Ecommerce Guide to Contract Warehousing: Benefits & Third-Party Solutions

Storing inventory in a basement or spare room is only sustainable for so long. At some point, you’ll outgrow the space – and to keep scaling your business, you’ll need a more long-term storage solution.  

For many brands, that solution is a contracted warehouse. Contracted warehouses give ecommerce businesses the space to store their products, fulfill their orders, and manage their operations without having to build their own warehouse facility from scratch.  

In this article, we’ll dive deep into the key features of contract warehouses, the benefits of contract warehousing, and how to choose the best warehousing partner for your brand.  

What is contract warehousing? 

Contract warehousing is an arrangement in which a third-party company agrees to store a client’s inventory in their warehouse.  

While the warehousing company owns the facility, they rent out storage space in that facility, and may also receive inventory and fulfill orders on behalf of the client. 

This type of ecommerce warehousing typically involves a long-term partnership, with contracts lasting for several months or years. Each contract warehousing provider will have their own fee and pricing structure, depending on what value-added warehouse services they provide.  

Key characteristics of contract warehousing 

There are lot so different kinds of ecommerce warehousing. Here are some of the features of contract warehousing that make it unique.  

Locked-in service agreement 

In contract warehousing, you have a legally binding agreement guaranteeing you access to the storage space (as well as any other provided services) for a specified period of time.  

Once that contract is in place, both the merchant and the warehousing provider are “locked in,” and can’t go back on the agreement.  

This can be beneficial, protecting you from surprise fees or expenses. However, a locked-in service agreement also means that you’ll have to incur fines if you have to end your contract before the agreed-upon termination date. 

Low capital and costs 

When you contract a third-party storage space, you don’t have to rent or buy your own warehousing space. This makes it much easier for smaller ecommerce businesses to find viable warehouse solutions, and for you to scale your brand without a lot of capital investment. 

Contract warehouses may even help you reduce your overall expenses, since you won’t have to deal with the costs of labor and infrastructure. Depending on your brand’s size and order volume, outsourcing to a professional warehousing partner may be the most cost-effective solution. 

Scalability 

Contract warehouses typically have large spaces to accommodate your additional storage needs. As a result, they may be able to scale their storage capacity and services according to your business needs as you grow, so you don’t have to constantly seek out new warehousing solutions.  

Many contract warehouses also offer flexible capacity during peak periods, so they can store and handle larger amounts of inventory during periods of high demand.  

Customization potential 

Some contract warehouses allow for customization to meet your unique needs. While customizations to the facility itself will be limited (in which case you’d want to look into built-to-suit warehouses), contract warehouse companies often provide value-added services such as pick-and-pack fulfillment, cross-docking, inventory management, custom branded packaging, and more. You can tailor your agreement to include specialized services that address your business’s specific needs. 

Reliability 

Contract warehousing companies have expertise in managing warehouses and warehouse operations. This means you can rely on them to effectively handle this aspect of your ecommerce operations, and leverage their industry knowledge and best practices to optimize various warehouse KPIs (such as on-time fulfillment and order accuracy). 

Contract warehousing vs. public warehousing 

Since both contract and public warehouses generally serve the same purpose, people often conflate the two. However, there are a few key differences between these two warehousing options, mostly in terms of: 

• Number of clients: Public warehouses store inventory for multiple merchants at a time. Some contract warehouses may do this too, but some may also dedicate their entire warehouse to a single client.  
• Contract length: Public warehouses usually offer shorter-term leases, making it better for those who need flexible short-term storage solutions that they can end at any point. Contract warehousing comes with long-term agreements, where you get warehouse space for months or years. This makes it the ideal option for those who need guaranteed warehouse space for longer time periods. 
• Value-added services: Most public warehouses just offer storage space. Contract warehouses may offer customized services beyond storage, such as fulfillment, kitting, returns management, and more.  

Contract Warehousing	Public Warehousing
Locked-in service agreements	Flexible agreements
Long-term storage	Shorter-term storage
Guaranteed storage space	Space is allocated on a first-come-first-served basis
Value-added services and customization potential	Standard storage

Benefits of contract warehousing for ecommerce 

Leveraging a contract warehouse can benefit your ecommerce brand in a lot of ways. Here are three of the main advantages of contract warehousing.  

Grow with efficiency and at scale 

Maintaining a private warehouse is expensive, especially for businesses that are still growing or that experience fluctuating demand. Contract warehousing offers a cost-effective solution that gives merchants of all sizes the ability to scale up or down according to their order volume and storage requirements.  

Many contract warehouse companies have multiple storage facilities that you can leverage if you need extra space to accommodate a surge in demand, or that you can use to distribute inventory strategically across multiple regions to reduce shipping costs and times for customers.  

