Is Warehouse Demand Shrinking?

On June 22nd the Journal of Commerce (JOC) published an article titled “Long-awaited US inventory drawdown spotted” where they state in the first sentence, “Lower US inventories would be a boon from coastal ports to heartland highways”. The notable exception to such a boon, as they cite in the next paragraph of the article, is in warehousing demand. If US inventories are reduced we would expect warehouse demand to be reduced as well. However, economic indicators do not support such a drawdown at this time.

The factors JOC cite as indicators of an inventory drawdown include strong truck and steady intermodal traffic in May 2017, steady consumer spending and manufacturing output, increasing inventory costs, and comparatively low transportation costs. While the May inventory to sales ratios have not been released, we can look at each of the indicators cited by the JOC and whether they support an indication of an inventory drawdown.

According to the American Trucking Association, truck tonnage did indeed increase from April to May by 6.5%. However, this follows three straight declines of 2.6% in each of the previous three months. Despite the increase in truck tonnage in May, it remains to be seen if traffic will continue to increase in the future. The ATA Chief Economist, Bob Costello, said “Despite the robust jump in May, I still expect moderate growth going forward as key sectors of the economy continue to improve slowly”.

US Intermodal Traffic has increased in the last three months to nearly 270,000 Intermodal Units according to the Association of American Railroads. Despite some volatility in traffic over the past year, most monthly readings fall between 250,000 and 270,000 intermodal units. However, volume is clearly down from 2014 and 2015, perhaps from increased competition from the trucking industry and cost cutting actions by the rail carriers.

RTI Dash (1)

Consumer spending, if measured by the Personal Consumption Expenditures (PCE), has been rising steadily over time for decades. While there was a flattening in the rate of increased consumer spending at the end of 2016, the rate has increased since the beginning of 2017.

fredgraph (1)

Manufacturing production, as measured by real output, has climbed since January 2014 and, following the 3rd Quarter of 2016, has increased by around 1.1%. However, manufacturing production’s role in reducing inventory levels in unclear.  For example, raw material inventories may increase concurrently or by even larger amounts with an increase of manufacturing levels. In fact, indexes such as the Institute of Supply Management’s PMI® in May 2017 suggest inventories are growing, not shrinking, in the midst of higher manufacturing.

fredgraph (2)

An inventory carrying cost increase would provide an incentive for supply chain participants to reduce inventories across their network. However, according to CSCMP’s 2017 State of Logistics Report total inventory carrying costs have declined by 3.2% year over year despite a storage cost increase of 1.8%. The financial cost of carrying inventories fell 7.7% year over year. The aforementioned JOC article cites the same. Again, this data would not suggest that an inventory drawback is imminent based upon inventory carrying costs alone.

Transportation costs, as measured by the Producer Price Index for the Transportation Industry, have been relatively stable since 2014. Year over year costs were up 2% in May but down 4.6% since May 2014. As the ratio of inventory carrying costs to transportation cost rises, supply chain manager would likely draw down their inventory levels. Since inventory carrying costs have been falling and transportation levels stable, the aforementioned ratio is shrinking instead.

fredgraph (3)

Finally, the inventory to sales ratio has slowly risen since the Great Recession started in 2010. The gradual rise from 2010-2014 rapidly increased in 2015 then has leveled off. There are likely many reasons for the build up in inventory levels since 2015 but the most fundamental is how inexpensive inventory is to hold. Supply chain participants have much less downside by holding inventory than they have risk of stock-outs and other low inventory related issues.

fredgraph

While inventories may very well be reduced in the near future, based on the economic indicators cited here there are no compelling reasons to believe the reduction is happening now.

Supply Chain Real Estate News and Analysis

Amazon has agreed to purchase Whole Foods for $13.7B, giving them an immediate presence in brick and mortar retail, among other benefits. One other benefit, as cited by C&W’s Ben Conwell, is Whole Foods’ relationship with Instacart. This would allow Amazon to understand Instacart’s online grocery delivery business, who is a competitor to Amazon Fresh. However, the transaction is not finished and Walmart may put in a higher bid.

