Online Sales Pushing Up Warehousing Costs

May 31, 2016 by Amware Fulfillment

E-tailers Struggle to Lease Affordable Space in Seller’s Market

Rising warehousing costs illustratedAccording to real-estate brokerage firm CBRE, rental rates for prime warehouse space in the U.S. jumped nearly 10% in 2015 over the previous year. The main reason for the rise in warehousing costs: the rapid growth of online sales as companies snap up available space near ports and big cities.

The biggest rise – 30% year-over-year – was in Oakland with its scarce space and proximity to San Francisco Bay-area consumers. While not as dramatic, markets like Northern New Jersey, Chicago and Southern California also saw big upticks. Companies want to locate warehouses closer to population centers to feed consumer demand for rapid delivery.

This highly competitive real estate market makes it difficult for E-tailers to go out and find modern warehouse space to support their growing businesses. That’s why now, more than ever, it makes sense to partner with a national fulfillment company that has an existing infrastructure and the expertise to find space at reasonable rates.

How Fulfillment Companies Can Reduce Warehousing Costs

If you handle fulfillment in house and are faced with the need to expand, you’ll quickly find that space is hard to come by. And industrial real estate developers and owners won’t be quick to cut you a deal in a seller’s market.

Here are some solutions a third party fulfillment partner (3PF) can bring to your real estate and expansion challenges:

  • Existing infrastructure.
    Depending on the size of your space requirement, your footprint could fit within one of the 3PF’s existing warehouses. If the lease rate for the facility was negotiated prior to the recent price uptick, your rates could be much more favorable than what you could achieve on your own today.
  • Real estate savvy.
    3PFs sell warehouse space and labor. That is their product. So they pay very close attention to market rates and are negotiating real estate somewhere in their network every few months. It helps to have this kind of expertise on your side, especially in today’s market. For new space, 3PFs may be negotiating with a developer who is already leasing them space in other locations, so they have leverage that you won’t have.
  • Variable cost structure.
    If you lease your own space, you will probably end up getting more space than you need to accommodate future growth. To avoid this costly approach, 3PFs can structure your contract to charge only for the amount of space and labor you use in a given month. This way your warehousing costs parallel your revenue stream. – a huge advantage for a growing company.
  • Shared cost structure.
    If you lease your own space, you need to pay the entire cost of supervisors, equipment, insurance, maintenance and other warehouse overheads costs. In contrast, if you are one tenant in a 300,000 sq. ft., multi-client warehouse, you will share these costs with the other tenants, bringing down your overall cost.

Is it Time for a Strategic Fulfillment Partner?

Is your time really best spent searching for warehousing space and landing that impossible-to-find real estate deal? If logistics is not your core competency, you may be better off investing that time to find a strategic fulfillment partner that can bring logistics and real estate expertise to help your business grow.

Find a partner that can work with you in the short term to reduce warehousing costs and, for the long term, to plot a strategy to scale your fulfillment operations through every stage of your growth cycle.

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Filed Under: Third Party Logistics, Logistics Outsourcing, B2C Fulfillment