Posted on June 22, 2016

 

Supply Chain Management: Freight vs. Warehousing

 

Freight capacity has been affecting the U.S. Supply Chain in recent years in terms of driver shortages, truck availability and port congestion. However, as of late we have not seen these issues arise in the news nor pictures of multiple ships anchored in the U.S ports. Instead, the attention has shifted over to its partner, warehousing. The industry is now dealing with shortages of warehousing or industrial space in the U.S., which is affecting overall supply chain costs.


With low oil prices and increased capacity in the transportation industry, companies across the board had started to enjoy a slight savings in their overall supply chain cost. Those savings are quickly diminishing due to increased demand for warehouse space while the supply of available warehousing space has remained constant. One example of increased demand is from ecommerce, where once a brick and mortar store front, now needs large amounts of warehousing space to fulfill online orders. The combination of increased demand vs. constant supply has decreased available warehousing space to a level that hasn’t been seen since 2001, according to a study done by the CBRE Group. Other findings of this study noted industrial rent increases of 5.3% in 2015, and is expected to rise throughout 2016. As industries like ecommerce continue to increase demand for warehouse space every company will see increased cost in the warehousing portion of their supply chain.


The result of short supply and high demand in the warehouse industry has sparked a construction boom as companies quickly try to sign contracts and permits to break ground on new warehousing space. However, the industry will not see those affects anytime soon. Currently new construction is not keeping up with the rising demand for new storage space, but it is projected to help slow the inflation of warehousing rates this year and next. This means companies will not see much cost savings in their supply chain until the supply of warehousing space in the U.S. catches up to demand. Ultimately even though warehousing rates are increasing, companies are still enjoying decreased transportation rates, which leaves overall supply chain cost at its equilibrium.


The hospitality industry is also playing a role in the increase of demand for warehousing space throughout the U.S. Typically hotel owners use warehouses when renovating their properties especially when they are renovating the guestrooms. According to hotel research company STR Inc., there were over 150,000 hotel rooms under construction in February of this year. Their report states that this is almost a 17% increase from last year. When you add this increase in demand with ecommerce, household goods and other industries alike, warehousing space becomes harder to lease or rent.