For instance, as an expert supply chain platform, ShipBob offers you a vast network of fulfillment centers globally that you can use to store, fulfill, and ship your inventory cost-effectively.  

Optimize inventory management 

Besides just storing your inventory, contract warehouses can actually help you manage and track your inventory. Contract warehouses will sometimes take on warehouse inventory management activities for you, like:  

• Receiving pallets of inventory from manufacturers and suppliers 
• Counting and checking units for quantity and quality 
• Stowing SKUs in the correct storage locations 
• Scanning each unit as it moves through different areas of the warehouse or stages of fulfillment to provide up-to-date tracking information 
• Handling returns and restocking products 

With experts handling all the complex aspects of inventory management, you can not only save time and energy, but even optimize your inventory operations for accuracy and efficiency.  

Additionally, professional warehousing and fulfillment providers like ShipBob offer sophisticated technology integrations that provide you with real-time inventory visibility across all your locations and sales channels. With the ability to see exactly how much inventory you have and where specific items are located at all times, you can manage your inventory effortlessly and restock inventory at the right time to avoid costly stockouts and backorders. 

Streamline ecommerce fulfillment (and even returns management) 

Some contract warehousing providers also offer ecommerce order fulfillment solutions to help you streamline the final stage of warehousing. You can leave all the complexities of picking, packing, and shipping to the experts, spending less time on fulfillment and more time on growing your business. Equipped with advanced fulfillment technology and automation, contract warehousing providers can speed up your fulfillment operations while improving accuracy. 

Many contract warehouse providers can also provide returns management services. With a centralized location to manage all your ecommerce returns, you can simplify the entire process without having to dedicate resources and workforce. Technology integrations with leading returns management platforms will help you seamlessly process and account for returned inventory. 

How to choose the right warehousing partner 

When you’re ready to look for a warehousing solution, it’s important to look at your warehousing needs and determine which model is the best fit. Here are some steps to help you choose the best warehousing provider for your business. 

Assess compatibility with your business model 

It’s important to carefully examine your business model to get a better understanding of the type of warehouse you’ll need. Ask yourself the following: 

• How much storage capacity will you need? In which locations? Will you need extra storage space during periods of peak demand? 
• How long do you plan on needing a warehouse? 
• Do you need a dedicated warehouse, or are you open to sharing a facility with other brands? 
• What other warehousing activities would you want to outsource (inventory management, picking, packing, kitting, returns, etc.)? 

Consider these factors and select the warehousing strategy that best aligns with your brand’s needs and goals. For example, if you don’t know how much longer you’ll be in business or only sell very seasonal products (i.e., holiday decor), a public warehouse would give you the flexibility and freedom you need. Alternatively, if your brand is established and you want help with warehousing activities like fulfillment, a contract warehouse would be the best fit.  

Evaluate technological and logistical capabilities 

Once you’ve determined which type of warehouse you need, you can start looking for a warehouse provider.  

While you will obviously want to consider a potential provider’s storage capacity, there are lots of other criteria that the right partner should meet.  

First, do a deep dive into their service offerings. A capable warehouse provider will offer all of the warehousing and logistics services you need – including ones that you anticipate you’ll need as you scale – and will constantly be investing in and adding to those services.  

Second, consider the warehouse provider’s technology. If the warehouse still runs on outdated processes and manual record-keeping, it won’t be able to support your brand as it grows. Instead, look for a warehouse partner that: 

• Leverages a warehouse management system (WMS) to power and coordinate warehousing activities  
• Offers real-time insight into key metrics and performance data through a single portal or dashboard 
• Integrates seamlessly with your existing ecommerce platforms, marketplaces, and tools 
• Automates repetitive or menial tasks to save time and money 
• Delivers a unified view of your warehousing operations across all your sales channels and locations 
• Is easy to train new employees on and intuitive to navigate 

Partner with an industry-leading 3PL 

Not all warehousing providers are created equal. While outsourcing to a third-party logistics company is often an ideal solution for ecommerce brands, you’ll want to choose a vetted partner that offers: 

• A large fulfillment network so you can store inventory closer to customers and reduce transit times and costs 
• Transparent pricing with no hidden fees 
• Omnichannel inventory and order management  
• Solid SLAs for receiving, storage, fulfillment, and shipping 
• Time back to focus on tasks that drive sales and increase revenue 
• Great customer support 

“We’ve scaled so much, and there have been zero hiccups in fulfillment with ShipBob. I don’t think even as we keep scaling in the years to come that there will be any hiccups there.

That cannot always be said of brands that run their own warehouse. Running your own warehouse, you have to go out and hire very experienced people, invest in equipment, build in automation – and often, you’re wasting a lot of time, energy, resources, and human capital for a sub-par result. Why do that when a partner like ShipBob exists, and makes fulfillment so easy at a fair price?”

