What is Contract Warehousing?


In this blog, we’ll take a closer look at one type of warehousing which is called “Contract Warehousing”.

What is Contract Warehousing?

The warehousing services offered by third-party logistics (3PL) companies are basically of two types: shared and contract.

In shared or public warehousing, the warehouse space and the 3PL provider’s resources are divides among many warehouse ‘tenants.’ This model gives the flexibility to the companies to use more or less space and resources as per their requirements. The cost of public warehousing is affordable and is flexible as well, as companies only pay for the space and services they use.

In contract (or “dedicated”) warehousing, the warehouse space and resources are fixed, so the cost is fixed. The tenant company is committing to the fixed space and resources for the time period of the contract (these contracts are for the long term, while shared contracts are for the short term).

Here are a few basic contract warehousing models:

1. The 3PL owns the warehouse and dedicates the complete facility (or part of the facility) – and the necessary resources – to the operations of the tenant company

2. The 3PL owns the warehouse space and the tenant company runs all operations within it by itself, without using 3PL’s  resources and associates

3. A company owns or leases a warehouse and hires a 3PL to staff it and run all operations within that space

Contract warehousing can also apply to just part of a warehouse.  For example, a company may commit to a contract warehousing arrangement for 30,000 square feet out of a 130,000-square-foot warehouse. The 3PL can use the rest of the empty space for shared warehousing or even other contract arrangements.

What types of companies are suited best for contract warehousing?

There are various factors that can help determine whether an operation is suited for shared or contract warehousing. For instance, if a company’s sales volumes change substantially (e.g., it needs much more space and resources near the holidays than it does the rest of the year), then shared warehousing is likely a better fit.

If, however, the volumes are consistent throughout the year so that resources are not underutilized – and substantial enough to fulfill the space – then contract warehousing may be the best, most suitable, choice.

Contract warehousing is a better solution for companies that like the predictability of a set fixed rate for their operations instead of the fluctuating rates which is the case with shared warehousing. Moreover, companies with operations large enough to warrant their own facilities may prefer to contract with a 3PL that owns a building because there’s less risk involved.

What to look for in a contract warehousing provider

The things you need to look for are not all that different from shared warehousing providers. Some examples include:

Warehouse management system (WMS): you want to make sure that your 3PL partner has up to date WMS that can manage your inventory, orders, and reporting the way you want them managed.

Temperature-controlled capabilities: if your products have temperature- or climate-related needs, you want to make sure your 3PL partner has all the necessary resources to store such products.

Strategic location: you want to choose a 3PL with a location that enables fast distribution to your customers – whether retailers, manufacturers, or eCommerce customers.

Learn more about Tenaxx Logistics warehousing services

Whether you’re looking for shared or contract warehousing, Tenaxx has got you covered. We have over 50,000 square feet of warehousing space – with the ability to add more to meet customer needs.  To learn more about Tenaxx warehousing and fulfillment capabilities, contact us today.