How To Survive The Decline in Warehousing Capacity

With the current warehousing capacity crunch, technology-driven strategies along with flexibility and end-to-end visibility are the preferred solutions for transporters and warehouse operators.

What’s covered in this article:

• Capacity and labor shortages

• The impacts of consumption shifts on the supply chain

• Technological platforms for warehouse management

• Tips to overcome warehousing capacity shortages

While businesses are re-defining their operations to cater to the changing needs of their customers, transporters are grappling with the dire shortage of warehousing capacity and increased costs.

Manpower Issues Affecting Warehousing Capacity

With health concerns taking precedence, labor shortages in warehouses are inevitable. Government regulations along with health-care norms on social distancing have added to this strain.

A warehouse’s dependence on robots and artificial intelligence systems is becoming increasingly mainstream. That said, few have been able to scale up immediately and automate their workflow to capitalize on the drastic need throughout the continuing surge in consumption. Most of the smaller warehouses need time to adjust to this sudden change and as result, their space isn’t utilized to its capacity.

There are fewer warehouse-related jobs, and the majority of these are not even permanent in nature, resulting in this becoming a non-preferred occupation. It’s a vicious cycle that the existing labor is stuck with.

Impact of Consumption Changes on Capacity

As global supply chains continue to be disrupted, businesses have opted to increase inventory through forward distribution to accommodate e-commerce demand.

Forbes estimates that this pandemic has quickened the growth of e-commerce by approximately 4 to 6 years.

There is also a large inventory that has not been shipped out due to changing consumption and travel restrictions. This is also a result of consumer patterns shifting drastically from brick-and-mortar retailers to e-commerce platforms, giving a heightened need for last-mile delivery. A recent survey by Bizrate Insights found that “60% of purchasers switched to online shopping rather than in-store during the pandemic”. Further, “32% of them expect to continue to shop online, even after the pandemic”. The impacts of Covid-19 lockdowns have changed the way businesses work. In fact, Forbes estimates that this pandemic has quickened the growth of e-commerce by approximately 4 to 6 years.

The shift to e-commerce has not only affected durable goods, it appears consumer demand is here to stay with perishable items, including produce, frozen and fresh foods as well. The rapid changes in consumer patterns have made the demand for cold storage dependency to increase overnight. According to Colliers, e-commerce giants have expanded their logistics footprint by nearly 12 million square feet in Canadian markets since the pandemic.

Manufacturing companies have moved their units closer to the shore or even re-shored them due to the traffic and lag in cross-country transport options. As manufacturers are unable to identify the lead time for deliveries, they are creating a buffer stock scenario where they can meet demands. This solution further helps them mitigate various supply chain risks by eating up the existing limited warehousing capacity.

With the heavy reliability on warehouse space, CBRE has predicted that Canada could run out of warehouse capacity by the end of the year.

Increased Costs Due to Warehouse Capacity Shortages

Due to the requirement of last-mile delivery, most e-commerce companies are forced to decentralize their distribution networks and place goods closer to consumers, all while finding warehouses that have the capacity. This results in a cost increase, as the goods are placed in major metro areas. The lack in warehousing capacity and the increased real-estate costs make this a very heavy investment. On average, the warehousing capacity vacancy rate in North America over the last month is less than 6%, with Toronto having less than 0.5% vacancy.

An additional cost angle is involved with the pick and pack operations that are required for e-commerce multi-product order fulfilments. This tends to be more cost-intensive and technology-driven when compared to the former processes of manual packaging and handling of single products per order.

In the absence of a dominant home delivery provider, warehouse operators are forced to ensure that new technology platforms can easily integrate, as consumers have come to expect visibility to their orders from end to end.

For a decentralized and broader inventory management, we are seeing warehouse operations rapidly evolve. They are implementing technology to accommodate the changes in demand. For example, warehouses can take advantage of the Automated Storage and Retrieval Systems (ASRS) to recover up to 85% of existing floor space when compared to standard shelving. This will help increase their warehousing capacity. In the absence of a dominant home delivery provider, warehouse operators are forced to ensure that new technology platforms can easily integrate, as consumers have come to expect visibility to their orders from end to end.

Change is inevitable, and the future is unpredictable

One thing that Covid-19 has taught us is that change is inevitable, and the future is unpredictable. Post-Covid, companies will be hesitant towards contract terms for 3-5 years. The expectation will be lowered to 1-2 years to stay adaptable and react to changes in consumer demand. This means shippers would miss out on the cost incentives that longer term warehouse contracts would provide.

With all this dependence on warehouses, and the warehousing capacity scarcity along with automation inclusions, the leases for warehouse spaces have skyrocketed. Warehouse operators are raising their 2021 rent forecast to 6.5% YoY in the US and 6% YoY globally.

5 Tips to Overcoming The Warehouse Capacity Shortage Using Technology

1. Flexibility and Leveraging Technology

Moving towards flexible plans with high technology dependency seems to be the only way to adapt in an ever-changing supply chain. Technology can enable businesses to have a solid plan A, and quickly implement plans B, C, and D if the disruption from 2020/2021 continues.

2. BIRD

While implementing technology in your warehousing capacity planning strategy, you can take the benefits of developments and applications found within the ‘BIRD’ options. BIRD technologies include Blockchain, Internet of Things (IoT), Robotic Process Automation (RPA) and Data Science.

3. Automation

As labor shortages have continued to plague supply chains, implementing automation in order picking will reduce lead times. There are numerous technology options to identify the lead times required to meet delivery deadlines.

Further, by using trusted blockchains and advanced data analysis, one can identify demand requirements.

4. Batch Size and JIT

Manufacturers have also shifted to running smaller batches with adjusted schedules to meet the ever-changing demand. Implementing JIT (just in time) programs have been common practice recently.

5. Businesses can Partner with 3PLs

Technology, if implemented correctly, will help create less wastage and minimize delays. Businesses can partner with 3PLs and identify the specific markets where they require last-mile delivery and invest only in specific targeted regions.