The Global Warehousing and Logistics Industry Will Undergo Tremendous Changes

January 25, 2019

By Jack Chen, President - U.S. Chinese General Chamber of Commerce

With increasing demand for low-cost, high-quality logistics and the improvement of e-commerce, the warehousing and logistics industry is undergoing tremendous changes. The model of operation is changing from ‘flow of goods dictated by warehouse locations’ to ‘warehouse choices dictated by flow of goods.’

The traditional operation model for warehousing logistics is primarily one in which suppliers store goods in one or several centralized warehouses, then send goods to consumers through courier companies. If warehouses are far away from consumers, shipping will inevitably result in long delivery times and high transit costs. With the rapid growth of online shopping, consumers are increasingly demanding low-cost, fast delivery. In order to satisfy consumers and enhance their competitiveness, suppliers currently follow the “Amazon” model and try to buy or lease warehouses in places where their customers are concentrated. But this model increases suppliers’ capital investments and management costs.

Fortunately, the rise of share economy -- including the success of AirBnB, Uber, and other similar platforms -- have provided us with good examples of working solutions. Such examples demonstrate we can set up network operation platforms to make existing warehouses “interactive” by exchanging information and sharing resources. This way, suppliers can easily find warehouses in the vicinity of their customers and thus achieve the ‘warehouses follow goods’ model without purchasing or leasing warehouses.

Warehouse resource sharing consists of two aspects. The first is full utilization of idle warehouse space.  According to JLL Research, the United States currently has over 13.5 billion square feet of warehouse space, about 3.1 billion square feet (28 times the size of Amazon's existing warehouse space) of which is idle. These idle spaces are scattered all over the United States, in small and large warehouses, each offering various types and quality of services.  Such idle spaces, if utilized, can help meet users’ needs for nearby warehousing. The second aspect is the exchange of warehouse resources in different regions. For example, let’s say Party A has a 100,000-square-foot warehouse in New York, but has 30,000 square feet of goods to distribute to consumers in western United States. Party B has a 100,000-square-foot warehouse in Los Angeles, but 30,000 square feet of goods to distribute to consumers in eastern United States. Imagine if A sends the 30,000 square feet of goods that need to be sent to consumers in western U.S. to B's warehouse in LA and let B help distribute the goods, and B sends the 30,000 square feet of goods that need to be sent to consumers in eastern U.S. to A's warehouse in New York and let A help distribute the goods. What a great saving of time and money!

The‘warehouses follow the goods’model will bring several very important changes to the warehousing and logistics industry. First, warehouse users will store goods in several warehouses across the country. The space a given user requires for any one warehouse will be less and warehouse owners will need to find more users for a single warehouse. Additionally, the duration of storage will likely be shorter, as the number of short-term customers for a warehouse will increase and the number of long-term customers for the warehouse will decrease. In order to survive, warehouse owners must move away from the traditional practice of sticking with one long-term, large-scale user and actively apply various methods – including offering more refined services and utilizing advance technologies -- to find new users and achieve optimal utilization of warehouse space. Suppliers, on the other hand, will be more able to find suitable warehouses close to consumers and thus shorten delivery time, reduce transit costs, and do better in retaining consumers. 

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