The market’s limited warehousing space is a result of the paradigm shift in how products are delivered.
“The strength and growth in our current economic cycle is because of a shift to a B2C environment,” says Brad Maloof, president of AMWARE Companies. “Couple that shift with global supply chain uncertainty, and available warehouse space falls to historic lows.”
Inventory levels are increasing because of the need to get product to a customer’s doorstep fast, also known as the Amazon effect, and to reduce volatility in global trade. That’s increased the amount of warehouse space needed.
“As space tightens and prices increase, it’s imperative for companies to be not only smarter with their warehousing strategies, but find partners capable of efficiently managing changing capacity needs,” he says.
Smart Business spoke with Maloof about how companies can affordably get the warehousing space they need.
How are companies responding to the market’s tighter warehousing conditions?
Shippers are securing any space they can. Sometimes it’s space that’s less desirable than what they’d like, but they’re realizing that if they don’t secure it, there might not be any available to them later.
Other companies are on the sidelines waiting for space to become available, and that can have a negative impact on their business. They may wait too long and either end up settling for a space or a partner that isn’t able to meet their needs, or find they’re locked out of a market entirely.
How are warehousing companies working to accommodate clients?
Public warehouses can satisfy the need for space on both a temporary and permanent status. Some shippers’ business is cyclical, so they use public warehouses to flex up or down with their cycles because they don’t need the same space year-round. Others may use public warehousing because they have installed production lines where their internal warehouse once was.
Dedicated warehousing companies have a great deal of space that can accommodate a range of products. They offer their customers the flexibility to use more or less space, depending on the need, and enable companies to defer much of the cost and responsibility of warehousing that they’d bear if they were to build and use their own facility. The right distribution partner can also offer expertise beyond warehousing and distribution. World-class distribution facilities also offer a range of services, including software for freight optimization, trucking, rail and 3PL/4PL services to optimize logistics and supply-chain activities.
World-class businesses must have a clear distribution strategy. Those strategies can range from fully outsourced to strategic/partial third-party usage, to operating their own distribution network. Unless you have the capital and expertise to be best in class in the warehouse and distribution arena, outsourcing to the right partner often represents the best value proposition.
What is the outlook for the warehousing market in the coming years?
Lease rates in the industrial space are expected to remain high. Shippers should look to gain cost efficiencies through more accurate modeling and budgeting when it comes to product volumes. Work with warehousing partners that have modern spaces built to accommodate today’s needs, and processes that enable them to accurately account for, and efficiently ship, product.
The better warehousing companies, public or dedicated, work with their customers and are deeply integrated into their supply chains. Key procurement components that can’t be overlooked include contract versus ad hoc and the terms that govern the relationship (both Service Level Agreements and payment terms).
Long-term contracts can play a key role in delivering high levels of service and a significant reduction in longer-term volatility. Public warehouse partners can provide both short-term solutions and long-term engagements that provide the flexibility to meet strategic supply chain needs.
Given the demands for warehousing space and its limited availability, customers don’t have the luxury they once had of capacity existing whenever they need it. Shippers need to plan to develop optimum distribution solutions, or risk settling for an expensive and unreliable solution.
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