Warehouse startup ShipBob raised $17.5M in a funding round, allowing them to open distribution centers in more cities. Fulfillment startups such as ShipBob are entering the market to compete with existing parcel carriers, such as UPS and Fedex, to provide next day and two day deliveries for ecommerce companies. They will likely increase the demand for infill properties with immediate access to freeways but may face issues of creditworthiness with landlords.

Taiwanese Foxxconn Technology Group is looking at seven states in the US Midwest to invest $10B or more to manufacture flat-panel screens and related equipment. According to Foxxconn, the investment would create 30,000 to 50,000 jobs. In addition, large manufacturing operations usually bring with them demand from suppliers, who want to be as close to the manufacturing operations as possible. This would create demand for warehouses in close proximity to the eventual plant location.

 

 

 

 

Bays and Column Spacing

As part of my final project for the Global Logistics Specialist program at California State Long Beach (GLS Website), my team and I determined the cubic capacity and utilization for an entire network of fictitious warehouses run by a fictitious retailer. We found that the bay and column spacing within a warehouse can have a significant impact on key performance indicators (KPIs) for warehouse occupiers in ways that are not always obvious. In this post I discuss bays and column spacing in a warehouse and why they are important for supply chain real estate participants to consider when a) designing a new warehouse location and/or b) perhaps re-designing an existing warehouse.

The definition of bays and column spacing are similar but not always identical. I define bay areas as the floor areas in the warehouse not occupied by columns, walls or other permanent impediments. The length and width dimensions attributed to bay areas and column spacing are typically the same, with some notable exceptions. Bay areas can have different names in different areas of the warehouse. For example, a speed bay is an area adjacent to the loading areas ideally measuring at least 60′ from the dock to the first column. Used to move goods in a quick and efficient manner, any storage done within a speed bay is usually short-term.

Typical column spacing is the most common storage area between the columns, usually measured by the distance between the columns lengthwise and by depth away from the loading areas in a one sided or flow-through building. For example, if you were peering through the middle loading door of a building with 52′ x 50′ typical column spacing, 52′ would be the width between each column and 50′ would be the depth to the next column away from you. Atypical bays would include any areas along the non-loading walls.

So why are bays and column spacing important to supply chain practitioners? One reason is that they impact a warehouse’s space utilization. Improper column spacing can lead to wasting significant square footage areas and storage capacities due to less overall storage positions. Depending on a number of factors such as pallet size, minimum aisle width, and material handling equipment, a 52′ column spacing and a 56′ column spacing will likely result in very different levels of square footage utilization and storage capacities.  Warehouse occupiers should calculate their optimal column spacing within a warehouse prior to occupancy in a new facility or as part of an audit to determine how well they are utilizing their storage capacity in an existing warehouse. According to Tompkins International, a formula for calculating optimal column spacing is:

[(Depth of Rack * 2) + Flue + Aisle Width] / # of Sections of Rack between Columns

The “Flue” is the space between the row of back to back racking, which is called the longitudinal flue.

Column spacing is also important because it influences the choice of material handling equipment. In order to utilize the available square foot and cubic capacities in a warehouse, certain material handling equipment are required. For example, according to Tompkins a 54′ column spacing allows for a 10′ aisle with typical 48″ racking. Since most counterbalanced forklifts will require a 12-15′ aisle, 54′ column spacing would require narrow aisle material handling equipment in order to maximize the usable square feet and cubic capacity. Therefore, racking decisions may require weighing the potential increased material handling costs with the cost of square foot and storage capacity.

OLYMPUS DIGITAL CAMERA

A survey of new warehouses in Southern California show a variety of column spacing dimensions being used, mostly depending on the clear height being offered. For potential e-commerce fulfillment centers, required column spacing is a minimum of 56′-60′ to allow for the large order picking equipment common in the industry and required minimum clearance is 36’+ to allow for multi-level mezzanines/equipment. Two new developments at the Brickyard in Compton and Pacific Industrial/Clarion’s Imperial Distribution Center in Brea have 36′ clearance heights with 56′ x 50′ typical bays.

