How has the logistics sector been impacted by COVID-19? Supply Chain Digital takes a closer look.
The COVID-19 pandemic has shown what an important component the logistics sector is to the world. At the end of May 2020, e-commerce sales achieved record growth (£2.1bn up from £1.3bn from the year before) as organisations adapted to coping in the challenging social and economic environment. According to the Office for National Statistics, the last and first time online sales broke the £2bn mark was in December 2019. As companies seek to make their supply chains more efficient, the adoption of digitisation, mechanisation and automation into operations is becoming more prevalent.
Having dealt with the unprecedented global circumstances well, the logistics industry will have to monitor the upcoming challenges that manufacturers face over the next 12 months. This is due to the current environment where the global demand for some products has diminished. It is expected that in the short-term, this will restrict the industrial space to reach the record levels of occupational activity that were anticipated in 2020.
According to Colliers International, it is expected that online demand will outstrip demand for warehouses. Consumers are thought to be more used to purchasing goods online and occupiers must be able to adapt accordingly, and will see supply chain models reviewed in a bid to scale capacity.
Demand for urban logistics has significantly increased over the past five years up until the outbreak of COVID-19. Due to the initial disruption, there was reduced activity for smaller distribution warehouses as some occupiers took a pause from their expansion plans. However, despite this, the market grew as larger distribution warehouses reached 100,000 sq.ft or greater during Q2 2020. Colliers expect demand for units sized between 30,000 sq.ft and 150,000 sq.ft located in proximity to urban town areas, will return as businesses transition from crisis management mode to future planning.
It is thought that last-mile logistics costs consist of around half as much of total shipping fees, while fulfilling online orders requires more than double the space needed to serve the store network. Peak periods are becoming more unpredictable and occupiers will need to find scalable and flexible solutions throughout their supply chains. Some retailers’ complacency has left them exposed to this shock and it is expected that over the medium to long-term, demand for warehouse space will pick up in 2021.
According to estimates from the Office of National Statistics, the UK population is expected to rise to 69.4 million over the next decade and 72.4 million by 2043. This will mean UK occupiers will need more and better quality space to keep up with the rise in demand. Some consolidation of premises will occur for those occupiers that are dealing with legacy issues of their distribution networks as they seek to make their supply chains more agile, lean and efficient. As a result, regional and national distribution centres will need greater space and more cubic capacity, with an increased use of racking, to enable a higher level of mechanisation and automation. Over the next few years, it is expected that consumers will remain the driving force in the industry as innovations move forward and demand remains robust. The key for developers, agents, landlords, town planners and occupiers to embrace these changes to ensure the industrial and logistics sectors can continue to meet the needs of the evolving consumer landscape.