John H. Boyd (jhb@theboydcompany.com) is founder and principal of The Boyd Co., Inc. Founded in 1975 in Princeton, New Jersey, and now based in Boca Raton, Florida, the firm provides independent site selection counsel to leading U.S. and overseas corporations. Organizations served by John over the years are many and varied and include The World Bank, The Council of Supply Chain Management Professionals (CSCMP), The Aerospace Industries Association (AIA), MIT’s groundbreaking Work of the Future Project, UPS, Canada's Privy Council and most recently, the President’s National Economic Council providing insights on policies to reduce supply chain bottlenecks.
COVID-19 has hit supply chains with a “double whammy.” It’s not just that supply of vital medical equipment, pharmaceuticals, and essential consumer staples has crashed. Companies have also seen a plunge in demand as more than 30 million workers lost their jobs and shelter-in-place rules halted normal commerce. Meanwhile the already booming e-commerce sector has kicked into overdrive.
How will these large and rapid changes impact the distribution warehousing sector here in the United States? From my vantage point as a corporate site selection consultant, I have identified some of the key trends that I see having an impact on site locations and design decisions.
Move toward reshoring
Reshoring of manufacturing and supply chain operations from China back to the U.S. has been a trend since the Trump tax cuts, but we expect the pace of this supply chain realignment to pick up even more now. The pandemic has brought into the spotlight the fact that our nation’s supply chains have been stretched to the limit at our great peril. COVID-19 has been a painful wakeup call that our supply chains—normally hidden from public view—are far too reliant on distant nations like China. The message of supply chain risk has even reached the halls of the U.S. Congress where lawmakers—on both sides of the aisle—are crafting legislation to encourage American companies to shift supply chain operations from China back to the U.S. through the use of tax breaks, generous subsidies, and new rules of the road.
As a result, we expect that warehouse site selection within the U.S. will become less “port centric” and more oriented to the dynamics of domestic production and consumption. In recent years, some of the most popular and expensive supply chain real estate has been close to deep-water container ports like Miami, Florida; New York/New Jersey; Southern California; and Houston, Texas. We see that interest moderating and predict a heightened interest in warehouse sites near centers of U.S. manufacturing and agricultural production, especially in our nation’s central region.
Weakened economy
Interest in keeping a close eye on cost efficiencies and operating costs will intensify in the weakened COVID-19 economy. As a result, companies may favor lower-cost cities and states with more favorable tax regimes for their supply chain facilities. Figure 1 lists ten top locations on the U.S. East Coast for a cold chain distribution center serving the pharmaceutical industry and shows the comparative operating costs (labor, real estate, construction, power, taxes, and shipping) for a 175,000-square-foot facility. Annual costs range from a high of $27.5 million in Staten Island, New York, to a low of $18.1 million in Rocky Mount, North Carolina. The cost differential between the New York location (a state with a corporate income tax rate of 6.5%) and North Carolina (a state with the nation’s lowest corporate income tax rate at 2.5%) is $9.4 million, a significant differential of 34.2%.
[Figure1] Distribution center operating cost comparisons
Enlarge this image
Also shown in Figure 1 are ten top Central U.S. DC sites along with annual operating costs for a 750,000-square-foot national warehouse. Annual costs range from a high of $20.1 million in Humble, Texas, to a low of $18.1 million in Liberty, Missouri. Three of the ten top national DC sites are in Missouri which records the lowest corporate income tax rate in the Central U.S. and the second lowest in the nation at 4.0%.
Site-seeking companies need to be on guard for major tax hikes and toll increases in the months ahead. Those states hardest hit by COVID-19 will face unprecedented budget challenges and will be searching for new revenue sources. California, for example, is gearing up for a large property-tax hike. The state’s November ballot initiative would effectively exclude commercial and industrial properties from the landmark Proposition 13 passed in 1978 that limited property taxes for homes, businesses, and all other land to 1% of the property's value at the time it was last sold. If passed, this game-changing initiative is expected to hike property taxes for California businesses by as much as $12 billion.
At the same time, the weakened economy may also open up new sources for distribution sites. Some of the nation’s most attractive commercial real estate will be the many millions of square feet of retail space that will not be coming back after COVID-19. Developers will be especially quick to repurpose former malls and “big box” stores. These sites may prove attractive to developers due to their low cost, highway access, and truck and employee parking accommodations.
The role of risk management
Conventional risk management has always been part of the warehousing location decision. Companies have long taken into account such considerations as the integrity of the physical site, insulation from natural disasters, and political stability when choosing where to locate a warehouse or distribution center. The pandemic, however, will greatly expand the boundaries of risk management and its role in site selection. It will now need to include a range of COVID-related considerations like transitioning to new suppliers and/or customers as well as transitioning away from some that may go out of business due to COVID. Similarly, DC design and management will need to consider a myriad of human resourcefactors related to the impact of the virus on the DC’s workforce and local labor market as a whole.