Tyler McCann, Co-Founder of Taste Salud 

ShipBob’s warehousing solutions create ecommerce winners 

ShipBob isn’t just another contract warehousing solution – as an expert supply chain and fulfillment platform, ShipBob leverages cutting edge technology and best practices to optimize all your warehouse operations and save you time and money.  

Tailored solutions for diverse needs 

ShipBob enables you to customize key aspects of your operations to create a warehousing solution tailored to your brand.  

With flexible storage options to accommodate peak season volumes, you can store as much inventory as you need throughout ShipBob’s fulfillment network. Our team of fulfillment experts will pick, pack, and kit orders to your exact specifications, as well as use your custom branded packaging to create curated unboxings for customers. ShipBob even lets you specify how to process returns (whether to quarantine, dispose, or restock items), so you can achieve the warehousing you want without the hassle.  

World-class warehouse management system (WMS) 

ShipBob’s proprietary warehouse management system powers dozens of ShipBob fulfillment centers around the world – and can power yours, too. Brands that already have a warehouse can leverage ShipBob’s WMS to optimize their existing warehouse operations for efficiency and cost while boosting productivity and order accuracy. 

ShipBob’s WMS features: 

• Checks and balances at every fulfillment stage 
• Location-specific inventory visibility 
• Intelligent cycle counts. flexible options for batch, auto-cluster, custom cluster, and single-order picking 
• Prescriptive, visual step-by-step packing flows and built-in visuals  
• Turnkey integrations with all major ecommerce platforms and marketplaces 
• Virtual or on-site implementation with zero down time, led by operations experts 

Distributed inventory for widespread fulfillment 

ShipBob’s network of 50+ fulfillment centers allows you to leverage distributed warehousing for strategic fulfillment. You can spread your inventory across multiple locations and ship out orders from the nearest fulfillment center to reduce shipping times and costs and bolster your bottom line. 

You can even use ShipBob’s Ideal Inventory Distribution tool to calculate the best split of inventory across ShipBob’s network.  

ShipBob also has fulfillment centers in the UK, Europe, Australia, and Canada. These strategically located warehouses enable merchants to store inventory and ship locally to international customers, saving money on duties and taxes while minimizing cross-border complexities.  

“By leveraging ShipBob’s US fulfillment network, we’ve significantly reduced shipping times. Previously, it would take us five to six business days to deliver items to customers. However, with the utilization of four of ShipBob’s US fulfillment centers, the average delivery time has been reduced to just two and a half days from order receipt to customer receipt.

Expanding our warehouse network from 2 to 4 warehouses has translated into substantial cost savings, amounting to $1.5 million in freight expenses for Our Place. Currently, only 2% of our parcels are reaching Zone 7 or Zone 8 collectively, indicating that 98% of our parcels are reaching Zones 1 through 6. By shipping locally to lower zones, we’re achieving the most significant reductions in outbound costs.”

Ali Shahid, COO of Our Place 

2-Day Express shipping that meets customer expectations  

With ShipBob, you can offer 2-day express shipping so that customers receive their orders as quickly as possible. You can even highlight estimated delivery dates and feature 2-day badging on product pages to boost conversions and reduce cart abandonment rates. 

“With our last 3PL, if our customers wanted free shipping, they had to have economy shipping and wait 5-8 days for delivery. Whereas with ShipBob, we can offer free shipping and customers receive their order in 3-5 days. I believe part of our increased conversion rate is due to our customers seeing the option for faster shipping at checkout. ShipBob’s 2-Day Express ship option definitely helps this.”

Peter Liu, Co-Founder of RIFRUF   

Unmatched inventory allocation and placement program 

Through ShipBob’s Inventory Placement Program, you can stop constantly reevaluating how you allocate inventory across different warehouses. Instead, this program makes use your brand’s actual historical data to calculate the inventory split that will enable you to meet demand and achieve in the lowest possible transit times and shipping costs.  

ShipBob will even take care of physically distributing your inventory according to that plan for you. Simply send all your inventory to a single ShipBob receiving hub, and we’ll take care of transporting it to regional fulfillment centers.  

“I ran the numbers to see what it would cost to ship pallets directly to different fulfillment centers, and it’s so much more expensive than sending it to one hub and letting ShipBob distribute it for us. The Inventory Placement Program’s model is much cheaper, and we don’t have to think about distribution. It’s saved us so many headaches, and now we just arrange one pickup from a manufacturer and one delivery. It’s so cheap, and so easy.”

Matt Crane, Co-Founder and Chief Science Officer at Semaine Health 

For more information on ShipBob’s warehousing services, click the button below. 

Contract warehouse FAQs 

Below are answers to the most commonly asked questions about contract warehouses.