Port Report: Wayfair grows its international logistics business to keep up quick delivery times

Online retailer ramps up warehousing and ocean freight presence as part of meeting tight delivery window demanded by customers.

Wayfair (NYSE: W) is getting a great deal of attention for opening a physical store this coming fall, the first for the online retailer. But opening one store belies the bigger opportunity Wayfair sees in growing its in-house logistics operation.

Wayfair is still primarily an online storefront for its 11,000 suppliers, who drop ship orders to customers using any of the major parcel carriers.

But the company’s one-year old CastleGate Logistics unit is taking on an increasing role in moving those goods.   

CastleGate’s 10 North American and two European fulfillment centers bring suppliers’ product closer for final-mile delivery, either through regular parcel service or through the Wayfair Delivery Network, its oversized delivery service .

Along with adding additional CastleGate sites in the U.S., the company wants to provide the international leg of a product’s journey to customers. To that end, CastleGate is  adding warehouse space in China and opening a new warehouse in Vietnam as part of a pilot project for forward positioning of products and consolidating ocean freight for direct delivery into CastleGate’s warehouses.

All in, the company expects to add 1 million square feet of warehouse space internationally and another 3 million square feet domestically to its CastleGate network.

Troy Hatlevig, who heads inbound logistics for Wayfair, said the project helps Wayfair’s suppliers better manage their inventory since they will not have to ship a full marine containers’ worth of goods internationally. The project also ensures Wayfair has enough products on hand to meet its quick delivery schedules.

“We’ve realized that in order to take it to the next level and provide one-day and same-day shipping, we’re going to need to do a much better job of coordinating all the way back to China, Vietnam, Malaysia and Indonesia – where a lot of goods get manufactured – so we can continue to drive that speed advantage,” Hatlevig said at the Coalition of New England Companies for Trade conference in Rhode Island.

The push in international logistics means CastleGate is becoming more of a direct customer of ocean carriers, rather than tapping third-party logistics providers for seaborne capacity. After the pilot launch of its first ocean container shipment from China in 2018, Wayfair Chief Executive Niraj Shah said on a conference call that up to 40 percent of the container volume into its CastleGate facilities “will come from suppliers that are choosing to purchase inbound supply chain services with us, including ocean freight and drayage.”

Along with transportation services, CastleGate is also looking to add services, such as customs brokerage and duty drawback as part of its logistics quiver.  

“We are a freight forwarder essentially and we are increasingly moving those goods on behalf of our suppliers,” Hatlevig said. “Up until a year ago, it was up to our suppliers to find a freight forwarder to move those goods into our distribution centers.”

The key to CastleGate’s network is the proliferation of software and data services for tracking containers and other logistics assets. CastleGate uses a variety of tools from well-established players such as Advent Intermodal and start-ups such as project44, Spire and FourKites.

The company plans to add 1,000 engineers to help stitch together its supply chain dashboard and provide the analytics that help CastleGate manage when and where to position inventory.  

“I often joke that we’re a technology company that happens to sell furniture,” Hatlevig said. “But an important part is making all the technology line up around demand signals, pricing and supply chain optimization.”

As it grows its own ability to move freight globally, Hatlevig was asked whether he sees an opportunity for CastleGate to move freight on behalf of customers outside of Wayfair. While it’s an intriguing opportunity, he said CastleGate is “really focused on being excellent at moving freight on behalf of Wayfair suppliers into CastleGate warehouses.”

“Certainly, we’ve had conversations about moving freight into other warehouses, but it’s not something we are currently focused on,” he added.

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