Spurred by E-commerce Growth, Warehouse Storage Demand Thrives

Spurred by E-commerce Growth, Warehouse Storage Demand Thrives

As a new wave of COVID-19 sweeps across the world with the omicron variant, and other variants surely to follow, supply chains continue to struggle with balancing supply and demand. Thriving e-commerce coupled with port congestions, labor shortages, and infrastructure challenges are adding to retailer and consumer woes. What is the answer?

With container ships idling in the ocean for weeks to unload their cargo, companies are reexamining their sourcing, manufacturing, and logistics strategies. For some, on-premise storage or reshoring is now an attractive alternative to avoid supply chain bottlenecks and production issues overseas, while bringing operations and logistics closer to the customer. The Reshoring Initiative projected 1,334 companies to reshore in 2021, generating more than 138,000 jobs.   

Whether companies reshore their manufacturing or invest in U.S.-based facilities, it will have a direct impact on warehousing and distribution operations. Not only will it drive demand for more warehouse space but also automated pallet storage solutions.

Pandemic Impacts Continue

Throughout the last two years, warehouses and distribution centers have dealt with myriad issues related to the pandemic. Just-in-time inventory models quickly became ineffective with major supply shortages. Health measures, such as social distancing and sanitizer stations, were implemented to protect workers. And a significant issue was the surge in e-commerce that required warehouses and distribution centers to pivot to online fulfillment.

Now in the first quarter of 2022 and another COVID-19 wave, how do these issues fare?

Labor shortages. The U.S. is going through the Great Resignation, where 4 million people have left the workforce. There are numerous open positions that companies are unable to fill. A Forbes article identified a couple of key reasons for the labor shortage in supply chain industries, which is unlikely to rebalance in the short term.

• Manufacturing and supply chain industries are perceived as unattractive to workers. Whether it’s the labor involved or the pay, people are looking to the technology and healthcare sectors for employment rather than logistics.

• Warehouses and distribution centers rely on sophisticated technology for their operations. Technical knowledge for utilizing automation and warehouse management systems is critical but finding workers with those skills is difficult in today’s market.

Supply chain shortages and bottlenecks. Many consumers are aware of the shortages in several product categories, including electronics (semiconductor chips) and food and beverage. While the congestion at the Port of Los Angeles and the Port of Long Beach are beginning to ease, the issues are expected to persist. Ocean container ships are waiting weeks to dock and offload their cargo, only to have a lack of chassis to transport containers.

California Governor Gavin Newsom issued an executive order to help address the supply chain issues, including 24/7 port operations to ease congestion. A strategic partnership was announced between the Biden-Harris Task Force on Supply Chain Disruptions, Governor Newsom, and the U.S. Department of Transportation (USDOT) to “help facilitate innovative projects and financing opportunities for multi-billion infrastructure improvements in California.” The development of inland port facilities for increased warehouse storage is part of the infrastructure partnership.

E-commerce growth drives demand. Without surprise, e-commerce continues to prosper. According to the Census Bureau of the Department of Commerce, the estimate of U.S. retail e-commerce sales for the third quarter of 2021, adjusted for seasonal variation, was $214.6 billion. This represented an estimated increase of 6.6 percent year over year for the third quarter. E-commerce sales accounted for 13% of the total third quarter retail sales.

The growth of e-commerce domestically and abroad is spurring demand for industrial real estate — including warehouses and distribution centers. According to real estate services firm CBRE, meeting the growth in e-commerce will require an additional 330 million square feet of warehouse and distribution space in the U.S. Globally, 1.5 billion square feet of space is required by 2025 to accommodate the rapid increase in e-commerce.

“E-commerce has grown steadily over the years, and it will continue at a strong pace for the foreseeable future,” said John Morris, executive managing director and leader of CBRE’s Americas Industrial & Logistics and Retail businesses, during a forecast announcement. “As a result, distribution and supply chain networks will continue to be under pressure to meet demand at a time when industrial vacancy is at record low levels. A significant amount of new construction will be needed in the next few years just to keep pace with robust demand.”