For new buildings in Southern California with 32′ clear, the typical bay is 52′ wide with varying depths. Western Realco’s new buildings at 4150 N. Palm Street in Fullerton and 3300 E. Birch Street in Brea have 52′ x 60′ typical column spacing. At Pacific Point East @ Douglas Park in Long Beach, Sares Regis has 52′ x 50′ typical column spacing as does Duke’s new warehouse in Lynwood.

racking-plan-building-b
source: The Brickyard South Bay website

Supply chain participants should be aware of how bay areas and column spacing in their warehouses impact their KPIs. If you need help evaluating new or existing warehouses in your supply chain, including evaluating existing column spacing, please feel free to reach out to me.


References

“SPEED BAY.” SPEED BAY. BOMA International, 2016. Web. 01 Dec. 2016.

Holste, Cliff. “Distribution Center Design: Designing from the Inside Out.” Distribution Center Design: Designing from the Inside Out. Supply Chain Digest, 11 Mar. 2008. Web. 01 Dec. 2016.

Johnson, Wendy. “The Importance of Optimal Column Spacing.” Tompkins International. Tompkins International, 30 July 2015. Web. 01 Dec. 2016.

“How to Optimize Your Existing Warehouse Space | Washington and California,.” Raymond Handling. Raymond Handling Concepts Corporation, 13 Aug. 2014. Web. 01 Dec. 2016.

Fallsway Equipment Company. “Warehouse Operation | Finding Your Aisle Dimensions.” Fallsway Equipment Company. Fallsway Equipment Company, 12 June 2014. Web. 01 Dec. 2016.

Foster, Margarita. “The View From E.CON: E-commerce Real Estate Evolves | NAIOP.” The View From E.CON: E-commerce Real Estate Evolves | NAIOP. NAIOP, 2015. Web. 01 Dec. 2016.

Fire Sprinkler Systems and Industrial Real Estate

As a supply chain real estate practitioner, I always encourage my clients to engage the services of a qualified fire sprinkler consultant or similarly qualified employee when they evaluate the suitability of a real estate option. While experts should be consulted, actors in the supply chain should take the time to understand the basics regarding today’s fire sprinkler systems and potential pitfalls that could arise from false assumptions. In this post I briefly cover the history of the fire sprinkler system and its evolution to the current ESFR system. I also explain why an ESFR fire sprinkler system may not insure the full use of high rack storage.

According to “The Station House”, a newsletter produced by Tyco (link here), the history of fire suppression sprinkler systems goes back to the 1800’s with the founding of the Providence Steam and Gas Company in 1850, which would later become the Grinnell Company.  In an effort to address the mill fires in New England, Providence tested various perforated pipe installations with actuators.

Through the next 100 years, we start to see a resemblance to modern sprinkler systems beginning in 1953, when the National Fire Protection Association issued the NFPA Pamphlet 13, which is the first code to recognize today’s standard sprinkler system. From the 1950’s to the early 1970’s, Ordinary Hazard systems were in standard use under the NFPA code. In the early 1970’s, the NFPA revised their standards to permit hydraulically calculated systems, which would eventually replace Ordinary Hazard systems in most warehouses by the 1980’s. Calculated systems are commonly shown in a volume per minute over an area calculation. Common examples are .33/3000, .45/3000, and .60/2000 calculated systems where the first number is the gallons per minute and the second the square footage.

Beginning in the 1980’s, the first fire sprinkler system was developed to address high rack storage without in-rack sprinkling. The Early Suppression Fast Response sprinkler, or ESFR, was both a concept and a type of sprinkler. The concept was to have a sprinkler capable of extinguishing fires in a high rack storage scenario. This contrasts with prior sprinkler systems, which were designed mostly to control fires until help arrived. In 1988, the first Factory Mutual (insurance company) approved ESFR sprinkler was introduced by Grinnell. Since that time, the ESFR sprinkler system has become the standard in protection for high rack storage.