Rising importance of the cold chain
COVID-19 will change not only where warehouses and DCs are located but also how they are designed. Cold storage was already on track to become a much larger player in the supply chain before COVID-19. Now, we are seeing unprecedented interest in the cold chain from investors and site-seeking industries like pharmaceutical and food. Our firm’s BizCosts unit forecasts that between 100 million and 125 million square feet of freezer/cooler space will be required to meet new demands, much of it coming from pharmaceutical, biotech, and food processing companies.
This trend is expected to continue beyond COVD-19. We expect to see many consumers continue to order perishables, including frozen food, online. Additionally, pharmaceutical and biotechnology firms are developing a wide range of new products that rely on cold storage throughout the entire supply chain. Biologics—drugs and medicines developed from living organisms—are also driving new cold storage demands. The cold chain will become even more critical when the much anticipated COVID-19 vaccine is developed, and the pharmaceutical supply chain has to handle distribution of an unprecedented number of dosages.
Technology and connectivity
COVID-19 is also causing a spike in warehouse automation. Some companies are turning to robots to help maintain social distancing and keep workers safe within the warehouse setting. Fetch Robotics, a provider of warehouse robotics, reported that inquiries are up by two-thirds since the emergence of COVID-19. Walmart says that concerns about worker safety are driving its dealings with Bossa Nova Robotics, which is designing a new shelf-scanning robot for the mega-retailer’s warehouses and stores.
Greater use of robotics will also be encouraged by the COVID-19-driven reshoring of manufacturing and supply chain facilities back to the U.S. This type of automation will help companies offset higher U.S. operating costs, principally in the area of labor.
COVID-19 has also accelerated the trend toward remote working, which will have a significant impact on the U.S. commercial real estate industry. As more employees work from home, the demand for office space decreases. When we started our firm in the 1970s, many U.S. offices averaged 500 square feet per worker. That number dropped down to 200 square feet per worker a decade ago and is now less than 150 square feet per worker. For warehousing projects, we expect to see less space allocated to other back office functions (such as accounting, sales, and customers service) that may be co-located at the site.
Rewriting the script
It’s important to remember that no one saw this coming. There’s been no script for supply chain players to follow when it comes to reacting to and dealing with the COVID-19 pandemic. Instead supply chain companies and their consultants have been writing a new script each and every day.
Given the industry’s ability to adapt quickly to changes, I have no doubt we will recover from this horrible event with a more secure and resilient supply chain in tune with the “new normal.” … What that “new normal” is, however, still remains to be determined.
The first full day of CSCMP’s EDGE 2024 conference ended with the telling of a great American story.
Author and entrepreneur Fawn Weaver explained how she stumbled across the little-known story of Nathan “Nearest” Green and, in deciding to tell that story, launched the fastest-growing and most award-winning whiskey brand of the past five years—and how she also became the first African American woman to lead a major spirits company.
Weaver is CEO of Uncle Nearest Premium Whiskey, a company she founded in 2016 and that is part of her larger private investment business, Grant Sidney, Inc. Weaver told the story of Uncle Nearest—as Nathan Green was known in his hometown of Lynchburg, Tenn.—to Agile Business Media & Events Chairman Mitch MacDonald, in a keynote interview Monday afternoon.
As it turns out, Green—who was born into slavery and freed after the Civil War—was the first master distiller for the Jack Daniel’s Whiskey brand. His story was well-known among the local descendants of both Daniel and Green, but a mystery in the larger world of bourbon and a missing piece of American history and culture. Through extensive research and interviews with descendants of the Daniel and Green families, Weaver discovered what she describes as a positive American story.
“I believed it was a story of love, honor, and respect,” she told MacDonald during the interview. “I believed it was a great American story.”
Weaver told the story in her best-selling book, Love & Whiskey: The Remarkable True Story of Jack Daniel, His Master Distiller Nearest Green, and the Improbable Rise of Uncle Nearest, and has channeled it into an even larger story with the founding of the brand. Today, Uncle Nearest Premium Whiskey is made at a 323-acre distillery in Shelbyville, Tenn.—the first distillery in U.S. history to commemorate an African American and the only major distillery in the world owned and operated by a Black person.
Weaver and MacDonald's wide-ranging discussion covered the barriers Weaver encountered in bringing the brand to life, her vision for where it’s headed, and her take on the supply chain—which she said she views as both a necessary cost of doing business and an opportunity.
“[It’s] an opportunity if you can move quickly,” she said, emphasizing a recent project to fast-track a new Uncle Nearest product in which collaborating with the company’s supply chain partners was vital.
