Is on-demand warehousing the solution to the warehousing capacity crisis?

Real Estate Investment Trusts (REITs) had an exceptional year last year with booming stock prices and rising profits, and this situation looks set to continue in the near term, with demand for warehousing outstripping supply. According to the latest Prologis Rent Index, global rents for industrial warehousing rose by 6% in 2015, with an overall increase of 20% over the last three years.

As such, along with other leaders in the sector, such as GLP and Mapletree, the company has seen occupancy percentage rates in the high 90’s. A large reason for tight supply in the market is the demand for e-fulfilment services such as picking and packing; operations which are labour intensive and make inefficient use of space.

In such a market, smaller warehouse owners experiencing underutilisation may feel somewhat aggrieved. On the other side of the equation, shippers looking to rent are finding their options increasingly constrained due to a lack of available capacity and increasing expense.

At the same time, the development of cloud computing has enabled an explosion in software services offering to match demand with supply in a manner that is, at least in theory, highly conducive to flexible logistics services. We have already seen the growth of platforms matching carriers with shippers; companies such as Freightos, who will be attending Ti’s London Conference on June 8, which offer shippers instant quotes and greater visibility in a market traditionally characterised by personal relationships.

Given that the systems exist to provide such a service, are warehouse marketplaces a viable option?

One company testing this model at scale is Seattle-based FLEXE, a start-up company with a presence in 225 locations across the US and Canada.

The company acts as a marketplace for warehousing space, connecting lessees and lessors with cloud based software, and makes money by charging commission on top of the leasing fees set by the latter. The company’s SaaS offering also provides the former with a warehouse management system, inventory management and billing services, which can be accessed and managed by customers through nothing more than an internet connection.

The minimum utilisation requirements for those looking to access warehousing space are a 30-day lease, and at least 50 pallets of goods. Passing these requirements, inventory owners have the advantage of enjoying a fast and flexible service, including software that was until relatively recently quite expensive to purchase. Whilst the service is fairly basic at present, FLEXE is trialling operations that also offer case pick and fulfilment within the marketplace and anticipate rolling such services out as part of a wider offering during this year.

In addition, there are several other businesses that provide flexible warehousing on demand, not least Amazon, through its FBA service, and Shipwire, which is backed by Ingram Micro. However, such companies offer integrated supply chain services, rather than pure-play warehousing solutions, and all are asset-owning, though performing a similar function to that of FLEXE for shippers. The major advantage to the marketplace platform of FLEXE is that it targets owners of under-utilised warehousing space, who have a great incentive to buy into the service in such a tight logistics property market.

Nonetheless, in both cases, the chief advantage is flexibility. For small or growing businesses that may need to scale up rapidly, the combination of long-term leasing requirements and increasing rents can be a major headache. On the side of warehouse owners looking to sweat their asset, unpredictable or suboptimal utilisation is almost as big a problem. On demand services such as FLEXE provide a quick fix to these problems for both sides, and it will be interesting to see how many more companies choose to follow suit.

Source: Transport Intelligence, 12th April 2016

Author: Alex Le Roy

The increasing use of technology and platforms which allow for greater access to market information will form the basis for a number of sessions at Ti’s upcoming Future of Logistics conference. To find out more about the two-day event, to be held in London on 6th-7th June 2016, please visit our conferences page or click below to buy your ticket.

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