One key component of the ESFR sprinkler system is the ESFR sprinkler head. Recent changes to the NFPA codes and today’s high rack storage heights require certain types of ESFR sprinkler heads to be used. These sprinkler heads are usually rated by what is called a “K factor”, or the coefficient of discharge. The larger the K factor, the more water it can discharge at a given pressure. K-14, K-17, K-16.8, K-22, K-25, and K28 are some examples of ESFR sprinkler head K factors.

The type of sprinkler heads and water pressure in an ESFR system is important to understanding high pile storage capacity for a given user. I have heard of several horror stories where companies have moved into a high cube warehouse with an ESFR system, only to learn that the sprinkler heads did not allow their desired use of the cube within the warehouse. In these events, typically the tenant will have to foot the bill to change out the heads-not an inexpensive proposition. In addition, changes to the sprinkler head may impact the required pressure-possibly requiring a modification to the pipe system. Again, not inexpensive.

In conclusion, fire sprinkler systems have evolved from little more than a perforated pipe to a highly technical engineered system capable of extinguishing the most combustible materials capable of being stored. Since fire codes and fire systems require professional interpretation and expertise, it is imperative that supply chain companies work with experts to mitigate any risk to their desired storage plans.

 

 

Trailer Spots per Acre

I was asked recently how many 53′ truck trailers could be stored on one acre of land and though I would share my answer, based on conversations with my clients and within my company. The first point to make about determining the storage capacity of land or any other two or three dimensional object is that it wholly depends on the configuration. A 30′ x 1452′ acre will have a significantly different storage capacity than a 209′ x 209′ acre. Assuming the acre is functional in shape, meaning closer to a square than a bowling alley, estimates typically range from 34-40 trailers per acre with no truck cab.

The second point to make is that as the land increases in size, the number of trailers that can typically be stored per acre goes up. For example, my team is marketing  an 8 acre land parcel and a space engineering firm created a layout with 394 trailer parking spots for a total of 49 trailers per acre, with 23 trailers spots double stacked.

Real Estate

  • Wal-Mart recently purchased 169 acres of industrial land just south of Denver International Airport in Colorado. Wal-Mart did not disclose what it planned to develop on the site however speculation has centered on a large e-commerce facility similar to the the five existing e-commerce facilities they operate in the U.S.
  • Global refrigerated warehouse capacity grew 600 million cubic meters this year according to the Global Cold Chain Alliance. However, most agree this is not enough to support the ever-increasing worldwide demand for fresh food. Capacity is expected to increase in developing countries as disposable income levels rise.

 

Calculating Dock Position Requirements

One of the most important facility requirements for any logistics operation is the amount of dock high positions an industrial building provides. Often overlooked, dock high positions can have a significant impact on whether an operation is able to meet its key performance indicator objectives and contribute to the overall success of a company.

Determining the minimum number of dock positions needed for a facility involves an understanding of the internal and external factors which affect the amount of dock high positions required. The internal factors can include the amount of trucks serviced by the docks over a period of time (average and peak), the time to load and unload each trailer per dock, staging and cross-docking requirements, work hours over a period of time, employee breaks, drop trailer requirements, trash / bailing requirements, shifts, and shipping preferences. External factors can include time of truck arrivals and departures, the reliability of carriers, whether carriers will back haul drop trailers, types of trailers used by carriers, and truck driver capabilities. A comprehensive understanding of these and any other internal and external factors will result in more precise understandings of an operation’s dock high requirements.

In general, the minimum number of dock high positions are calculated based upon a formula involving their use, the amount of time they can be used, and a safety factor. Below are three examples of manual calculations using some of the internal and external factors above.

