Peter Bradley is an award-winning career journalist with more than three decades of experience in both newspapers and national business magazines. His credentials include seven years as the transportation and supply chain editor at Purchasing Magazine and six years as the chief editor of Logistics Management.
The CenterPoint Intermodal Center in Joliet, Ill., faces fierce competition for distribution center business, but it has an edge that's proving tough to beat. And it's not shy about promoting it. Visit the center's website and you'll find a calculator that shows customers what they could save in drayage costs by locating a DC at the 2,500-acre industrial development, which boasts on-site access to Burlington Northern Santa Fe's Logistics Park Chicago.
A drayage calculator might not sound like a killer marketing tool. Yet that's precisely the kind of sales tool CenterPoint used to attract high-profile tenants like Wal-Mart and Georgia Pacific.
To understand why drayage costs would carry so much weight with customers, you have to know a little bit about the new dynamics of DC site selection. The days when companies chose DC sites largely on the basis of cost per square foot are long gone. Today, transportation costs will likely be the principal driver when a company goes to pick a site within its target region. Small wonder developers like CenterPoint are anxious to promote their properties' transportation advantages.
That's not to say that industrial developers haven't played the logistics card in the past. Leasing companies and developers have long touted access to markets and transportation infrastructure in their marketing pitches. Many industrial developments, like the Rickenbacker Global Logistics Park, part of the Rickenbacker Inland Port in Columbus, Ohio, focus specifically on their potential logistics advantages in their marketing. (The Rickenbacker Inland Port even publishes an online newsletter called "Logistically Speaking" that highlights the development's advantages.)
What's different today is the increased emphasis developers are placing on all things logistics. Part of the explanation lies in cost: While real estate expenses amount to 4 to 5 percent of operating costs for most DCs, transportation costs are now close to 50 percent, according to experts in the industry. Another part lies in the transportation challenges facing shippers, like tight trucking capacity, an aging driver workforce, regulations that could reduce carrier productivity, and an increasing focus on carbon footprints. All this has led industrial real estate developers and their transportation and public sector partners to zero in on transportation and logistics when they go to market their properties.
That's mainly good news for those responsible for finding the best sites for their companies' DCs—it means that brokers speak the language better than ever. If there is a downside, it's that they also understand that a site that can offer lower transportation costs than nearby competitors can demand a premium price.
Winds of change
All this comes at a time of flux for the industry. Skyrocketing transportation costs are forcing many businesses to re-evaluate their distribution networks, says Tim Feemster, a senior vice president for industrial real estate giant Grubb & Ellis. In a lot of cases, these companies are seeking ways to reduce less-than-truckload and parcel shipping costs, which tend to rise faster than truckload or intermodal costs, he says. The result could be a shift toward more regional DCs and away from large national facilities, he adds.
Other factors could potentially come into play as well, says Feemster, who joined Grubb & Ellis nearly five years ago after a three-decade career in logistics operations. For example, he believes that the recent supply chain disruptions—in particular, the blows to automotive and electronic supply chains caused by the disaster in Japan—may spur some companies to re-evaluate their business resiliency plans, including their inventory strategies. That, in turn, could affect decisions on DC size. "If you change inventory strategy, that affects the size of the box you need," he says.
Should all this lead to a boom in industrial real estate activity, the challenge for the industry will be bringing its people up to speed. Working with clients on logistics network planning projects requires a great deal of specialized knowledge. "What's important is that an economic development person understand supply chain cost structures and how [they] relate to the [site] decision," Feemster says.
That could prove to be a big adjustment for brokers more accustomed to selling buildings, says Richard H. Thompson, executive vice president for Jones Lang LaSalle Americas Inc. (JLL). In an e-mail to DC Velocity, Thompson noted that historically, "when real estate professionals look to market or sell industrial assets, they are focused on the traditional real estate 'stuff' such as square footage, price per square foot, ceiling heights, etc. They are not able to assess or quantify the critical logistics decision inputs, such as proximity to customers/suppliers, labor costs, supply chain infrastructure, etc."
Gearing up for growth
To prepare their brokers for a new era, some developers are ramping up their training efforts. Grubb & Ellis is a case in point. Feemster says that when he joined the company, one of his missions was to train brokers on what really matters to logistics network planners.
Others are taking the technology route. JLL, for example, has developed a sophisticated modeling tool to analyze properties from a logistics point of view.
Called the "Reverse Location Selection" (RLS) model, the tool essentially flips the traditional site search process on its head. Rather than starting with a target region and zeroing in on specific properties, the RLS approach starts with the property itself. That is, it takes a specific location or property and quantifies its value in logistics and supply chain terms (as well as in more traditional measures).
That approach offers advantages on a variety of fronts, JLL says. For one thing, it saves customers time by doing some of the upfront work they would otherwise have to do themselves. For another, it can help developers evaluate the commercial prospects of their properties.
For example, JLL recently used the model to develop a "logistics profile" of a 440-acre site in Pennsylvania's Lehigh Valley owned by Los Angeles-based industrial property developer Majestic Realty. As part of its assessment, JLL looked at factors like rail and highway access as well as proximity to major markets.