The Global E-Commerce Outlook 2021 report includes several insightful statistics:

• Over the next five years, e-commerce sales are expected to increase $1.5 trillion

• Global e-commerce sales have increased 145% over the last five years

• Every $1 billion of e-commerce sales requires 1 million square feet of logistics space

• Mainland China and the United States are the two largest e-commerce markets in the world

As more companies pivot to domestic manufacturing and storage, there could be heavy competition for available space. With the anticipated increase in e-commerce sales and the resulting space required to accommodate storage and order fulfillment, what are some warehouse and distribution strategies and storage options? 

Warehousing in the New Normal

Going back to business as usual pre-pandemic is not an option for retailers. The omnichannel model that emerged during the pandemic is here to stay and evolve. However, that doesn’t mean retailers can’t be strategic in how they approach warehousing and distribution.

In an article from FM magazine, Vaggelis Giannikas, associate professor at the University of Bath School of Management, provided a few new models for warehousing that retailers can adopt to meet e-commerce growth.

Warehouse to fulfillment center. Warehouses that traditionally only provided storage are now being converted into complete fulfillment centers with the necessary technology and automation. Transitioning into a fulfillment center requires specific skill sets and personnel to operate equipment, and this is where automation can help.

Backroom fulfillment. With supply shortages and more e-commerce orders, some retailers may find existing space in their brick-and-mortar locations to build storage in the short term or for home delivery orders. This can provide an alternative to investing in a separate warehouse space or third-party provider. See the Best Practice Guide pertaining to Micro Fulfillment and Urban Distribution.  

Shared warehousing. Manufacturers may find sharing inventory and warehouse space with other tenants to be cost effective. Also referred to as “on-demand” warehousing, it provides a space during higher levels of consumer demand and inventory fluctuations. Manufacturers of similar products or closely located retailers can reduce their financial risk by sharing a multipurpose space. Many municipalities are also looking at this model to help spur employment. If distribution space is built to accommodate multiple manufacturers, then areas with easy access to logistics routes will see a bump in activity.  

Regardless of which warehouse model fits your needs, there are several automated storage options that ensure the available space is efficiently used.

Warehouse Storage Options

Manufacturers and retailers need to use their warehouse space efficiently. Due to demand fluctuations, more companies are relying on buffer inventory to ensure product availability and order fulfillment. This means requiring appropriate storage space for more inventory. SSI SCHAEFER provides automated storage solutions that maximize vertical space, while maintaining functional warehouse aisles, which also reduces the real estate footprint.

With more product stored and delivered on pallets, automated pallet storage solutions provide maximum benefit. However, if you plan on implementing an e-commerce or omnichannel fulfillment center, the need for depalletizing and piece picking will have to accompany that pallet storage. Here are a few solutions that can meet your needs depending on whether pallet, case, or piece picking is needed for fulfillment.

Pallet Storage & Picking:

Channel storage systems. Ideal for food and beverage retailers or wholesalers, channel storage systems are efficient for compact storage areas with a small range of items with large volumes. Channel vehicles retrieve pallets for storage or removal. Channel storage is also beneficial in cold storage environments — both cooled and deep freeze.

Storage retrieval machines (SRM). For a fast-moving warehouse or fulfillment center, storage retrieval machines and shuttle systems provide rapid transport of pallets with short access times for order assembly and shipment. Achieve optimum inventory turns with an automated solution that provides modular design. A fitting solution for warehouses that need to convert into fulfillment centers.

Shuttle Systems. For quick storage of cases, containers, and trays, flexible automated storage systems that utilize shuttles for material transport with short access time increase efficiency. These systems are easily scalable and can grow as e-commerce business increases.

Vertical Lift Modules. These are often known as VLMs and function as a large cabinet with automated drawers that are brought to the picker for order fulfillment. This solution is perfect for the retailer or manufacturer that has lower e-commerce volumes, but these units can easily scale when needed.

Today’s warehouse and distribution center can be a mix of standalone facilities or micro fulfillment in the rear of a retail store. Manufacturers and retailers are learning what options work best for them as we emerge from a pandemic that has permanently altered the logistics