  1. Number of Truck Positions Needed = ((Number of Trucks per Year x Hours it takes to Load / Unload a Truck) / Work Hours per Year) x Safety Factor [1]
    1. Inputs
      1. 7,000 trucks per year
      2. 2.5 hours for loading / unloading
      3. 2080 work hours per year
      4. Safety factor of 25%
    2. Calculation
      1. (7,000 trucks per year x 2.5 hours for loading / unloading) / 2080 work hours per year) = 8.4 x 1.25 safety factor = 10.5 docks or 11 dock high positions needed at a minimum
  2. Number of Truck Positions Needed = Number of Trucks per Hour x Turnaround Time per Hour [2]
    1. Inputs
      1. 20 trucks per day
      2. 8 hour work day
      3. 150 minute turnaround time
    2. Calculation
      1. (20 trucks per day / 8 hour work day) = 2.5 trucks per hour x (150 minute turnaround time / 60 minutes per hour = 2.5 turnaround time) = 6.25 dock positions needed or 7 positions needed
      2. If all trucks arrive in AM, then work day would be shortened to 4 hours and the dock requirements would be 12.5 or 13 positions needed
  3. ((Peak trucks per day) x (Average dock time per truck) x (Safety factor of 1.5 to 2)) / Number of hours in work day [3]
    1. Inputs
      1. 20 trucks per day
      2. 2.5 hours per truck
      3. 8 hour work day
    2. Calculation
      1. ((20 trucks per day) x (2.5 hours per truck) x (1.5 safety factor)) / 8 hour work day = 9.375 docks required or 10 docks needed

These three calculations show that depending on the formula used, roughly the same inputs will yield slightly to drastically different minimum dock requirements. Where formulas 1 and 3 resulted in 11 and 10 positions required, formula 2 resulted in only 7. Not surprisingly, formula 2 did not employ a safety factor. Safety factors are used to account for unforeseen variability such as disruptions in deliveries or labor.

Companies may also employ manual simulations of dock requirements.  These simulations include the detailed logging of docks used by the various types of vehicles that deliver or ship to a facility.  These simulations can show how to improve dock assignments or delivery schedules for better dock utilization and determining of minimum docks required.[4]

The use of technology in determining the minimum number of dock positions required may make the use of the manual calculations above obsolete. Warehouse management systems or WMS may include dock requirements based upon much more detailed inputs and trends.  However, the manual calculations formulas above help to show the importance of understanding the external and internal factors involved with determining the minimum number of dock positions for a given operation.

 

Real Estate

Chinese car maker BAIC has disclosed plans to build an assembly plant in Mexico after opening a dealership in Mexico last month. Among Chinese car makers in general, there is growing interest in Mexico as a potentially strong export market. Last year Chinese car makers exported over 330,000 vehicles to Mexico.

Amazon has announced that it will build its 10th fulfillment center in California, agreeing to locate an 855,000 square foot facility near Sacramento International Airport.  The fulfillment center will bring a reported 1,000 warehouse jobs to the area.

PortFresh Logistics is constructing a 100,000 square foot cold storage facility at the Port of Savannah. The facility, which will primarily serve the importers of South American produce, will create 40 jobs upon its opening with an expectation of 75 full-time jobs by 2021.

Newegg, a web-only retailer of technology products, has opened what it calls a Hybrid Centre in Ontario, Canada. The 81,000 square foot facility will include a showroom where customers can view some of its latest offerings.  Newegg also has a Hybrid Centre next to its Los Angeles headquarters.

UPS has applied for Miami-Dade County incentives to build a $65 million sorting facility in the northwest part of the County. In the deal UPS would reportedly receive $877,180 in county funds in exchange for creating 25 jobs and retaining 2,005 existing jobs.

Wal-Mart opened its new $100 million grocery distribution center in Mebane, North Carolina.  The center will employ more than 550 and distribute food to more than 55 Wal-Mart stores in North Carolina and Virginia.

Prologis, the global leader in logistics real estate, reported record second quarter 2016 results.  Rents on lease renewals jumped 17.8%  while rents overal rose 7.9 percent.  These led to second quarter net earnings per share of $0.52 compared to $0.27 in the second quarter of 2017.

Many of China’s logistics property companies have disclosed plans to go public amidst the e-commerce boom there.  Groups such as China Logistics Property and GLP have already gone public and otheres, such as e-Shang Warehouse Services, plan to list soon.

Gap said they will add more than 100 jobs and invest $3.1 million in uprades and technology to increase its e-commerce capabilities in its Gallatin, Tennessee facility.