Uncle Nearest Premium Whiskey has earned more than 600 awards, including “World’s Best” by Whisky Magazine two years in a row, the “Double Gold” by San Francisco World Spirits Competition, and Wine Enthusiast’s “Spirit Brand of the Year.”
CSCMP’s EDGE 2024 runs through Wednesday, October 2, at the Gaylord Opryland Hotel & Convention Center in Nashville.
Miquel Serracanta of EAE Business School, Mark Baxa of CSCMP, and Sebastian Jarzebowski of Kozminski University sign an agreement making Kozminski University the newest CSCMP Academic Enterprise Member.
The Council of Supply Chain Management Professionals (CSCMP) and Kozminski University, a business school based in Warsaw, Poland, inked a deal on Sunday night, making Kozminski CSCMP’s newest Academic Enterprise Member.
This three-year collaborative membership will involve Kozminski using CSCMP educational content in its undergraduate supply chain program. As a result, Kozminski’s graduates will leave the program not only with a bachelor’s degree from the school but also certified through CSCMP’s SCPro certification program.
“This partnership emphasizes the global reach of CSCMP’s certification program and its applicability worldwide,” said Mark Baxa, CSCMP’s president and CEO.
Kozminski University’s Academic Director of Logistics and Supply Chain Management Sebastian Jarzebowki was on hand to sign the agreement at the CSCMP EDGE Conference in Nashville, Tennessee. Jarzebowski said that his students will benefit not only from receiving a globally recognized certification but also from joining a network of supply chain professionals.
Kozminski University joins the EAE Business School in Barcelona and the Rome Business School in the CSCMP Academic Enterprise Program. Baxa sees the membership program as a growth platform for the industry association not only in Europe but also worldwide.
E-commerce activity remains robust, but a growing number of consumers are reintegrating physical stores into their shopping journeys in 2024, emphasizing the need for retailers to focus on omnichannel business strategies. That’s according to an e-commerce study from Ryder System, Inc., released this week.
Ryder surveyed more than 1,300 consumers for its 2024 E-Commerce Consumer Study and found that 61% of consumers shop in-store “because they enjoy the experience,” a 21% increase compared to results from Ryder’s 2023 survey on the same subject. The current survey also found that 35% shop in-store because they don’t want to wait for online orders in the mail (up 4% from last year), and 15% say they shop in-store to avoid package theft (up 8% from last year).
“Retail and e-commerce continue to evolve,” Jeff Wolpov, Ryder’s senior vice president of e-commerce, said in a statement announcing the survey’s findings. “The emergence of e-commerce and growth of omnichannel fulfillment, particularly over the past four years, has altered consumer expectations and behavior dramatically and will continue to do so as time and technology allow.
“This latest study demonstrates that, while consumers maintain a robust
appetite for e-commerce, they are simultaneously embracing in-person shopping, presenting an impetus for merchants to refine their omnichannel strategies.”
Other findings include:
• Apparel and cosmetics shoppers show growing attraction to buying in-store. When purchasing apparel and cosmetics, shoppers are more inclined to make purchases in a physical location than they were last year, according to Ryder. Forty-one percent of shoppers who buy cosmetics said they prefer to do so either in a brand’s physical retail location or a department/convenience store (+9%). As for apparel shoppers, 54% said they prefer to buy clothing in those same brick-and-mortar locations (+9%).
• More customers prefer returning online purchases in physical stores. Fifty-five percent of shoppers (+15%) now say they would rather return online purchases in-store–the first time since early 2020 the preference to Buy Online Return In-Store (BORIS) has outweighed returning via mail, according to the survey. Forty percent of shoppers said they often make additional purchases when picking up or returning online purchases in-store (+2%).
• Consumers are extremely reliant on mobile devices when shopping in-store. This year’s survey reveals that 77% of consumers search for items on their mobile devices while in a store, Ryder said. Sixty-nine percent said they compare prices with items in nearby stores, 58% check availability at other stores, 31% want to learn more about a product, and 17% want to see other items frequently purchased with a product they’re considering.
Ryder said the findings also underscore the importance of investing in technology solutions that allow companies to provide customers with flexible purchasing options.
“Omnichannel strength is not a fad; it is a strategic necessity for e-commerce and retail businesses to stay competitive and achieve sustainable success in 2024 and beyond,” Wolpov said. “The findings from this year’s study underscore what we know our customers are experiencing, which is the positive impact of integrating supply chain technology solutions across their sales channels, enabling them to provide their customers with flexible, convenient options to personalize their experience and heighten customer satisfaction.”
As the hours tick down toward a “seemingly imminent” strike by East Coast and Gulf Coast dockworkers, experts are warning that the impacts of that move would mushroom well-beyond the actual strike locations, causing prevalent shipping delays, container ship congestion, port congestion on West coast ports, and stranded freight.
