The Great E-commerce Fulfillment Center Squeeze

The pandemic has impacted nearly all parts of the global supply chain and e-commerce fulfillment is not immune to the condition.  Covid-19-driven consumer behavioral change has resulted in staggering e-commerce growth, which in turn, is putting tremendous pressure on e-commerce fulfillment centers (FCs).

The immediate impact has been FC demand almost exceeding capacity. The shortage of FCs is resulting in greater competition for limited capacity, which is driving increased rent. Labor and facility rent are the two most costly components of operating a fulfillment center.

CBRE has shared these statistics:

Online commerce

Get figuring on some stats and figures

  • E-commerce growth rates as high as 40% during the past 18 months are putting intense pressure on FC service providers to expand beyond planned growth.
  • $1 billion in incremental e-commerce growth drives 1.2 million square feet of facility demand.
  • The e-commerce supply chain requires up to 3 times more warehouse/FC space than a traditional brick and mortar supply chain.
  • CBRE also states that the US will need up to 330 million square feet of additional space to support e-commerce growth through 2025.
  • Warehousing/FC construction costs are up 25%.
  • Year-over-year industrial rents are up as much as 10% in some markets.
  • Micro fulfillment development is seeing even higher rent increases as these facilities are in dense metropolitan areas, where shovel-ready industrial space is scarce.

If you’re thinking of outsourcing fulfillment read this first

Factors Driving Up Costs for E-commerce Specific Fulfillment Centers.

Fulfillment Costs

Fulfillment costs can be draining

  • New FCs are being built with the latest automation technology which drives up build-out costs.
  • E-commerce FCs require a more costly design versus legacy model warehouses.
  • Worker shortages are driving higher employee wages.
  • All costs of doing business are higher in the largest metro markets and port cities.
  • The primary integrated and regional carriers are having to build out new sortation and hub capacity in support of e-commerce growth, driving fierce competition for limited space and facilities.

We can help keep costs low and consumers happy. Learn more about Newegg Logistics

Fulfillment Center Development: A Good Thing

Fulfillment Center Growth

  • The scarcity of space in metro markets is driving the conversion of empty retail stores into micro fulfillment centers.
  • Micro fulfillment center growth is resulting in faster delivery and these FCs, closest to the densest population centers, can more efficiently support same-day delivery.
  • Smaller, urban-based, fulfillment centers can support later order cut-off times, also resulting in faster delivery.
  • The growth of micro fulfillment centers is resulting in the concurrent growth of on-demand delivery service providers.
  • Forward stocking Fulfillment 3PL’s are allowing smaller merchants to compete with Amazon’s one-Day-Prime delivery solution.

Read more about the value of e-commerce

The Rising Cost of Fulfillment and Fulfillment Center Value

Just like the parcel carriers, 3rd party fulfillment centers are being forced to raise fulfillment fees to cover their increased cost. However, services fees and the cost of products are rising across America, and across all business segments, because everything costs more…it is that simple.

This means the consumer is expecting and willing to pay more for those online purchased items because the e-commerce value proposition, based on convenience, wide product selection, and speed of delivery, remains intact.

As an e-commerce merchant, you should still shop for the best fulfillment deal possible. However, expect to pay more, and it probably won’t be too much for the service you and your customers receives in return.  Remember that value is a combination of both service and price.  Striking the correct balance between the two components will result in a happy customer and repurchase behavior.

Learn more about the post-pandemic workplace