Retailers are adding more distribution centers closer to major population centers in an effort to provide more efficient customer service.  Customers increasing demand to receive orders faster and cheaper has pushed many of the so-called inland ports to grow much faster than average US industrial markets.

General Mills announced the layoff of 1400 jobs, including 550 in United States as part of a rework of its supply chain.  General Mills plans on selling a plant in southern New Jersey and sell another in northern Ohio.

 

 

 

[1] Mulcahy, David E. Warehouse Distribution and Operations Handbook. New York: McGraw-Hill, 1994. 4.18-.20. Print.
[2] 4Front Engineered Solutions, Inc. “Dock Planning Standards.” (n.d.): 10. Web. 31 July 2016.
[3] Gross & Associates. “Calculating Dock Door Requirements.” (n.d.): n. pag. Web. 31 July 2016.
[4] Mulcahy, David E. Warehouse Distribution and Operations Handbook. New York: McGraw-Hill, 1994. 4.18-.20. Print.

New Format + Latest News in SCRE

I am excited to announce that after experimenting with post formats, I have decided to proceed with a new blog format which I think delivers timely information in a succinct and easy to follow structure.  Moving forward, the blog will be separated into two sections.

The first section will consist of a single topic which directly relates to supply chain and real estate.  Here I will cover, in as depth a manner as necessary, some of the latest trends and technologies I am seeing and hearing about.

The second section will consist of an aggregation of links to information which I have found over the past week to be interesting and thought provoking.  The links will be categorized to make navigation simple.

The reason I have decided on this format is two-fold.  One, selfishly I am using this blog to learn more about topics pertaining to my everyday business.  Therefore, don’t expect too much discussion on the banalities of industrial real estate here.  I wouldn’t be honest if I wrote about those.

Secondly, I do care about making this blog accessible and encouraging readers, including myself, to use it as a resource.  There are a number of great resources which cover supply chain issues or real estate issues.  I want to combine the two effectively.

Since I have blabbered on about the structure of this blog, which adds no value to your day at this point, I thought I would include the section with the past week’s SCRE links below.  Enjoy and please let me know your thoughts!

SCRE Links

Distribution Centers

From the Journal of Commerce: One reason for falling freight traffic may be the high levels of inventory

From Industrial Distribution: Werner Electric Supply uses custom pick module and warehouse design to double sales

From the Wall Street Journal: Warehouses Getting More Complex

Trade

From the Harvard Business Review: What politicians won’t talk say about manufacturing and trade

Ports

From the Journal of Commerce: POLB head says competition getting fiercer

From Modern Materials Handling: Panjiva reports lower US bound water shipments in March

From the LA Times: Ports of Los Angeles and Long Beach are losing market share to the east coast

From the Journal of Commerce: Real estate driving shippers to Savannah

Shipping

From the Journal of Commerce: Survey says…more shippers shifting to rail

Industrial Real Estate Market

From RE Business Online: US approaches historically low levels

 Lease Accounting

From Cushman & Wakefield: In Lease Accounting Changes: CRE to take Center Stage

From PwC: Overhaul of Lease Accounting

Current Events in Supply Chain + Real Estate

This week I thought I would follow up on some of the topics discuss here recently and also provide some links to events having a substantial impact in the supply chain world.

Last week I focused an entire post on SOLAS.  As a follow up, the rule and whether or not the shipping industry will/can comply with its mandate heated up this week.  One article in the Journal of Commerce cited a CargoSmart survey of shippers where the majority of shippers were not prepared to comply with the weight verification regulation.

While SOLAS has been the focus of the shipping industry, the trucking industry is dealing with its own set of regulations.  Even though it won’t be in effect until December 2017, the Electronic Logging Device requirement (ELD) is already causing changes in the industry. There is an expectation from some that this regulation will impact small and medium trucking companies the most, leading to reduced capacity in the industry as these small and medium companies go out of business. Some trucking firms, such as Swift, are stating that shippers are not inviting firms to bid on projects unless they have a plan in place to comply with ELD.