However, a strike now seems “nearly unavoidable,” as no bargaining sessions are scheduled prior to the September 30 contract expiration between the International Longshoremen’s Association (ILA) and the U.S. Maritime Alliance (USMX) in their negotiations over wages and automation, according to the transportation law firm Scopelitis, Garvin, Light, Hanson & Feary.
The facilities affected would include some 45,000 port workers at 36 locations, including high-volume U.S. ports from Boston, New York / New Jersey, and Norfolk, to Savannah and Charleston, and down to New Orleans and Houston. With such widespread geography, a strike would likely lead to congestion from diverted traffic, as well as knock-on effects include the potential risk of increased freight rates and costly charges such as demurrage, detention, per diem, and dwell time fees on containers that may be slowed due to the congestion, according to an analysis by another transportation and logistics sector law firm, Benesch.
The weight of those combined blows means that many companies are already planning ways to minimize damage and recover quickly from the event. According to Scopelitis’ advice, mitigation measures could include: preparing for congestion on West coast ports, taking advantage of intermodal ground transportation where possible, looking for alternatives including air transport when necessary for urgent delivery, delaying shipping from East and Gulf coast ports until after the strike, and budgeting for increased freight and container fees.
Additional advice on softening the blow of a potential coastwide strike came from John Donigian, senior director of supply chain strategy at Moody’s. In a statement, he named six supply chain strategies for companies to consider: expedite certain shipments, reallocate existing inventory strategically, lock in alternative capacity with trucking and rail providers , communicate transparently with stakeholders to set realistic expectations for delivery timelines, shift sourcing to regional suppliers if possible, and utilize drop shipping to maintain sales.
Container imports at U.S. ports are seeing another busy month as retailers and manufacturers hustle to get their orders into the country ahead of a potential labor strike that could stop operations at East Coast and Gulf Coast ports as soon as October 1.
Less than two weeks from now, the existing contract between the International Longshoremen’s Association (ILA) and the United States Maritime Alliance covering East and Gulf Coast ports is set to expire. With negotiations hung up on issues like wages and automation, the ILA has threatened to put its 85,000 members on strike if a new contract is not reached by then, prompting business groups like the National Retail Federation (NRF) to call for both sides to reach an agreement.
But until such an agreement is reached, importers are playing it safe and accelerating their plans. “Import levels are being impacted by concerns about the potential East and Gulf Coast port strike,” Hackett Associates Founder Ben Hackett said in a release. “This has caused some cargo owners to bring forward shipments, bumping up June-through-September imports. In addition, some importers are weighing the decision to bring forward some goods, particularly from China, that could be impacted by rising tariffs following the election.”
The stakes are high, since a potential strike would come at a sensitive time when businesses are already facing other global supply chain disruptions, according to FourKites’ Mike DeAngelis, senior director of international solutions. “We're facing a perfect storm — with the Red Sea disruptions preventing normal access to the Suez Canal and the Panama Canal’s still-reduced capacity, an ILA strike would effectively choke off major arteries of global trade,” DeAngelis said in a statement.
Although West Coast and Canadian ports would see a surge in traffic if the strike occurs, they cannot absorb all the volume from the East and Gulf Coast ports. And the influx of freight there could cause weeks, if not months-long backlogs, even after the strikes end, reshaping shipping patterns well into 2025, DeAngelis said.
With an eye on those consequences, importers are also looking at more creative contingency plans, such as turning to air freight, west coast ports, or intermodal combinations of rail and truck modes, according to less than truckload (LTL) carrier Averitt Express.
“While some importers and exporters have already rerouted shipments to West Coast ports or delayed shipping altogether, there are still significant volumes of cargo en route to the East and Gulf Coast ports that cannot be rerouted. Unfortunately, once cargo is on a vessel, it becomes virtually impossible to change its destination, leaving shippers with limited options for those shipments,” Averitt said in a release.
However, one silver lining for coping with a potential strike is that prevailing global supply chain turbulence has already prompted many U.S. companies to stock up for bad weather, said Christian Roeloffs, co-founder and CEO of Container xChange.
"While the threat of strikes looms large, it’s important to note that U.S. inventories are currently strong due to the pulling forward of orders earlier this year to avoid existing disruptions. This stockpile will act as an essential buffer, mitigating the risk of container rates spiking dramatically due to the strikes,” Roeloffs said.
In addition, forecasts for a fairly modest winter peak shopping season could take the edge off the impact of a strike. “With no significant signs of peak season demand strengthening, these strikes might not have as intense an impact as historically seen. However, the overall impact will largely depend on the duration of the strikes, with prolonged disruptions having the potential to intensify the implications for supply chains, leading to more pronounced bottlenecks and greater challenges in container availability, " he said.