Do 3PLs offer the only solution to shared warehousing?

Business strategies change and companies are often left with a significant amount of empty warehouse space. Staff may be laid-off and capital investments, such as warehouse management systems, materials handling equipment and the building itself, are inevitably found failing to make a full contribution to the business. However, far from creating a hole in the balance sheet, such situations can offer a significant opportunity for a new stream of revenue.

In effect, any company with spare warehouse capacity can become a 3PL. But very few are aware of the potential and, even fewer, are actively pursuing it. Could they be missing a trick?

Over the last 15 years or so, a great deal has been done in the sector to develop collaborative arrangements on sharing vehicles - leveraging competitive advantage, saving costs and cutting energy consumption through fully utilising spare capacity on trucks. However, there is precious little said about wider collaboration on warehousing, tapping into an abundance of available space held by individual companies. Why is this?

As one business finds it needs less warehouse space, another realises it requires more. There is a natural ebb and flow. Right now, there is strong demand for warehousing and the services that go with it.

As the economy strengthens, retailers and manufacturers are rebuilding their inventories, pushing up demand for available warehouses. Figures released by property advisers, GVA Grimley, in its Spring 2014 Industrial Intelligence report, give the total take-up for 2013 of warehouses over 100,000 sq ft as 20.2 million sq ft, 2% above the ten-year average. It cites the growth of e-tailing as a contributing factor.

Competition for space, linked with a rising demand from fast-expanding e-tailers for warehouse services such as order picking, packing and warehouse management, is presenting an enormous opportunity for those companies with spare space and skilled staff. But many busy logistics managers are too focussed on running their existing operation to devote time to finding a partner to fill the space. This is where collaborating on space utilisation can be best achieved through a warehouse space broker – bringing those businesses in need of space together with organisations with excess capacity.

From the point of view of a business looking for space, finding a warehouse can be difficult and time consuming. Due to the recent recession there are fewer speculatively built developments around, and for those that are, landlords tend to expect three - five year contracts. Hardly the flexible solution most businesses are looking for.

The normal practice is to look for a traditional 3PL. This is based on the assumption that expertise and service performance is only found within this sector. However, case studies and on-going operations clearly show that this is far from correct, with many ‘own account’ warehouse users having excellent facilities, cutting-edge IT, and a highly motivated workforce with a low ratio of full-time staff to agency operatives.

Another important point to consider is that a logistics service provider will want to use space wherever they have it available – and that may not be where you need it. For example, around the M25 can be difficult for 3PLs but a broker can often help. Transport costs are high, so every mile away from the optimum location can cost a significant amount of money, and, indeed, impact customer service. In addition, as a business set up to solely run third party logistics for clients, its whole structure of overheads will be carried directly by its customer base, and protecting operating margins will be a keen focus.

In a collaborative arrangement, through a broker with a wide portfolio of properties, there is a far higher likelihood of achieving a flexible deal – perhaps just for 6 - 12 or 18 months – at a well suited location. As this would be a side-activity, the key objective of the space provider would be simply to get a return on capital equipment - overheads would almost certainly be widely dissipated and any margin would therefore be competitive.

Working collaboratively to maximise the space utilisation, and the performance, of a warehouse has benefits for all concerned. Perhaps it’s time to collaborate.

Nigel Greenslade is Director of BiS spaceXchange

* Property Data Report 2013 is produced by eight leading property bodies – including the Royal Institution of Chartered Surveyors and the British Property Federation.