Sweet Dream or a Logistical Nightmare?
Uncertain; unforeseen; unprecedented; unexpected: 2020 has been the most turbulent of years, politically, socially, and medically.
Amongst it all, the UK’s negotiations with the EU have continued. The current transition period ends on 31 December 2020, at which point the UK will leave the EU’s Single Market and Customs Union. At present, it’s not clear what the UK’s new independent trade policy will entail, but the logistics industry will be acutely aware of the potential impact of a ‘No-Deal Brexit’ on the availability of workers, not to mention customs issues and the sheer volume of administration that all add time to an already time-sensitive industry. Michael Gove, Minister for the Cabinet Office, has publicly estimated a worst-case scenario of lorry drivers being delayed at the Dover-Calais crossing for up to two days.
Logistics companies are being advised to prepare thoroughly and carefully to avoid delays and to ensure the timely passage of goods in to and out of Europe, but also to cushion the blows of duties that may be incurred alongside increases in the cost of materials combined with currency devaluation. Companies that have previously relied on ‘just-in-time’ deliveries of goods and stock from the EU, where parts may arrive a matter of hours prior to being used, are now having to look for other ways of securing their supply chain.
Many are stockpiling goods, increasing demand for storage spaces of an appropriate type and in suitable locations. An acute shortage of warehouse facilities in major cities means that competition for suitable space is intense and the government’s focus on building more residential properties has led to concerns that urban logistics spaces will lose out to housing.
As if this wasn’t enough, there’s also Covid-19, which has led to an enormous increase in online commerce. This has meant, in turn, greater pressure on the existing logistics networks and heightened competition, particularly when it comes to replenishing stocks for retailers, storage of goods, and meeting increasingly high customer expectations. This is relevant for businesses of all shapes and sizes, from the biggest players in the market to SMEs, and companies are being forced – or incentivized, depending on how you look at it – to reposition their networks to make sure they are not only up to standard but are also resilient.
It’s not all bad news. As ever, with the biggest challenges come the biggest opportunities and the logistics market is seeing an influx of investment in urban logistics expansion, with a particular focus on last-mile warehouse markets in key metropolitan areas and what are sometimes known as gateway cities – anything that can get the suppliers closer to the consumer. Even the quickest of glances at current industry headlines show deal after deal as investors snap up properties close to consumers and key infrastructures such as airports, strategically important highways, and ports. It’s not just existing development sites either, as assets with the potential to be repositioned are being considered by logistics companies (and their investors) in an effort to ensure distribution networks are as efficient and fit for purpose as possible – although the urban infill market remains a favorite.
We at Bird & Bird have seen an increase in clients wishing to consolidate existing land stock and develop it into potentially more lucrative warehousing in response to the increased demand for storage space, and also from landlords looking to reclaim potentially high-value warehouse space. We expect to see a significant increase in requests for advice relating to the construction of warehouses with advanced technological capacity, with the aim of driving down operational costs and maximizing the use of space particularly in high value, low capacity areas.
Time to throw yet another straw onto the proverbial camel’s back. What about sustainability in an industry that is ultimately based around consumer desires? Can logistics ever be ‘green’?
It’s an interesting and ever-more pressing question. The logistics industry needs to grapple not only with consumer pressure to provide an environmentally responsible service and the fact that investors are increasingly considering sustainability as part of their investment decisions but also with the drive from the government.
The UK Parliament passed legislation in 2019 that requires all greenhouse gas emissions produced by the UK to be brought to net-zero by 2050 when compared to the levels recorded in 1990 (not to be confused with a ‘gross-zero’ target which would require reducing all emissions to zero). Innovation, off-setting, and the use of modern methods is a key part of this process, as the built environment is widely acknowledged as being critical to reductions in emissions goals. However, new buildings make up a fairly small percentage of the challenge and the focus has to remain on existing stock and how to remodel or retrofit it to make it more sustainable – whether that is by way of solar paneling, greater automation, or the use of robotics.
It’s worth noting that where construction can be carried out off-site, employers are often seeing an improvement in energy costs and reduced waste. Sustainable technology and ensuring a sustainable supply chain are other areas worth investing in.
This is a time of huge change and uncertainty. As with any challenge, the best defense is preparation, and making sure you have a competitive edge in an already competitive industry is key, as is staying on top of the consumer trends and trade negotiations which could have a significant impact on day-to-day management and the meeting of supply contracts. With consumerism ever on the rise, the demand for warehousing doesn’t seem to be an appetite that is going to be sated any time soon, whether there is a no-deal Brexit or not. Investors in logistics and industrial real estate are clearly already aware of this.
This is a chance for the logistics industry to recalibrate and position itself accordingly. It’s worth looking ahead too – whilst the Covid-19 pandemic will be over at some point (hopefully sooner rather than later) that does not mean the consumer habits picked up during the pandemic are going away and longer-term trends, such as the increasing urbanization of populations, the continued maturation of emerging economies, and increased consumer awareness of environmental concerns, will continue to dominate the narrative for many years to come.