Shared Warehousing Piques Interest in Overcoming Cost and Space Concerns; Tech Providers Must Adapt to Capture the Changing Market

Recent research conducted by British logistics provider Wincanton indicates that while 83% of retailers are planning for volume growth over the next 3 years, 89% reported that increased orders would negatively impact their ability to successfully fulfill orders. Worryingly, 61% of respondents stated that significant investments to modernize their supply chains through robotics and automation in their operations would not be feasible within the next 5 years.

Cost remains the greatest barrier for companies looking to create greater scale and efficiency in their operations. Across all regions, spending on advanced Operational Technology (OT) remains primarily with the biggest retailers, creating a significant disparity when it comes to retailer readiness for volume growth and maintaining competitiveness as omnichannel offerings grow.

Another challenge faced by organizations when looking to implement new technologies in their operations is the disruption to current setups through infrastructure changes. Deploying new warehouse and distribution solutions can be much smoother at new sites during the construction phase, avoiding any disruption to ongoing fulfillment operations.

However, warehouse construction has taken a hit over the last year in the United States and Europe, with slowdowns in new warehouse construction of up to 35% through 2023. This is not expected to pick back up until 2025. Retailers and Third-Party Logistics (3PL) providers alike are continuing to face tight supply, higher rents, and demands for longer-term contracts.

With these two factors at play, the impact on digital transformation is most profound for Small and Medium Enterprises (SMEs). SMEs typically have less control over their physical logistics infrastructure and don’t have the available capital or resources to handle the cost burden of both the technology investment and the impact on current operations, something that larger retailers are more able to stomach.

Shared warehousing through models like Warehouse-as-a-Service (WaaS) is one way retailers can access warehousing on more flexible and scalable terms, while also tapping into advanced distribution technologies without significant investments. Key benefits of shared warehousing include:

• Lower storage and fulfillment costs
• Ability to leverage advanced material handling equipment and software solutions through shared cost models
• Dedicated handling capabilities by 3PL players that are operating a warehouse focused on a particular industry
• Maximized available warehouse capacity

Demand for shared warehousing is growing as retailers of all sizes have restructured their offerings in the age of omnichannel. 3PL providers have noted increasing demand for multiple brands to leverage their sites, with companies like GXO launching services such as GXO Direct to enable companies to use only the space they need, when they need it. Given the warehouse construction constraints noted above and the significant capital required by companies to set up modern warehouse infrastructure, it’s no surprise that demand for such flexible models continues to grow.

But what does this mean for warehouse technology providers? ABI Research has identified the latest trends and offers the following key recommendations:

• 3PL Companies and Shippers Will Grow Their Spending on Automation and Systems Able to Adapt to Changing Requirements: While outlook for tech spending remains mixed for retailers, digitalization is top of the agenda for transport providers. In a recent logistics survey conducted by McKinsey of 220 shippers and 38 providers, 93% reported that they plan to maintain or grow their spending for technology over the next 3 years, with all moving beyond foundation technologies and focusing on advanced technologies such as automated operations.
• Both Warehouse Systems and Automation Need to Be Adaptable and Scalable for changing Requirements: Warehousing providers will be on the lookout for solutions, or a blend of solutions, that require minimal software and hardware adjustments when adapting to new inventory requirements and volume fluctuations.
• Granular Track-and-Trace Solutions Will Become More of a Necessity: With products flowing through warehouses not owned by the retailer, tracking inventory levels and product status will require more granular Internet of Things (IoT) applications if companies are to provide real-time visibility.
• As-a-Service Offerings for Digital Solutions Will Grow in Conjunction with WaaS Offerings: Given the greater variability and potential to scale, solutions that can be purchased or leased via flexible pricing models will be more favorable for the warehouse providers offering the infrastructure to retailers via a similar price model.