Warehouse demand at an all-time high
Warehouse demand is at record highs. Due to the growing demand for e-commerce and related one- or two-day shipping demands, the need for new warehouses has never been greater.
Rreal estate services company JLL published a survey of more than 720 logisticians in April which revealed that 74% expected annual growth of 5% or more in warehouse demand over the next three years. About 28% said it would be 20% or more, and 71% expected e-commerce demand to grow significantly through 2024.
This burst of growth, however, is hampered by a myriad of factors that are slowing the opening of such facilities, experts said.
“Time is money, so every delay in this whole process increases the cost, not only for the 3PL (third party logistics) companies, but also for the customer, and that puts additional pressure on the supply chain because capacity can’t be delivered,” said Rock Magnan, president of RK Logistics Group.
A combination of factors, including labor and steel shortages, are forcing the commissioning of warehouses to be delayed, Magnan said.
“When we identify a warehouse and negotiate a lease for the building, we are responsible for the cost of the lease,” Magnan said. “Unfortunately, if you can’t get the shelving, you can’t use the building as you planned.”
Mike Ereno, president of Warehouse Engineering and Equipment Services, which designs warehouse interiors for clients including RK Logistics, said the global steel shortage is hampering efforts to integrate storage racks and material handling equipment in new warehouses.
“Most of what we see here are extremely long delivery times for storage racks and material handling equipment,” he said, noting that delivery times have gone from four to six weeks to up to at nine months. “There are issues with sourcing raw materials to get to the factory so they can deploy flat sheets to make their product.”
Ereno also noted that prices are rising — up to two and a half times what they were a year ago — and that labor shortages at manufacturers are also contributing to delays and uncertainty. He said price uncertainty makes it impossible to advertise jobs properly.
Steel prices are up more than 60% since the start of this year, according to S&P Global Platts. Despite this, some steelmakers refuse to open older steelworks.
“The industry is in transition,” Mark Millett, managing director of Steel Dynamics, told the Wall Street Journal. to wonder if you bring them back.
Magnan and Ereno said Amazon was also a factor.
“Amazon also bought a bunch of materials,” Magnan said. “They’re the 500 pound gorilla in the room, which isn’t a bad thing, it’s just a fact. It’s e-commerce, it’s the demand of some of the biggest players. It’s all creates a perfect storm that, as Mike said, we haven’t seen in 20 years.
The market is also experiencing issues related to the shortage of semiconductor chips, as all automation and conveyors require chips, and rising fuel costs, which drive up transportation costs.
All in all, the perfect storm of trouble is forcing the delivery time from warehouses to lengthen considerably at a time when more space is needed sooner. Magnan said the time it takes to set up an installation is typically eight to 12 weeks from when RK begins engaging with Warehouse Engineering on the interior design. It’s now been 20 to 24 weeks, Ereno said.
And the outlook doesn’t look good in the short term, Ereno said, adding that he doesn’t see demand for new warehouses dropping much over the next 18 months.
“Until the demand for warehousing space and equipment decreases, delivery times will not decrease,” he said. “Everyone is hoping that the price of steel will come down, which will at least bring the price down.”