Ed Konjoyan, a vice president of Majestic Realty, says his company commissioned the study after seeing how well logistics-centric marketing worked for the CenterPoint Intermodal Center. CenterPoint, he says, landed some very big customers by promoting logistics-related advantages like reduced drayage costs. Majestic is hoping to emulate that success with the Lehigh Valley site. The JLL process, he says, "confirmed scientifically our gut feeling about the value of this property."
What does that mean for distribution executives looking for a new DC location? When companies like Grubb & Ellis, JLL, Majestic, and CenterPoint parse the logistics advantages of their properties, it likely can accelerate the selection process—although due diligence would demand verifying any claims. And as Thompson points out, there's another potential advantage for distribution executives. When it comes time to shed a company-owned DC, it could reduce their risk of getting stuck with an oversized white elephant.
Jeremy Van Puffelen grew up in a family-owned contract warehousing business and is now president of that firm, Prism Logistics. As a third-party logistics service provider (3PL), Prism operates a network of more than 2 million square feet of warehouse space in Northern California, serving clients in the consumer packaged goods (CPG), food and beverage, retail, and manufacturing sectors.
During his 21 years working at the family firm, Van Puffelen has taken on many of the jobs that are part of running a warehousing business, including custodial functions, operations, facilities management, business development, customer service, executive leadership, and team building. Since 2021, he has also served on the board of directors of the International Warehouse Logistics Association (IWLA), a trade organization for contract warehousing and logistics service providers.
Q: How would you describe the current state of the contract warehouse industry?
A: I think the current state of the industry is strong. For those that have been focused on building good client relationships over the years, I think it’s a really exciting time. Coming out of all the challenges of the past few years, I think there’s a lot of opportunity for growth and deeper partnerships. It’s fun to see the automation and AI (artificial intelligence) integration starting to evolve [in a way that’s] similar to what we saw with WMS (warehouse management systems) in the early 2000s.
Q: You are now president of your family firm. Is it an advantage having grown up in the business as opposed to working elsewhere?
A: I definitely believe it was an advantage growing up in the business. Whether it’s working with family or someone else in the industry, there’s always an advantage when you have mentors[to guide] you. I’ve been blessed to have several mentors, some in the industry, others just in life, and I’m thankful that they were willing to mentor me and that I was willing to listen to them.
Q: What are the biggest challenges currently facing 3PLs, and how are you addressing them?
A: Labor and legislation are both tough right now. The two seem to have a lot to do with each other, and it can make it tough to find and retain people. So I think we’ll see more and more automation of processes industrywide.
Q: Third-party service providers often must handle a wide variety of products for a lot of different clients. Does this variety make it difficult to invest in automation and other new technologies?
A: It can make things more difficult when looking at certain automation, but it’s in the “difficult” that a lot of opportunities lie. It would be tough to find a single solution that fits every client’s needs, but there are always opportunities to improve in certain areas. It just takes a bit of vision and commitment, and a willingness to invest in your own long-term success.
Q: As a 3PL, what do you look for when selecting the clients you work with?
A: Quality relationships that will last a long time. When both parties are happy and working together in the same direction, everyone wins.
Q: You’ve been a board member of the International Warehouse Logistics Association since 2021. Why is your involvement with this organization important to you?
A: I think it’s important to understand what’s happening in the industry. IWLA is a great resource for staying up to date and getting a solid education when it comes to the latest logistics trends. I also think it’s important to give back and pass along what we’ve learned to those just getting started in the business. As important as it is to have a mentor, it’s just as important to mentor and help others.
“While there have been some signs of tightening in consumer spending, September’s numbers show consumers are willing to spend where they see value,” NRF Chief Economist Jack Kleinhenz said in a release. “September sales come amid the recent trend of payroll gains and other positive economic signs. Clearly, consumers continue to carry the economy, and conditions for the retail sector remain favorable as we move into the holiday season.”
The Census Bureau said overall retail sales in September were up 0.4% seasonally adjusted month over month and up 1.7% unadjusted year over year. That compared with increases of 0.1% month over month and 2.2% year over year in August.
Likewise, September’s core retail sales as defined by NRF — based on the Census data but excluding automobile dealers, gasoline stations and restaurants — were up 0.7% seasonally adjusted month over month and up 2.4% unadjusted year over year. NRF is now forecasting that 2024 holiday sales will increase between 2.5% and 3.5% over the same time last year.
Despite those upward trends, consumer resilience isn’t a free pass for retailers to underinvest in their stores by overlooking labor, customer experience tech, or digital transformation, several analysts warned.
"The 2024 holiday season offers more ‘normalcy’ for retailers with inflation cooling. Still, there is no doubt that consumers continue to seek value. Promotions in general will play a larger role in the 2024 holiday season. Retailers are dealing with shrinking shopper loyalties, a larger number of competitors across more channels – and, of course, a more dynamic landscape where prices are shifting more frequently to win over consumers who are looking for great deals,” Matt Pavich, senior director of strategy & innovation at pricing optimization solutions provider Revionics, said in an email.
