Peter Ward, Chairman, UK Warehousing Association (UKWA), spoke to Emma Herrod about the challenges that the logistics industry is facing and how they impact on retailing.
Changes to retail store estates and how and where people shop is impacting on the logistics industry. Gone are the days of lorries delivering palletised goods every day into the back of a London store, or once a week to Glasgow from a distribution centre (DC) in the Midlands. Retail logistics networks now extend across the UK with product moved from smaller, regional DCs as well as centralised National DCs. Store replenishment – especially for the convenience market – calls for retailers, third party logistics providers (3PLs) and carriers to deliver roll cages from the kerb side outside of the shop. Product then goes straight onto the shelves to replenish items that have been sold in the past hour.
“You can’t do that from Lutterworth,” says Peter Ward, Chairman, UKWA, explaining the prevalence of DCs around Lutterworth and the Midlands. “Warehousing space needs to be within an hour of where the stores are located,” he says.
Technology-enabled customers seeking instant gratification are adding pressure with the need for lots of small fulfilment centres able to pick, pack and deliver a parcel to a shopper within one hour, if not sooner. This is putting pressure on the urban infrastructure both in terms of the number of vehicles on the roads and in the amount and type of space available for warehousing and fulfilment facilities.
Looking at the extremes of the issue, UKWA investigated the challenges of the grocery supply chain in London. Its ‘Feeding London 2030’ study points out that the UK population is on the rise with 45% of people wanting to live in or around a major city or town. The population of London, for example, is predicted to swell from 8.6m currently to 11m by 2050. On top of that are the number of people commuting into the city each day.
All of these people are looking for convenience – grocery shops for small, frequent purchases rather than a weekly visit to an out-of-town supermarket, coffee shops, food on the hoof – or delivered to home – or the latest meal for 2 deal from Marks & Spencer. The food supply chain is only good for 48 hours, so disruption to deliveries such as was seen at the Calais Jungle or from petrol tanker drivers striking lead to panic buying and no bread on supermarket shelves.
This urbanisation of the population and rise of convenience culture driving the increased pressure on infrastructure is not unique to London. It’s already being seen in major cities around the world. Ward believes that it won’t be too long before other UK cities start to feel the impact too.
As an association, UKWA lobbies for consideration of logistics when planning is agreed for major new housing initiatives. As Ward explains, homeowners will add online purchases and food deliveries to an already overstretched road network.
The infrastructure in London is creaking now. Solutions such as night time deliveries to stores and the use of consolidation centres will help alleviate issues in the short term, but “it’s not sustainable so we have to look more radically,” he says.
One way is to look at examples of warehousing in other urban areas. In Hong Kong where space is at a premium, for example, two buildings indicate the direction in which the industry is going – straight up. The ATL Logistics Centre which, over 2 buildings has 20 floors of warehousing and office space, encompasses almost 6m sqft of leasable space. It has 1,730 loading bays and is visited by 8,000 vehicles a day. The 24-storey Goodman Interlink facility is predominantly occupied by logistics companies wanting to be close to the sea port and airport.
Driving up 1.6km to reach the top floor of tall warehousing facilities, as is the case with the Interlink building, may be the answer to London’s warehousing problem. An alternative is to build in fresh air such as in the space above the approach to railway stations. If the facility is mixed use, incorporating residential, entertainment and retail, this would subsidise the lower yield from warehouse space for the developer, explains Ward. It could also mean goods could be transported by train rather than on the road network.
In the past, the prime location for warehouse facilities was within an 8-hour drive of retail stores. However, a shortage of staff in the logistics industry means that the most suitable location from a space or road network point-of-view has to be balanced with availability of work force. The shortage of staff is being exacerbated by the devaluation of the pound and companies are having to increase wages in a bid to attract and retain staff who are easily poached by other agencies and retailers. The migrant nature of many of the lower-paid roles in the logistics industry also means that many people are returning to their home country as the cost of living in the UK increases. A quarter of the lower skilled jobs in the industry are filled by immigrant labour, many of whom are from the EU, explains Ward. “We need this labour,” he says. He goes on to warn that it may lead to a national crisis post Brexit since the government’s non-EU migrant policy requires workers to be degree educated and entering the country at a higher salary band. UKWA – along with the healthcare, hospitality and construction industries – is lobbying the government on this point.
Automation, robotics and technology offer opportunities to alleviate some of the labour shortage, but there is no silver bullet. These technologies take major investment and there are issues here too. “To enable some of this to happen and to avoid the crisis situation, the logistics industry needs to get a better margin and better return on what it provides for the retail sector,” says Ward. The two industries are intrinsically linked. Some 75% of logistics activity relates to the consumer which is effectively retail. There has been a ‘race-to-the-bottom’ in terms of cost for logistics and ecommerce services have resulted in margin erosion for retailers. “This cannot be sustained,” he warns.
Retailers are starting to think about the cost of logistics and the impact on margins whereas previously for many it was a case of driving down prices in a low-margin industry. Wards explains that one of the positives of the lines being blurred between retail and logistics is that it’s bringing retailers closer to understanding that there has to be a margin in the logistics business. Everyone has to strive to understand the importance for both industries of building sustainable models – especially with the upcoming issues around land use, planning and labour.