NFI Industries

Distribution Outlook: 2018

In the third quarter of 2017, Prologis reported that consumer activity reached its highest level since 20141. As consumers continue to shop in 2018, shippers are considering new solutions within distribution to quickly reach their customers. Warehouses today have doubled in size compared to 2002; however, even with larger distribution centers (DCs), the distribution market still experiences high demand for space2. For 2018, the distribution market is expected to mirror 2017 in regards to availability and cost of space across North America3. As the distribution market evolves this year, shippers can shift their focus towards last mile facilities, labor, and automation to enhance the customer experience.

Capacity Tightens as Speed to Market Accelerates

In 2017, the nationwide vacancy rate dropped to nearly four percent. In logistics hubs located near large populations, such as Southern California, New Jersey, and the Lehigh Valley, vacancy rates fell even lower. Improving access to customers is top of mind as current market share of same-day delivery is less than one percent, but is expected to increase to about 20 percent by 20254. As demand for quick delivery continues to grow and operations move closer to customers, shippers will need to evaluate their distribution networks to ensure they remain competitive. In the New Year, capacity for available space in areas close to high consumer populations could continue to outpace the nation-wide average demand.

Addressing Labor Challenges

A challenge that will continue impacting the distribution industry in 2018 will be addressing employee turnover rates. In a recent survey by DC Velocity, only 39.2 percent of respondents reported having a turnover rate of less than ten percent. Labor is one of the biggest operational costs in most DCs and efforts to recruit and retain add to it6. As ecommerce heightens and inventory volumes increase, the need for larger DCs and more warehouse employees has surged to accommodate the growth7. By partnering with a logistics provider to manage warehousing operations, shippers can leverage the expertise and strategies 3PLs can apply to ensure that operations have adequate labor throughout regular and peak seasons.

Advancing in Automation

To streamline warehouse operations and improve labor constraints, shippers and providers are investing in new technology and automation. “Providers in particular are investing in new technologies and recruiting the best talent while absorbing the risk for shippers,” said William Mahoney, Senior Vice President at NFI. “When outsourcing to a provider, shippers are benefiting from the experience and industry insights of their other successful operations.” In 2018, more companies will invest in new equipment such as conveyors, high-density storage systems, and even robots for their DCs. Although automation is increasing, Joe Dunlap, managing director of supply chain services at CBRE, believes that ecommerce distribution centers will never be 100 percent automated. Rather, if companies implement a well-managed system of both automation and labor, Dunlap estimates that they could yield productivity improvements of 25 to 35 percent8. To find synchronization of labor and automation, shippers can rely on the expertise of their third party logistics providers.

Overall, the 2018 distribution market across North America will be similar to 2017. Aside from navigating consumer demand, shippers should look for ways to further improve their last mile logistics, labor retention, and ways to automate processes throughout their DCs. Collaborating with a third party logistics provider and utilizing their resources could accelerate improvements and lead to a successful 2018.