Nikki Baird, VP of strategy & product at retail technology company Aptos, likewise said that retailers need to keep their focus on improving their value proposition and customer experience. “Retailers aren’t just competing with other retailers when it comes to consumers’ discretionary spending. If consumers feel like the shopping experience isn’t worth their time and effort, they are going to spend their money elsewhere. A trip to Italy, a dinner out, catching the latest Blake Lively and Ryan Reynolds films — there is no shortage of ways that consumers can spend their discretionary dollars,” she said.
Editor's note:This article was revised on October 18 to correct the attribution for a quote to Matt Pavich instead of Nikki Baird.
The market for environmentally friendly logistics services is expected to grow by nearly 8% between now and 2033, reaching a value of $2.8 billion, according to research from Custom Market Insights (CMI), released earlier this year.
The “green logistics services market” encompasses environmentally sustainable logistics practices aimed at reducing carbon emissions, minimizing waste, and improving energy efficiency throughout the supply chain, according to CMI. The market involves the use of eco-friendly transportation methods—such as electric and hybrid vehicles—as well as renewable energy-powered warehouses, and advanced technologies such as the Internet of Things (IoT) and artificial intelligence (AI) for optimizing logistics operations.
“Key components include transportation, warehousing, freight management, and supply chain solutions designed to meet regulatory standards and consumer demand for sustainability,” according to the report. “The market is driven by corporate social responsibility, technological advancements, and the increasing emphasis on achieving carbon neutrality in logistics operations.”
Major industry players include DHL Supply Chain, UPS, FedEx Corp., CEVA Logistics, XPO Logistics, Inc., and others focused on developing more sustainable logistics operations, according to the report.
The research measures the current market value of green logistics services at $1.4 billion, which is projected to rise at a compound annual growth rate (CAGR) of 7.8% through 2033.
The report highlights six underlying factors driving growth:
Regulatory Compliance: Governments worldwide are enforcing stricter environmental regulations, compelling companies to adopt green logistics practices to reduce carbon emissions and meet legal requirements.
Technological Advancements: Innovations in technology, such as IoT, AI, and blockchain, enhance the efficiency and sustainability of logistics operations. These technologies enable better tracking, optimization, and reduced energy consumption.
Consumer Demand for Sustainability: Increasing consumer awareness and preference for eco-friendly products drive companies to implement green logistics to align with market expectations and enhance their brand image.
Corporate Social Responsibility (CSR): Companies are prioritizing sustainability in their CSR strategies, leading to investments in green logistics solutions to reduce environmental impact and fulfill stakeholder expectations.
Expansion into Emerging Markets: There is significant potential for growth in emerging markets where the adoption of green logistics practices is still developing. Companies can capitalize on this by introducing sustainable solutions and technologies.
Development of Renewable Energy Solutions: Investing in renewable energy sources, such as solar-powered warehouses and electric vehicle fleets, presents an opportunity for companies to reduce operational costs and enhance sustainability, driving further market growth.
The clean energy transition continuing to sweep the globe will give companies in every sector the choice to either be disrupted or to capitalize on new opportunities, a sustainability expert from Deloitte said in a session today at a conference in Orlando held by the enterprise resource planning (ERP) firm IFS.
While corporate chief sustainability officers (CSOs) are likely already tracking those impacts, the truth is that they will actually affect every aspect of operations regardless of people’s role in a business, said John O’Brien, managing director of Deloitte’s sustainability and climate practice.
For example, regulatory requirements on carbon emissions are expanding in every region, which means that even if a specific company doesn’t have to change its own practices, it will almost definitely need to flex to accommodate its partners and suppliers as they track scope 3 emissions or supply chain practices.
Likewise, companies are starting to challenge the classic concept of “force majeure” events than can cancel service providers’ contractual duties due to unforeseeable weather events. As the new argument goes, extreme weather patterns increasingly occur in accordance with climate scientists’ forecasts, so those hurricanes and wildfires are in fact foreseeable after all.
But one strategy for coping with the cost of those changes is to mine the power of the data that most companies will soon need to collect as part of their evolution. Instead of simply tracking its trucks to trim their routes and emissions, a transportation company could use the same data to manage their maintenance and fuel consumption.
“The climate management transition is going to be a massive disruption, but with that comes massive opportunity,” O’Brien said from the keynote stage at the “IFS Unleashed” show. “Don’t waste compliance efforts just on compliance, use it to create new value. You’re collecting all that new data, so use it!”
A real-time business is one that uses trusted, real-time data to enable people and systems to make real-time decisions, Peter Weill, the chairman of MIT’s Center for Information Systems Research (CISR), said at the “IFS Unleashed” show in Orlando.
By adopting that strategy, they gain three major capabilities, he said in a session titled “Becoming a Real-Time Business: Unlocking the Transformative Power of Digital, Data, and AI.” They are:
business model agility without needing a change management program to implement it
seamless digital customer journeys via self-service, automated, or assisted multi-product, multichannel experiences
thoughtful employee experiences enabled by technology empowered teams
And according to Weill, MIT’s studies show that adopting that real-time data stance is not restricted just to digital or tech-native businesses. Rather, it can produce successful results for companies in any sector that are able to apply the approach better than their immediate competitors.