04 October, 2022

Ecommerce is driving implementation of new strategies in logistics and warehousing

Johannesburg, 28 September 2022: The Warehouse Advantage webinar hosted earlier today highlighted the many opportunities that exist in the logistics real estate industry, including the future of logistics and all the dynamics at play. The webinar included discussions on why logistics real estate is so explosive right now, the opportunities that are available for the sector, the role warehousing plays, the longevity and state-of-the-art innovation required, and how building surrounding infrastructure is so important for the economy.

Moderated by Bruce Whitfield, the #WarehouseAdvantage webinar included an interesting panel discussion between Marcel Basson (Retail Supply Chain Director, Pick n Pay), Mike Benfield (CEO of Macsteel), Gary Benatar (Chairman of Relog) and Steven Brown (CEO of Fortress).

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In summary, the panel discussed:

The progress of the new Pick n Pay super distribution centre currently under construction at Eastport Logistics Park: This 164,000m² single roof super-distribution centre would not be possible if it weren’t for the partnerships that have been established between all the participants. The panel discussed the scale of the project as well as the technological and sustainability aspects of the design and construction process, and how the move from the current Longmeadow facility is expected to take place. Basson highlighted that Pick n Pay is “building a really strong and competitive value chain, right, from our suppliers onto our shelves.”

The role of rail: The panellists all agreed that a return to rail is the best way forward for the industry. Trucks as the main transporter of goods is inefficient and expensive. Benfield commented that “10 to 15 years ago, Macsteel received all its steel via rail, and all the depots had rail sidings. Now the rail lines are gone, and people have built homes on the rail reserve. This has led to us relying on trucks. As an industry, we can’t afford all these trucks on the road anymore. It causes congestion and it’s expensive. We need to find an integrated approach to bring rail back to the party and force government and Transnet to become relevant to our demands as consumers in this country, at any level of the supply chain.”

The speakers agreed that a lot of efficiencies can be created throughout the entire supply chain system if rail was more widely utilised. The industry is trying to compensate as best as possible for the inefficiencies by designing the right infrastructure, and securing the right land in the right place, but this is only partially solving the problem. Brown believes that “Transnet needs to engage more proactively with the private sector to unlock the opportunities. We cannot do it on our own and we need the government to be more flexible within the PFMA structure. Its current format is a massive inhibitor to doing effective business with SOEs and should rather enable the government to be involved in oversight and policing, rather than trying to legislate everything. This is what we see during our engagements with SOEs.”

Basson agreed: “Transport as part of our supply chain is by far our biggest expense. With fuel costs escalating, it needs to make economic sense that your travel distances are something that you can control, because that adds cost to the product. If every single element of the process is not customer-centric, then we’re doing the wrong thing.  So that’s something that we keep in mind with every decision we make.”

Benatar said, “Nothing is integrated. The only way to make rail work in this country, is to integrate the whole model and transfer of products, because rail works on bulk, on inbound, on containers, on export, it doesn’t work on the last mile, so you need a last mile system that integrates with rail.”

South Africa has its major economic hub the furthest away from any navigable water in the world. Benatar continued, “Ideally, distribution centres should be built where the customers are. Most of our clothing retailers have their DCs near the coast because they’re bringing in containers of clothes and it’s very expensive to get containers to Johannesburg. So they store the containers in Durban, and then everything is transported to other areas by road, which could be on rail, but we don’t have the infrastructure and we don’t have anyone driving that process.”

Ecommerce and dark stores: Due to the massive growth of ecommerce, the logistics industry has had to adapt to cater for requirements for dark stores. A dark store is a distribution centre / warehouse that retailers can create for an online and an omni-channel solution. There is a threshold where the demand for this sector and this channel will mean that retailers must look at dedicated facilities to be able to service that channel, otherwise stores get too congested. The main distribution centres are too large for this process and bring too much complexity into the process.

A major issue with online sales is availability, which a dark store can solve. Benatar gave an example: “A shopper clicks on a website and orders carrots, the staff go to the shelf to pick it, but Mrs Jones got there first and the staff don’t have real-time information what is on their shelves. It’s a manual process. When the stock is in a dark store, staff know immediately what the inventory is, so they can accurately promise what they can deliver to the customer.”

Basson added, “a dark store doesn’t need the same amount of people working in the facility as a standard warehouse and distribution centre, and a lot of retailers go high-tech in these environments. This speeds up the process, enabling us to get orders to clients in a short amount of time.”  

The ecommerce model is demanding in that customers want the products now and expect retailers to be efficient in this space. Retailers must be able to respond quickly and deliver accurately in a very short time frame. The only way this can be done is through the accurate availability of products.

Warehouse customers are looking for efficiency, huge storage space, and efficiency in processing, enabling a fast response time with low-cost operations. Basson said, “The challenge is how to move people out of our aisles in our stores to still make it reasonably accessible for our customers, into a supply chain solution that’s affordable, to keep the service at the levels it is at right now and still grow the market share in that sector.”

Benatar shared that “What we’re seeing overseas is a development of a hybrid, so the retail store will have a multi-functional, micro-fulfilment centre behind it, which is dedicated only to picking the online orders.  Together with the retail store in the front, which is customer-centric, you have an online store at the back of the store using the space and picking orders for delivery. Retailers are using automation and mini-loads and auto store systems which pick those orders by units for the customer, very fast, very accurately. We’re going to start to see that happening in South Africa quite soon.”

Plan more effectively for the future: Industry players must look to international examples and monitor trends more closely to remain competitive. Benatar believes that the industry should have a strategic master plan for logistics for the next 20 to 50 years. He cited examples of projects that he has been involved in that were planned many years in advance: “I did work in Switzerland in 2016 and was told that I needed to make sure that the warehouse is compatible with an underground transport system that will move products into cities on magnetic levitation rails so that the last mile can be done with automatic electric vehicles and that system would be going live in 2030.”

Brown elaborated, “Part of our job is identifying those locations and where the highway network is going to be built and where we think the future nodes will be. If one looks at the amount of warehousing logistics rights that are in the spatial development framework in Ekurhuleni, it’s probably multiples of anything that a country our size could ever use. Everybody says there’s so much flat land to build warehouses on, but you need to have the land serviced and you need to have it zoned correctly.”

“The growth driver of logistics and e-commerce will continue to grow for the foreseeable future. We as Fortress Real Estate are fortunate to be in the driver seat to power its growth,” concluded Brown.

View the full webinar here: https://fortressfund.co.za/foursight

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