CrossDock | May 2023

Flexport acquires Shopify Logistics, 3PLs lead warehouse leasing, DHL continues layoffs

Welcome back to Crossdock.

Our biggest story this month, and arguably this quarter, is about Shopify offloading its entire set of logistics offerings onto Flexport.

The timing of this move is particularly interesting. Since the last few months, Shopify seemed to have been doubling down on Shopify Logistics, the umbrella program for all of its offerings concerning freight, fulfillment, last-mile shipping, and more. The idea of Shopify selling one of its most important segments - something they’ve mentioned excessively as of late - is a shock to many.

In the process, Shopify also laid off 20% of its entire workforce – another attempt at cutting costs and improving operational margins. This brings Shopify’s focus back to its core business of e-commerce enablement. We had been seeing Shopify regularly venture into newer non-core verticals, or as described by its CEO Lütke recently, “side quests”. However, tough market conditions and valuations being in a free fall pushed Shopify to think otherwise.

On the other hand, the deal is appearing to be a once-in-a-lifetime opportunity for Flexport. It is now positioned to become the end-all and be-all of logistics and freight technology. The added e-commerce fulfillment capabilities enable it to take on the likes of Amazon Fulfillment, Stord, and others to help it grab a larger share of the e-commerce logistics pie.

In this newsletter:

  1. Flexport acquires Shopify’s logistics offerings
  2. DHL and GXO lay off workers
  3. Gap partners with returns management system Optoro
  4. 3PLs lead warehouse leasing
  5. FreezPark and BG Capital partner up

Flexport acquires Shopify’s logistics offerings

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Freight technology company Flexport is acquiring Shopify's logistics and fulfillment operations, including the U.S. e-commerce fulfillment platform, Deliverr. This will enable Flexport to compete with Amazon's retail delivery business and includes over 50 warehouses and package-sorting centers nationwide.

Shopify's retreat from logistics

Shopify, facing challenges in its physical-delivery business, is selling its warehouse robotics operation, 6 River Systems, to U.K. automated grocery-fulfillment specialist, Ocado Group. This sale ends Shopify's own logistics-fulfillment operation, resulting in a workforce layoff of about 20%. Despite the layoffs, the company's stock price surged by 24%.

Direct competition for Amazon

Dave Clark, Flexport's CEO, and a former Amazon executive, highlighted that the acquisition will enable end-to-end logistics services for merchants, putting them in direct competition with Amazon. The deal also expands Shopify's equity in Flexport to approximately 13%.

Shopify’s support for logistics services

As it steps back from logistics, Shopify aims to improve its offerings. It plans to continue an app developed with Flexport to assist shippers with booking ocean freight and tracking shipments, providing greater value to their merchants.

DHL and GXO lay off workers in Texas

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DHL Supply Chain and GXO Logistics are reducing their workforce in Texas, following the loss of customers.

DHL's customer contract termination

DHL is letting go of 80 employees in the Houston area after a customer terminated its contract. The company warned about nearly 152 employees being affected, depending on ongoing negotiations with the customer.

A company spokesperson stated, "A DHL Supply Chain customer made the decision to terminate its contract with DHL and move the business to a new logistics provider. As such, 80 warehouse associates will be affected from our Missouri City and Sugar Land facilities.”

Ongoing negotiations and employee support

Since this [Worker Adjustment and Retraining Notification Act] notice has been issued, we are in active dialog with our customer which may impact the outcome of our business,” DHL noted. The company plans to support affected employees, exploring opportunities with other logistics providers or within DHL Supply Chain's operational footprint.

Gap Inc. partners with Optoro for returns management

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Gap Inc., the company behind the brands such as Gap, Old Navy, Athleta, and Banana Republic, recently announced its partnership with returns technology company Optoro to diversify its reverse logistics and fulfillment offerings.

Optimized restocking and shipping savings

Optoro’s returns platform will integrate with Gap’s existing system to streamline returns and exchanges while accelerating processing times. This will bring significant improvements to restocking, according to Optoro’s CEO Amena Ali. Gap has also activated Optoro's Express Returns drop-off service at Staples stores, providing significant savings on consolidated returns shipping.

Efficient returns management

Optoro's software focuses on efficiently reintroducing returned goods into circulation, reducing markdowns. It offers smart routing, inventory, and warehouse management following a return.

Reducing shipping costs and strengthening logistics

With the express returns service, Gap can consolidate shipping, saving about 20% in costs. Furthermore, in response to pandemic-induced supply chain challenges, Gap has been bolstering its logistics and fulfillment capabilities by launching GPS Platform Services for omnichannel fulfillment, including reverse logistics services and collaborating with. In February, Gap also collaborated with UPS unit Ware2Go to extend its fulfillment and distribution services to shippers.

3PLs lead in big-box warehouse leasing

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Third-party logistics providers (3PLs) leased more big-box warehouse space in North America than any other sector in 2022, a first in recorded history, according to a recent CBRE report. 3PLs accounted for 41% of all leasing transactions at warehouses and distribution centers above 200,000 square feet.

The shift from retailers to 3PLs

Retailers and wholesalers (previous leasing leader) followed at 31.5% of the leasing share. A surge in demand for 3PL services led to a record low direct vacancy rate of 3.3%, resulting in a 23% YoY increase in first-year base rents.

Reasons for 3PL popularity

“Companies are increasingly relying on 3PLs to combat pandemic-related disruptions and fluctuating demand.”, said John Morris, President of CBRE’s industrial and logistics business in the Americas. Lowering costs and improving reliability also contribute to firms transitioning to 3PLs.

Future of leasing activity

Despite a slowdown in demand at the end of 2022, CBRE anticipates that 3PLs and online fulfillment tenants will continue to drive activity throughout  2023 and 2024. This year's leasing activity might fall behind 2021 and 2022, but it is still expected to be the third-largest year on record.

FreezPak and BG Capital's billion-dollar partnership

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FreezPak Logistics and BG Capital are teaming up to construct cold storage facilities across the United States. The partnership aims to build cold-storage warehouses worth $1 billion in port-centric markets.

Filling the market gap

The companies will construct over 200 million cubic feet of cold storage space, creating 310,000 pallet positions by Q4 2024. They intend to meet the underserved market demand for high-tech cold storage facilities.

Eyeing national expansion

Although the targeted markets are not specified, potential locations include Florida, California, Texas, Washington, Georgia, and Michigan. The first project announced is a 170,000-square-foot cold chain facility in Philadelphia.

FreezPak's vision

Family-owned FreezPak Logistics, with five operational facilities, has an objective to offer superior same-day and next-day services. It will create 60 jobs and utilize 30 robots for pallet management in its second Philadelphia facility.

Philadelphia's state-of-the-art facility

The Philadelphia facility will provide cooler and frozen temperature zones over 165,000 square feet of space, featuring 20 loading docks, 30 trailer parking stalls, and a large cooler dock. Conveniently located near Packer Avenue Marine Terminal and Interstate 95, it reaffirms FreezPak's commitment to a national warehouse network.

Thank you for reading! We’ll see you in the next edition of CrossDock.

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