Get Ready for Warehousing’s New, Competitive Landscape
Like all other logistics services, warehousing faces change, disruption, and volatility.
Change, disruption, and volatility stem from uncertainty about trade with China, ongoing global supply chain shifts, and new technologies. Yet, against this backdrop, trade is increasing.
That will lead to more volume and more congestion. All the while, customer expectations are increasing not decreasing.
As a result, the warehousing industry is adapting. Specifically, five key trends are emerging. They will change warehousing as you know it. It’s important to know and understand these trends to compete in the future.
The five key trends shaping the future of warehousing are: (1) Growth of port business in the Gulf and East coasts; (2) Tailored, on-demand warehousing; (3) The advent of precision-based inventory management; (4) The decline of available of warehouse space and the rise in costs; and (5) The expansion of systems interoperability.
Trend #1: Growth of Port Business in East & Gulf Coasts
A shift in business from the west cost to the east and Gulf coasts has been underway. The driver of that shift was the trade war with China. The pandemic may have also contributed to that shift.
Many businesses have relocated from China to other countries. Supply chains have moved to new locations in Southeast Asia and the Americas. Since then, we’ve seen more Asian traffic rerouted through the Panama Canal.
East coast and Gulf coast traffic has also increased driven by the rise of eCommerce. Also, the Gulf’s coast’s increase in the manufacture and export of resin contributed to more business growth. In particular, Houston has seen its container volume grow by double digits, since 2017.
As business grows at these seaports, competition for warehouse space will increase. Along with that, the need for customized warehousing will also rise.
Trend #2: The Growth of Tailored, On-demand Warehousing Services
The competition for limited warehouse space will challenge logistics service providers (LSPs). Meeting that challenge requires new, creative solutions focused on shippers’ needs.
One new initiative at the Port Authority of New York and New Jersey (PANYNJ) is to identify unused warehouse space. Vacant warehouse space exists in pockets and is not easily visible. So, PANYNJ developed a database to identify vacant space for short-term use.
This enables shippers to use vacant space to support surges due to seasonality. Likewise, it helps support shippers in managing disruptions like Covid-19.
PANYNJ’s creation of a database maximizes the use of unused warehouse space. Moreover, it enables shippers’ needs to move slow and fast-moving inventory. That simple idea promotes supply chain flexibility.
This modular, short-term solution also benefits shippers’ bottom line. It may lead to variable pricing, charging shippers only for space used for the time its needed.
In the future, other ports will likely seek to provide tailored, on-demand warehousing services.
Trend #3: The Advent of Precision-based Inventory Management
The above-mentioned changes are increasing the demand for precision-based inventory management. Covid-19 has caused the logistics industry to relook lean inventories. Namely, when does it make sense to go lean and when doesn’t it?
Precision-based inventory management means achieving the proper balance of inventory and cost. We’re now seeing that on a macro-scale, as businesses move their supply chains closer to the customer.
At the micro-level, we will see tighter warehouses and in transit inventory management. By that I mean, the industry will likely see the integration of services. We will see improved end-to-end- supply chain management.
LSPs will integrate management of containerized freight coming into ports down to the less-than-truckload (LTL) level.
This practice addresses gaps as cargo moves downstream from port side to the customer. It extends visibility of the supply chain helping to move cargo out of ports faster. That improves velocity and on-time delivery, promoting supply chain efficiency.
Trend #4: The Decline of Available of Warehouse Space and the Rise in Costs
Currently, available warehouse space is not a critical issue. That’s due to reduced manufacturing activity and blank sailings.
But that’s changing.
Businesses and the economy still face many challenges. Instead, it appears we will see a V-shaped economic rebound.
Relying on the experts, planners expected a long recovery period. So, they reduced capital investment spending on warehousing and distribution. That decision will impinge on future space availability.
We’re seeing early signs now.
First, vacancy rates in the fourth quarter were 2.5%. That’s down from 4% in the fourth quarter of 2019. Second, blank sailings are on the decline. And third, rents are increasing.
CBRE Group projects a 5% increase in rent increase for industrial properties in 2020. That’s on top of rent increases over the four prior years. And eCommerce is adding price pressure, especially in urban areas.
Over the last five years smaller properties located in cities, increased more than 30%. Meanwhile, larger warehouses (>500,000 sq. ft,), located outside of city limits where land is cheaper, increased 15%.
As growth picks up, the squeeze on space will continue. Furthermore. as shippers vie for limited space costs will climb.
Trend #5: The Expansion of Systems Interoperability (Integration Platform as a Service iPaaS)
The previous four trends focused on external and internal issues. The fifth trend focuses on technology – Application Programming Interfaces (APIs).
Warehousing has become a prime candidate for the use of APIs. APIs have several benefits that augur well for industry-wide adoption.
APIs enable you to leverage data across many systems easily. They are quick to employ, easy to use, and cost-effective.
Moreover, APIs can connect disparate warehouse management and robotics systems in use. They can also connect to transportation management systems. Finally, they eliminate the need to set up EDI for each partner. This simplifies communication with trading partners.
Integration Platform as a Service or IPaaS helps reduce costs and complexity. For this reason, iPaaS will gain in popularity.
Warehousing is changing. As with everything else, it’s not standing still.
Warehousing will continue to operate in an ever more complex and uncertain environment. That’s a given. It will place greater pressure on shippers, as they fight for limited warehouse space.
So, we will likely see shippers rely more on 3PLs to handle warehousing and distribution. Rising customer expectations will further reinforce reliance on 3PLs.
As uncertainty prevails, working with a qualified partner will give you peace of mind. When you partner with American Global Logistics , you’ll get warehousing and distribution services you can count on.
These five trends suggest warehousing and distribution will be more specialized, precise, and focused. We do that today at American Global Logistics. We don’t follow trends – we lead them. Creating customized solutions to meet your needs is in our DNA.