Supply chain real estate was in the news this month as major industrial real estate brokerages released their 1Q 2016 numbers.  Across most markets in the US, they supply of industrial real estate, especially distribution centers, is increasingly limited.  According to my firm, Cushman & Wakefield, the national industrial vacancy is at its lowest level in the past 30 years and is 240 basis points lower than its 10-year historical average.

Lastly, the interaction of technology and real estate is of increasing importance to logistics firms.  Just today the Wall Street Journal published an article citing the increasing technological changes in warehouses.  As supply chain real estate advisors, we are working with companies and vendors to determine how we can provide a real estate solution which will meet the technology requirements throughout the expected occupancy term.  Due to the infrastructure inconsistencies, such as internet bandwidth, antiquated and obsolete internal wiring, and insufficient power supplies, it is important for companies to understand what limitations they may have to support these new technologies in certain locations.

SOLAS

Over the past week I couldn’t help but notice the amount of articles dedicated to SOLAS verified weight requirements, which go into effect July 1, 2016.  Since the requirements have been public for a few years, the sheer volume of articles is a good indicator that actors within the supply chain are concerned about the new regulation going into effect, assuming the publishers are accurately gauging their audience.

SOLAS’ verified weight requirements and its potential impact on the supply chain speaks to the challenges continually presented to the supply chain industry.  The reasons for SOLAS verified weight requirements are certainly justified.  However, the implementation of the new requirement is resulting in challenging questions about how to comply and who will pay for such compliance.

Created in 1914 following the Titanic disaster, SOLAS stands for Safety of Life at Sea, is an international treaty created and administered by the International Maritime Organization, or IMO for short [1].  The IMOis a United Nations Specialized Agency responsible for the safety and security of shipping and prevention of marine pollution by shipping.  SOLAS has been revised over time by what are called Conventions, or conferences in which the terms of SOLAS are discussed and reaffirmed by the member nations.  From time to time, SOLAS is amended to strengthen provisions based upon current realities.

In response to several shipping disasters relating to unsafe shipping tonnage, SOLAS was amended in 2014 to require that all containers have a verified weight before being loaded onto a ship [2].  Currently, shippers can declare the weight of their packages using the estimated weight of the container contents plus the tare weight of the container.  Under the 2014 amendment, the weight of the packed container will need to be accurately verified.  The responsible party for verifying the weight of the container and contents is the shipper on the bill of lading (hereafter referred to as the “Shipper”)  [3].

The Shipper must choose one of two methods to comply with the SOLAS container weight mandate.  Method 1 is taking a loaded container over a nationally certified and calibrated weighbridge or similarly accurate device to get the total weight of the truck, fuel, chassis and filled container and subtract weight of the truck, fuel, and chassis to get the net loaded weight of the packed container.  Method 2 is weighing all goods and materials to be packed into the container and add them to the weight of the container to obtain the weight of the packed container.  A great infographic on this is found on the Journal of Commerce website here.

The penalty for not complying with the SOLAS mandate is significant.  If the Shipper does not comply with the mandate, the ocean carrier may not allow the container to be loaded onto the vessel until a verified weight is produced.   Therefore, the Shipper must have the ability to verify the container weight prior to loading the container onto a ship for export.  Realistically, they would need to provide the verified container weight to the ocean carriers and terminals in advance of arriving at the dock, since the ship’s stowage plan needs to be completed prior to loading any containers.

This requirement means that the Shipper would need to have the supply chain infrastructure to meet the requirements of Method 1 or Method 2.  If they do not possess the infrastructure, total landed costs are sure to increase. Furthermore, it means that there is an additional step in the supply chain which can cause delays and disruptions.  Both Methods can be time consuming, even if the required equipment is available.

Lastly, the SOLAS weight verification mandate could have an impact on supply chain real estate, mostly in and around the ports of export.  There could be increased demand from Shippers for locations suitable to install weighbridges and yard space to efficiently operate Method 1.  One could also imagine an increase in 3rd parties who would lease facilities dedicated to offering either Method.  Additionally, there may be an increased demand from Shippers to control the “last mile” delivery of the container to the port (as opposed to using a 3rd party).

