If there is one word that supply chain professionals are tired of hearing, it’s “shortage.” There are labor shortages, driver shortages, equipment shortages, and warehouse space shortages from coast to coast. In this article, we’ll take a closer look at warehouse space shortages: their causes, when we can expect them to subside, and how 3PLs can help.
Warehouse space shortage: record lows continue
Available warehouse space in the US is currently at record lows. According to Insider Intelligence , the current vacancy rate for industrial space is around 3%. It is below 1% in areas close to US ports. These are staggering numbers, especially when you consider that the warehouse vacancy rate in the US was almost 8% ten years ago.
Of course, with such scarcity comes immense price hikes for the space that does exist. According to leading industrial real estate company Prologis, warehouse rates have increased by 20% year over year as of Q2. There was an 8.5% increase between Q4 2021 and Q1 2022 alone.
Experts warn that the only way out of this mess is to bring more space online. Prologis estimates that it will take 800 million square feet of new space to ease the current pinch. But getting to that point isn’t so simple as there are challenges delaying warehouse construction at the moment. These include:
- Community pushback against suburban construction
- Staffing shortages affecting municipalities and inspection agencies
- Supply chain shortages and delays of construction supplies
Warehouse space demand continues to increase
In the wake of the COVID-19 pandemic, companies require an ever-increasing amount of warehouse space.
eCommerce sales have skyrocketed since the pandemic. B2C sales increased an incredible 32.4% in 2020 compared to 2019. These increasing sales have necessitated increased warehouse space to store product. But it’s not just inventory space that B2C companies require. eCommerce fulfillment is a much more space-intensive operation than retail fulfillment, with ample space needed for pick and pack services .
Companies are keeping more inventory on hand. Prior to the pandemic, just-in-time (JIT) delivery was widely adopted by companies to reduce the amount of inventory they carried. The pandemic, however, brought myriad supply chain delays and disruptions as well as a high degree of uncertainty. To guard against these disruptions and uncertainty, companies are keeping more safety stock on hand – which requires greater amounts of warehouse space. Companies have also acquired inventory for the holiday season earlier this year to guard against supply chain disruptions. This adds to the mass of product filling up warehouse space.
Sales forecasts were off for large companies. In addition to inventory that companies intend to keep on hand, many companies – especially big box retailers – find themselves stuck with inventory they were projected to sell. While many of these companies have been able to reduce on-hand inventory by selling product at severe markdown prices, these unwanted products have nevertheless contributed to the clutter at warehouses across the country.
3PLs can provide needed warehouse space
Companies looking to buy or lease warehouse space on their own are going to struggle to find existing space that meets their needs and may have to wait a while for new space to be built. There is, however, another option: partnering with a third-party logistics (3PL) company that already has available space.
3PL providers often have logistics campuses with several warehouses and can offer shared or dedicated warehousing options. With shared warehousing, the warehouse is occupied by the products of multiple companies – each paying for only the space and services it needs. With dedicated warehousing, a 3PL will typically devote staffing and resources to operate a warehouse solely for one customer.
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