Insights from 3PL Value Creation Summit this week in Chicago
John Paul Hampstead @ freighwaves.com
More warehouse operators are following Amazon’s lead (NASDAQ: AMZN) and pricing warehouse space by the cubic foot; proximity to labor has become just as critical as proximity to consumers; robotics have become increasingly important sources of flex labor during demand surges.
Those were a few of the insights shared during a warehousing third-party logistics provider (3PL) panel at the Armstrong & Associates 3PL Value Creation Summit this week in Chicago.
The conventional narrative is that warehouses are getting smaller and closer to city centers, but big box construction — warehouses of 200,000 square feet and larger — has not slowed down. Ward Richmond, executive vice president at Colliers International (NASDAQ: CIGI), said that the third quarter numbers for Dallas just came in and that there were 36 million square feet of big box space under construction in that market alone. Average clearing height inside those spaces has risen from 32 feet to 38 feet in the past five years as warehousing operators look for ways to maximize throughput.
Instead, they’re looking at new kinds of equipment that can help them avoid or delay the acquisition of another large building.
Hise went on to say that Kenco is starting to build clauses into its commercial service agreements governing warehouse capacity and service levels, because when customers overfill their facilities, efficiency suffers.
Warehousing customers are still weighing the arbitrage between labor and automation; many are hesitant to invest in expensive robotics because they think the cost will come down significantly in the next few years. But Brian Smith, president and chief executive officer of Kansas City-based Wagner Logistics, said that companies offering warehouse robotics have gotten creative with financing. Low-cost, short-term leases are becoming more common.
But it appears there are still gaps in the kinds of warehouse robots that are available. Russell Leo, the president and CEO of RLS Logistics, a family-owned cold chain solutions provider in the Northeast, said that in frozen facilities at temperatures of zero or -10 degrees, “robotics goes out the window.” Instead, to free up capacity and increase throughput, RLS has implemented mobile racks that can slide together or come apart to give workers access to SKUs when they’re needed.
Wagner’s customers are becoming more open to innovation conversations, Smith said, but Hise said that Kenco has defined innovation as “the implementation of an idea that creates value,” and that Kenco’s customers were willing to enter into commercial arrangements to fund innovation if they think the value is there. Kenco has dedicated headcount that works solely on innovation and they’re experimenting with drones in their lab, although they haven’t been deployed commercially yet.
Evan Armstrong, president of Armstrong & Associates, mentioned a recently constructed underground warehouse in Tel Aviv, Prologis’ three story warehouse in Seattle, and asked if the future of warehousing would be building up or down.
Richmond said that he thought more multi-story warehouses would be built, not in markets like Dallas where his office is based, but rather “we will see it in Los Angeles closer to the city and definitely in New York.”
Colliers’ customers have learned that there’s a tradeoff between the cost of rent and access to workers.
Kenco is looking for deals to gain more exposure to the growth of e-commerce, and Hise said that Kenco’s board has granted the company’s officers permission to make an acquisition to that end.
To retain workers that Amazon is competing for, warehouse operators have started emphasizing workplace culture. Hise said that workers in Kenco facilities skew younger than in previous years and want to feel like they’re contributing to something. Leo called out small ways of appreciating employees like throwing cookouts.