Whatever its impact on real estate, it will be very interesting to see how the supply chain industry handles these new SOLAS requirements starting on July 1st.

 

 

 

 

 


1 “International-Convention-for-the-Safety-of-Life-at-Sea-(SOLAS),-1974 International Convention for the Safety of Life at Sea (SOLAS), 1974 //.” International Convention for the Safety of Life at Sea (SOLAS), 1974. International Maritime Organization, n.d. Web. 19 Apr. 2016. <http://www.imo.org/en/About/Conventions/ListOfConventions/Pages/International-Convention-for-the-Safety-of-Life-at-Sea-(SOLAS),-1974.aspx>.

2 Leach, Peter T. “Container Weight Compliance to Boost Costs for Shippers.” Trade and Container Shipping News. Journal of Commerce, 11 Apr. 2016. Web. 19 Apr. 2016. <http://www.joc.com/maritime-news/international-freight-shipping/container-weight-compliance-boost-costs-shippers_20160411.html&gt;.

3 2015, February. “The SOLAS Container Weight Verification Requirement.” The SOLAS Container Weight Verification Requirement (2016): n. pag. Feb. 2015. Web. 19 Apr. 2016. <http://www.worldshipping.org/industry-issues/safety/WSC_Summarizes_the_Basic_Elements_of_the_SOLAS_Container_Weight_Verification_Requirement___February_2015.pdf&gt;.

LA Basin Industrial Market 1Q ’16

C&W just released its  Q1 2016 Los Angeles Basin Industrial Statistics.  Fueled by consumer spending and an improving local economy, market metrics continue to improve.  Companies in the supply chain continue to demand high quality assets in the LA Basin and so far have been willing to pay for quality and amenities.

SC Tech and its Impact on CRE

I recently read an interesting article in the 1Q 2016 CSCMP’s Supply Chain Quarterly titled “Ten tech trends that will transform your supply chain”.  The article reviews ten technology trends cited by International Data Corporation (www.idc.com) as trans-formative to the manufacturing supply chain.

As I am a supply chain real estate adviser, when I read this article my thoughts immediately focus on, assuming this list is prophetic, what are the potential impacts on the real estate within the manufacturing supply chain.  Starting with the IDC list, I have written a few of my opinions below on how each trend might correspond to supply chain real estate.  As always I welcome your feedback!

  1. Cloud-based commerce networks
    • Increased cloud usage may correspond to larger bandwidth requirements.  Properties with ISP’s providing larger bandwidth at lower costs may be much more attractive to end users.  Properties without bandwidth may require tech work-arounds, which may or may not be possible.
  2. Micrologistics
    • A great trend for industrial real estate and 3PLs in infill markets.  For those companies who desire dedicated facilities, considerations may include lack of trailer storage on-site, sub 30′ clearance heights, truck ingress and egress issues, and sharing common areas.
  3. Integrated business planning
  4. Modern postponement
    • Modern postponement ties in with the cloud and micrologistics concepts and many of the same real estate considerations apply.  Requirements for 3D printing and other flexible manufacturing processes may increase the need for additional power sources.
  5. Resiliency and visibility
  6. “Broadening” of the supply chain
    • Adding product design, manufacturing, and service to a supply chain will most likely drive demand for more employee intensive properties.  Amenities such as increased employee parking areas, increased power, and proximity to retail amenities would likely be of greater importance.  Companies could separate the product design and service functions to office space.  However, if there is a need to have all three functions in a certain location, this separation would typically be more expensive than if all three were in one industrial space.
  7. Cloud-based WMS and TMS
    • With greater cloud-based data there may be additional demand for internet bandwidth.
  8. Robotics
    • Increased power requirements, access to alternative sources of energy, locating in lower cost energy areas may be drivers for companies employing robotics in the supply chain.
  9. Internet of things
  10. Talent
    • Location, location, location.  It probably goes without saying that anyone with marketable talent will want to work in a desirable environment, unless the corresponding compensation in one shape or form is adequate to offset their preference.