Jones Lang LaSalle
About Real Estate: A Free TWR Weekly Publication
December 16, 2005
Volume 6, Number 47
Distribution: More, Faster, Using Fewer Resources
Laura Stone Mortimer, Managing Economist lstone@tortowheatonresearch.com
Productivity in the U.S. grew at an unprecedented rate in the 1990s and it hasn't slowed all that much since that time. This has simultaneously been a boon to the aggregate economy and raised the stakes in distribution planning. Productivity enhancing strategies are changing the industrial market landscape in that distribution centers (DCs) are no longer haphazardly placing big boxes where trucks unload their contents to be sorted and shipped. More consideration has to be taken in the land, labor and location decisions behind every DC to achieve the greatest cost efficiency. Subsequently, DCs are an evolving concept continually implementing cutting-edge technologies in both design and function.
Inventory Per Distribution Worker is Soaring!
Evidence of advancements in the distribution field can be seen in the amount of land and labor employed per dollar of inventory. For instance, productivity gains have resulted in a steady rise of inventories per distribution worker since 1989, generating an increase of 80 percent over the period (see chart above). The inventory data at the national level is quite reliable, making this productivity story all the more compelling.
Since 1989, the number of distribution workers in the nation's 54 largest markets has grown by a total of 12.3 percent, or 505,000 net new distribution jobs. This equates to an average annual pace of 0.8 percent. However, the stock of warehouse space has grown significantly faster. Since 1989, the warehouse market has expanded by 1.7 billion square feet (bsf), or 1.7 percent annually. This tallies to 23 percent of the 7.1 bsf market.
The ratio of occupied square footage per worker in warehouses rose sharply in the early 1990s, leveled off in the mid- to late-1990s, and began rising once again after the recession of 2000-2001. Given the duration of the upward trend and the lack of any true downturn over the cycle, one can assume that this productivity incline is structural. In fact, this number is most likely an underestimate of storage space per worker due to the now taller ceiling heights in DCs that have boosted vertical storage capacity.
Doing More With Less
Similarly, warehouse occupied square feet per dollar unit of inventory has declined steadily since peaking in 1989 at 5,800. This number has since drifted downward to 3,163. This downward trend is the result of inventories becoming more valuable and compact. Due to changes in technology, wealth and industrial structure, goods being distributed actually tend to be smaller and more expensive than once was the case. The wide array of new, more advanced consumer electronic goods for instance, would be a contributing factor to this trend.
The market pressures pushing for greater productivity will not abate going forward. The cost and availability of labor and land will increasingly shape the design of new DCs. First, location is critical. A DC has to be near a major highway, a railroad, airport and also a seaport as more and more goods are being imported from overseas, particularly China, and then shipped across the country. Another criterion for location is that a DC prefers close proximity to the population centers it is trying to reach. While the advanced infrastructure in the U.S. allows shippers to use freight to reach population centers, this is one of the largest costs along the supply chain. Infrastructure can be a bigger issue in Europe and Asia, so proximity to population centers becomes even more critical. The tradeoff between freight and labor costs has to be measured versus the speed of delivery requirements and these factors are crucial in determining the right location to meet the increased needs of today's DCs.
What is certain is that change in the warehouse sector is now a constant. The need to distribute a greater dollar volume of goods at a faster pace utilizing fewer inputs is not abating.
Go to www.tortowheatonresearch.com to register for a free subscription to About Real Estate.
About Real Estate: A Free TWR Weekly Publication
December 16, 2005
Volume 6, Number 47
Distribution: More, Faster, Using Fewer Resources
Laura Stone Mortimer, Managing Economist lstone@tortowheatonresearch.com
Productivity in the U.S. grew at an unprecedented rate in the 1990s and it hasn't slowed all that much since that time. This has simultaneously been a boon to the aggregate economy and raised the stakes in distribution planning. Productivity enhancing strategies are changing the industrial market landscape in that distribution centers (DCs) are no longer haphazardly placing big boxes where trucks unload their contents to be sorted and shipped. More consideration has to be taken in the land, labor and location decisions behind every DC to achieve the greatest cost efficiency. Subsequently, DCs are an evolving concept continually implementing cutting-edge technologies in both design and function.
Inventory Per Distribution Worker is Soaring!
Evidence of advancements in the distribution field can be seen in the amount of land and labor employed per dollar of inventory. For instance, productivity gains have resulted in a steady rise of inventories per distribution worker since 1989, generating an increase of 80 percent over the period (see chart above). The inventory data at the national level is quite reliable, making this productivity story all the more compelling.
Since 1989, the number of distribution workers in the nation's 54 largest markets has grown by a total of 12.3 percent, or 505,000 net new distribution jobs. This equates to an average annual pace of 0.8 percent. However, the stock of warehouse space has grown significantly faster. Since 1989, the warehouse market has expanded by 1.7 billion square feet (bsf), or 1.7 percent annually. This tallies to 23 percent of the 7.1 bsf market.
The ratio of occupied square footage per worker in warehouses rose sharply in the early 1990s, leveled off in the mid- to late-1990s, and began rising once again after the recession of 2000-2001. Given the duration of the upward trend and the lack of any true downturn over the cycle, one can assume that this productivity incline is structural. In fact, this number is most likely an underestimate of storage space per worker due to the now taller ceiling heights in DCs that have boosted vertical storage capacity.
Doing More With Less
Similarly, warehouse occupied square feet per dollar unit of inventory has declined steadily since peaking in 1989 at 5,800. This number has since drifted downward to 3,163. This downward trend is the result of inventories becoming more valuable and compact. Due to changes in technology, wealth and industrial structure, goods being distributed actually tend to be smaller and more expensive than once was the case. The wide array of new, more advanced consumer electronic goods for instance, would be a contributing factor to this trend.
The market pressures pushing for greater productivity will not abate going forward. The cost and availability of labor and land will increasingly shape the design of new DCs. First, location is critical. A DC has to be near a major highway, a railroad, airport and also a seaport as more and more goods are being imported from overseas, particularly China, and then shipped across the country. Another criterion for location is that a DC prefers close proximity to the population centers it is trying to reach. While the advanced infrastructure in the U.S. allows shippers to use freight to reach population centers, this is one of the largest costs along the supply chain. Infrastructure can be a bigger issue in Europe and Asia, so proximity to population centers becomes even more critical. The tradeoff between freight and labor costs has to be measured versus the speed of delivery requirements and these factors are crucial in determining the right location to meet the increased needs of today's DCs.
What is certain is that change in the warehouse sector is now a constant. The need to distribute a greater dollar volume of goods at a faster pace utilizing fewer inputs is not abating.
Go to www.tortowheatonresearch.com to register for a free subscription to About Real Estate.
posted by Jones Lang LaSalle NJ News Blog at 3:14 PM
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