Home » 3PL/4PL, Breaking News » COVID-19 to change warehouse market ‘for good’—report

The COVID-19 crisis is challenging many key warehousing trends, prompting companies to take a far more nuanced or multifaceted approach, especially when it comes to inventory stocking, according to a new report from Transport Intelligence (Ti).

The paper highlights several ways in which the warehousing market is set to undergo a transformation. “Some of these changes will be driven specifically by Coronavirus; others will be trends that pre-existed the pandemic but which will be accelerated by the social and economics changes which it wrought,” added the report.

From lean to higher inventory: The first major trend is that of increased inventory holdings, according to John Manners-Bell, CEO of Ti and report author. In the future there will be less lean and more safety stock as an insurance policy against market uncertainty, he predicts.

“The increased levels of inventory will need more warehouse capacity in which to store them. This additional capacity may come from larger warehouses or from more warehouses or both,” depending on individual sectors and the inter-relation of various dynamics.

From in-house to third party logistics: Manufacturers and retailers will be more likely to turn to a third party logistics provider rather than deal with the challenge of maintaining large numbers of warehousing staff, especially with the ever present possibility that Coronavirus may return at some point.

The report points out that 3PLs have the ability to manage large work forces, and they often have existing networks of facilities in multiple geographic locations, which can be an advantage as downstream distribution requirements could start to fragment with the growing importance of local and urban markets as well as the increase in protectionism.

 From dedicated to multi-user: Expect a move from dedicated, long-term warehouse operations to multi-user operations amid the market turbulence.

“The new market environment will require greater levels of flexibility which allow manufacturers and retailers to ‘plug’ into existing warehousing operations. Short set up times, quick training of staff and off-the-shelf technology will be essential to allow customers to move into new markets as and when demand occurs. The growing requirement to serve smaller localized markets will also favour operations within existing distribution centres,” noted Manners-Bell.

From long term to shorter term logistics contracts: The move by manufacturers and retailers toward shorter contracts is in response to the “wild variability” of the market under the “new normal.” Contracts on a medium-term basis (3-5 years) or even longer are no longer satisfactory in an unstable economy, “as such a model will leave companies exposed to the risk of having too much (or too little) inventory as well as warehousing capacity located in the wrong markets,” said the report.

The growth of on-demand warehousing: The huge demand created for warehousing in some sectors by Coronavirus has led to more manufacturers, retailers and 3PLs making more use of short term and flexible warehousing capacity.

The business models of these on-demand warehousing companies vary, with some offering a pay-as-you-go service, and others offering co-warehousing spaces. However, they all offer an alternative to the longer term lease options which take time to negotiate and lock the warehouse user into a solution which might become out-of-date almost immediately.

From ‘low inventory’ to ‘availability of product’: Coronavirus is accelerating the growing priority for availability of product (as opposed to the minimization of inventory).

“The Coronavirus lockdown of consumers has driven up e-commerce volumes (although not necessarily profits, as in the case of Amazon) and engrained customer expectations of the level of service. Many believe that this will now become the ‘norm’. If retailers are to match the service provided by e-retail platforms, they too will need to devise strategies that either increase the level of stock in store from which to make home deliveries, or develop a network of smaller, more local facilities,” said the whitepaper.

Increase in specific e-commerce/omni-channel facilities: Coronavirus has helped to accelerate e-commerce sales and drive demand for e-commerce warehousing designed for the fast flow of small, individual items often delivered by a variety of trucks and vans to the end-user.

This means that warehouses are getting bigger as more room is required for the physical handling of so many smaller packages. Also, e-retail facilities are often open around the clock, picking and packing shipments for next day delivery. While the e-commerce model requires warehouses with larger footprints, it will also be the case that there will be more of them. This will require many more satellite warehouses from which shipments of a limited number of SKUs can be dispatched on an on-demand basis.

From global/regional to national/local: Coronavirus has led to the scrutiny of the global and regional supply chain model “as various parts of the supply chain and the logistics which underpin it have failed at times over the last few months.” This has led to calls for the re-shoring of the production of essential goods, development of national supply chains and a policy of protectionism. For warehousing, this should mean that a migration of warehousing away from major shipping gateways to locations which are geographically more central and nationally based, although it will be a gradual process.

From centralized to fragmented: Centralization of warehousing increases the levels of external risk, including fire or flooding, industrial action, natural disaster, disruption of transport and pandemics, noted the paper.

As a response to Coronavirus, many warehouse operators may prefer to migrate to a greater number of smaller warehouse operations where outbreaks of disease can be contained and limit the impact of the spread of contagion on entire operations within the supply chain node.

Increasing automation: The threat of Coronavirus will encourage warehouse operators to increase levels of automation within their operations. The report foresees that in the longer term, the sector’s adoption of automated materials handling equipment and robotics is inevitable.

Photo by Claudio Schwarz | @purzlbaum on Unsplash

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