Trends and Technology
E-Commerce Growth Sends Logistics and Warehousing Industries to New Heights
October 15, 2021 |
The C2FO Team
Thanks largely to the e-commerce boom, warehouses have gone from ugly ducklings to shining stars in commercial real estate.
Consumers purchase at historic levels
The pandemic has profoundly changed how goods are acquired, and consumers have responded in full force.
Whether for safety or convenience, consumers bought online like never before in 2020. According to Digital Commerce 360 and based on US Department of Commerce numbers, online sales totaled $791 billion in 2020, up 32.4% from 2019, and represented 20% of all retail sales. Growing rapidly in 2020, online sales were only 15.7% of all retail sales in 2019 and just 8.8% in 2013.
Amazon, the No. 1 online retailer with a 38% revenue share, was the biggest beneficiary with sales of $303 billion in 2020, up 42% from 2019. Walmart, Apple, Dell and Best Buy trailed close behind, per Digital Commerce 360.
Parcel deliveries exceeded 20 billion pieces for the first time in 2020, a 37% increase from 2019 and double 2015’s number, according to the Pitney Bowes Parcel Shipping Index released in September 2021. The US Postal Service led in parcel deliveries with a 38% share. Pitney Bowes expects the trend to continue for 2021 as buyers continue shopping online.
Sellers are aggressively building new space
As Amazon CEO Andy Jassy told CNBC in mid-September, “We spent the first 24, 25 years of Amazon building a very broad fulfillment center network, and over the last 18 months to two years, we’ve had to double that footprint.”
Led by Amazon, facilities are getting bigger — often up to 1 million square feet — and taller. Clear-height distances (the maximum functional height for racking or manufacturing) that traditionally topped out at 32 feet are now up to 40 feet high, an increase of up to 25%.
Loading dock spaces are increasing in number to accommodate the several hundred thousand products that can enter or leave a facility daily. Tenant investments in space customization, especially for technology, automation and comfort, can easily exceed projects’ design and construction costs.
Buildings suit different purposes, including sortation, fulfillment or delivery truck loading. Some centers are specifically built for large items like TVs, appliances or furniture.
A November 2020 industry report projected 2021 US warehouse construction spending at a record-setting $33.2 billion.
Prioritizing satisfaction and the customer journey
Many sellers have expanded their own facilities or built satellite warehouses to better control the customers’ end-to-end buying experience.
Believing that fast deliveries enhance customer satisfaction and drive repeat purchase behaviors, retailers are getting ever-closer to their customers. Formerly the exception but now the expectation, deliveries often occur within two days — and even same-day in many metro areas.
Distributors with more available storage space can buy larger quantities in advance to mitigate delayed supplier deliveries due to bottlenecks and shortages. A “just-in-case” approach has replaced the “just-in-time” philosophy that was in place when supplies were generous and efficiency was optimized.
Manufacturers are using increased storage capacity to build large on-hand inventories and capture market share. Distributors that can drop-ship from suppliers’ locations can enjoy reduced storage and carrying costs, freeing up working capital needed elsewhere.
Carriers can’t hire fast enough
Despite spending on automation or robotics, e-commerce sellers largely remain hands-on operations. Associates are needed to manage, pull and pack the products delivered to consumers’ doorsteps. And because sellers don’t typically deliver products themselves, carriers have experienced massive employee and revenue growth:
UPS headcount has grown 25%, from 435,000 in 2014 to 543,000 through 2020. Company revenue grew by 45% to $85 billion during that period, according to Macrotrends.
Similarly, FedEx payrolls grew by 80%, from 161,000 employees in mid-2013 to 289,000 in mid-2021, with revenue up 90% to $84 billion.
Smaller carriers are also participating, with local entrepreneurs and regional firms filling a void for “last-mile” delivery in urban and outlying areas. Often unnoticed by many consumers is that the Amazon-branded vehicles circling their neighborhoods are typically operated by private, contract carriers.
Given the persistence of COVID-19 and its variants, and the acclimation by consumers to the convenience and safety of online shopping, only continued growth can be expected for logistics companies and the warehouses that supply them.