Speaking with a company dealing in importing high quality, ‘child-safe’ toys from Germany, they mentioned that because their demand shows seasonal surges (e.g. during Christmas), it makes it tough for them to source short-term storage at effective rates. Same thing with an organic food manufacturer in Indonesia who are looking to expand in SEA, and want to get short term storage space to test their products in a new market. They mentioned how they don’t get the right attention or prices from the larger 3PLs and ultimately end up paying a “penalty” for being small or for their urgency of volumes!
So, what are the challenges in today’s warehousing ecosystem?
- No real ‘shared’ warehouses: 3PLs (third party logistics companies) do operate multi-user warehouses… but are they really shared warehouses? Are the resources and manpower effectively shared across customers? For e.g., if a customer has lower volumes, can it really flex to reduce space occupied and vice versa?
- Vacancy vs. utilization: Warehouse rental comes at a premium in most countries… e.g. in Singapore warehouse vacancy rates are a little over 10% (based on statistics from JTC, 2016 Q4). But is there underutilization in the already rented out warehouse space? The utilization ranges from 70 – 90% based on type of business, economic situation, growth expectations.
- Penalty for urgency, short-term or small-size: Short term or urgent space is too costly i.e. the customer is ‘penalized’ for urgent demand for rental. Also, short-sized (e.g. <500sqm) or short-term (e.g. <6months) rentals are not the focus of most logistics companies because they are not very profitable.
- Contracting period takes too long: Average duration to get a contract signed between a customer and a supplier takes 2-3 months – too long for a fast growth company!
- Seasonality means overflow/ underflow of space: Seasonal surge is always tricky to forecast and therefore a company might not be able to commit to space with a 3PL. And if they do commit, they may end up with extra or less space – both of which means extra cost to the company.
- Changing needs of changing business models: eCommerce businesses require small space storage for short periods of time (e.g. setting up small, multiple distribution centres). Greater need for visibility of inventory at all times for both small and large manufacturers.
The bottom line is that the current warehousing ecosystem is not designed to suit urgency, short-term needs and hence, provides lower flexibility. This is especially a challenge for the fast growth businesses e.g. fashion, high-tech, non-perishable foods, FMCG and eCommerce. There is a need to preserve cash and save costs in warehousing.
How would the shared economy model for warehousing work?
Imagine an Airbnb-like platform for warehousing business. A model which allows companies who need space to be seamlessly connected with the right company who has vacant space (includes both traditional warehousing companies or companies not in the business of warehousing). Possibly, with additional services beyond renting space e.g. integrated payment, inventory tracking, etc.
Such a model would turn logistics costs into variable cost as much as feasible. It allows for scalability and flexibility in space and cost i.e. rent month-to-month instead of annual or long term, especially for urgent/ seasonal needs.
It will be a bit more complex than holiday rentals (current Airbnb model) as 1) the rental term is longer (usually 2+ months), 2) the liabilities are higher (storing someone else’s products in your space and ensuring they are kept intact and secure, and 3) greater supplier responsibility i.e. unlike Airbnb, where the person renting the home stays physically in the home and does not need the home-owner around – in warehousing, the entity renting space is just sending their products and not staying physically to watch over the products. Hence the responsibility for the space-owner increases (e.g. receiving/ transporting inventory, managing tracking of inventory, security provision, any additional services required)
Who can benefit from such a model?
- Well, this is certainly not a model for everyone e.g. large businesses with stable volumes and space needs through the year should rather stick to traditional 3PL rentals. However, for their urgent / seasonal needs, this might be a good model.
- Shared economy suits SMEs and eCommerce businesses the most – making it an equal opportunity for them to source space and e.g. setup micro distribution centres for themselves.
- Also this is suitable for specialized products e.g. wine/non-perishable food businesses, cold storage requirements, etc.
- Shared economy opens up a wide range of available space beside just the traditional warehouse (3PL) space i.e. private landlords, specialised storage, self-storage options which can cater to small businesses, etc.
- The peak in the model would happen when individual companies (not in the business of warehousing) start lending their underutilized space out (e.g. space in their warehouse in low seasonal times). This would open up a new source of supply which is currently untapped.
No new idea comes without its challenges:
- Terms & Conditions – any shared economy platform in warehousing will need to tackle the concerns around product liability, insurance, penalties, and termination process.
- Quality control – any storage space put-up needs to go through a quality approval / control process by the platform.
- Customer experience – technology is good, but customer service is as important. One of the main advantages in favour of 3PLs is the ‘personal-touch’ (account management). An Airbnb-like model in warehousing will need to evaluate how it replaces (or creates) the personal-touch or customer experience in this ecosystem.
Shared economy is already seeing its advantage in various businesses – Airbnb for holiday rentals, Uber for taxi and trucking rentals… so there’s only little time before this becomes a reality in warehousing. If you’re more interested in the topic, you can sign-up here for a free trial or demo of such a platform http://varehaus.launchrock.com/