyer. This margin-on-margin increases buyers' spending
• There is also a level of uncertainty in the delivery of order fulfillment and customer services, e.g., customer response regarding shipments. An ineffective customer support system may have a negative impact on the brand name to the buyer using the fulfillment service.

Porter's Five Forces Analysis: Australia

Supplier Power

• Top suppliers, such as DHL, SEKO Logistics, FedEx, DB Schenker, Kuehne + Nagel and UPS, are seen as preferred suppliers due to strong geographical coverage and advanced fulfillment and storage facilities and also due to their ability to invest in new technology and parcel handling tools

Barriers to New Entrants

• On adopting a global integrated business model, service providers should have significant capabilities in terms of service offerings and geographical spread
• The threat of new entrants is comparatively lower since top buyers prefer to engage with established suppliers rather than new suppliers, especially for geographic coverage and the best-in-class technology

Intensity of Rivalry

• Most buyers have consolidated their fulfillment requirements with top suppliers, such as DB Schenker, Kuehne + Nagel and UPS. Thus, the competition is primarily driven by smaller accounts that do not have long-term contracts with top suppliers and are open to working with other suppliers

Threat of Substitutes

• Threat of substitutes is low for fulfillment, as there is huge dependency in all markets. Rapid growth of e-commerce and demand for same-day delivery has made it difficult for buyers to develop in-house capability; partial outsourcing will not prove to be cost-efficient for buyers

Buyer Power

• E-commerce is driving fulfillment spending as online purchasing and delivery increase at a rapid pace, making the accounts more attractive to the agencies. Big spenders, such as retail, CPG and F&B, are consolidating their spending to increase their negotiation power based on the volume of business