As the demand for warehousing continues to rise in 2021, warehouse automation promises to accelerate fulfillment in today’s ecommerce age. Let’s understand why logistics providers are pained by this growing demand for warehousing capacity.
Warehousing has been a major challenge for shippers and logistics providers since the pandemic. Many firms in North America have turned away businesses due to the tighter conditions in warehousing capacity. These conditions have set the alarm bells ringing as the warehousing demand shows no signs of slowing down and continues to grow at an exponential rate in 2021.
Reuters Events published a reportOpens a new window on ‘third-party logistics warehousing’ in January 2021. According to a recent report publishedOpens a new window by Reuters on third-party logistics warehousing, 50% of the respondents were found to be operating at 90% or higher capacity (about 273 warehouse operators, primarily residing in the U.S., were surveyed for the study). Besides, about 13% of respondents were actually beyond the 100% level of nominal capacity. The survey found that about 41% were looking for new space, and 27% of respondents described finding a new space as their biggest challenge.
Another research reportOpens a new window released by logistics real estate investment trust, Prologis Inc., showed that tightening the logistics warehouse market could lead to a shortage of space as early as 2021. As per the report, the rent and facility costs stay as top expenses in the sector, where there was 2.5% rent growth by the end of 2020. Prologis further went on to warn the shippers and delivery companies regarding the shortage of space, thereby advising them to turn away business.
To add to this, warehouse laborers have become tougher to find, thereby adding to the cost pressure on warehouse operators. According to a recent surveyOpens a new window by Resilience360, about 40% of supply chain professionals expect labor unavailability to be a concern for the next three to six months.
According to a recent reportOpens a new window by real estate consultancy CBRE, demand for warehouse space in Poland in 2020 stood at 5.2 million square meters, which was up by 21% compared to 2019. The report highlighted that the level of unleased space fell in 2020 by 0.6% points to 6.6%, and about 2 million square meters of new space was handed over for use in 2020, which is 26% more than a year earlier. At present, over 2 million square meters of space is under construction, as per the report. The report further highlighted that the amount of new warehouse space delivered to the market in 2021 will be similar to 2020 and that demand will be maintained in all probability.
Global Warehousing Market to Rise in 2021 and Beyond
The global warehousing and storage market is expected to rise in 2021 and beyond, owing to a surge in online sales of ecommerce products. According to a research reportOpens a new window by Expert Market Research, the global warehousing market attained a value of $428 billion in 2020 and is expected to grow in the forecast period of 2021-2025 at a CAGR of 4.5%. With this rate, the global warehousing market is forecasted to reach a valuation of about $557 billion by 2026.
Global Warehousing and Storage Market (2015 – 2025)
Source: Expert Market ResearchOpens a new window
The Root Cause of the Sudden Surge in Warehousing Demand
The need for added warehouse capacity stems from the rapid growth that firms have seen during the pandemic, primarily due to the high volume of online shopping. This surge in ecommerce demand thereby boosted the need for order fulfillment services. The retailers saw a need to stock key goods in their inventory to meet demand spikes catalyzed by the pandemic.
Of the firms surveyed by Reuters, 64% reported a double-digit growth last year. This trend will continue in 2021 and beyond, according to both Reuters and Prologis reports. Prologis further estimated that the total e-fulfillment footprint would have to double over the next five years.
The growing fulfillment orders are unlikely to keep pace with the diminishing warehouse capacity. According to Prologis, the new supply of capacity in the U.S. could be up to 140 million sq. ft. short of demand in the next five years.
New Fulfillment Centers in Residential Areas
Communities seem to be opposing the plot of setting up fulfillment centers for online orders in residential neighborhoods. Most residents cite noise, pollution, and damage to road infrastructure. This resistance from the local communities is also further derailing the plans of setting up new warehouses in peripheral zones.Â
Amazon has encountered severe opposition from the residents of Buffalo in New York state, where the company had planned to spend $325m to build a 3.8 million sq. ft. distribution facility. Yet, the stern opposition by localities forced Amazon to hunt down alternate locations for the very facility.
Is Automation the Future of Warehousing?
In today’s techno-frenzy market, warehouses need to move away from inflexible, capital, and labor-intensive mechanized automation systems to more flexible autonomous guided vehicles (AGVs) and robotics.Â
Melinda McLaughlin, vice-president of research at Prologis, opined that warehouses must adopt automation to address the demand for space. It may transform logistic operations in the long run, she says. “Many users of logistics space are grappling with several forces at the same time: rising ecommerce volumes; the need to hold more inventory; and shortages of available space and labor. This will drive up competition for limited space, and those that act first will secure a competitive advantage. The ability to incorporate automation and other technology into operations can also aid in the transformation of supply chains and offers additional flexibility in location and labor.â€
The Prologis reportOpens a new window indicated that automation would promote labor productivity, and e-fulfillment operations would come to the fore. Similarly, the Reuters’ study suggested that warehouse operators would reap substantial benefits out of automation. 87% of the firms surveyed by Reuters had warehouse management systems, while about 49% were using order management systems. Out of the surveyed firms, only 6% of them were using some form of robotics.
In conclusion
The shortage of skilled labor and spacious logistics space is causing a severe capacity crunch in last-mile delivery. This is affecting shippers, and parcel delivery providers as the lack of capacity limits their ability to handle additional packages and are subsequently turning away business. As far as the prevailing warehousing problem is concerned, automation seems to be the way forward for logistics providers.
Do you think automation will be able to ease the currently prevailing warehouse capacity issues for logistics providers? Comment below or let us know on LinkedInOpens a new window , TwitterOpens a new window , or FacebookOpens a new window . We’d love to hear from you!