Warehousing

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<p>Retail giant Amazon’s entry into Sydney may not be all that smooth, as its huge operational requirements may be difficult to manage initially, at least.</p>
<p>Amazon’s value proposition combined with its need for immense space may make it difficult to find a suitable base within Sydney, says a new report from Colliers International.</p>
<p>The report studied Amazon’s footprint in other global markets to determine how the online retailer would make its mark on the Sydney industrial market.</p>
<p>The sheer volume required by Amazon, combined with the need to deliver produce within an extremely short time-frame, means that it may struggle to find a space that meets its needs within the inner-Sydney ring, it said. </p>
<p>“Amazon’s value proposition lies in its ability to offer an extensive range of consumer products at low prices by providing a unique customers experience which is dependent on delivering goods with speed, elasticity and mobility,’ said Colliers International research manager, Sass J-Baleh.</p>
<p>To fulfil their value proposition, Amazon’s key activity boils down to its logistics and distribution process – it requires a sufficient supply chain management. This means Amazon’s key resource is its Transit Warehouses/ Fulfilment centres, which typically occupy 100,000 sqm of space.</p>
<p>The report found that Amazon’s Fulfilment Centres (FCs), which is where a large majority of the goods are packed and distributed, are typically 100,000 sqm, with a global average of 64,000 sqm.</p>
<p>The company also relies on Fresh Food Distribution Centres, Regional Sortation Centres, Delivery Stations and Prime Now Hubs which typically occupy an average of 40,000 sqm, 30,000 sqm, 10,000 sqm and 6,000 sqm respectively.</p>
<p>Amazon currently operates in 14 countries and has 393 active facilities with a combined facility space of 13 million sqm. </p>
<p>The Colliers report draws parallels with Canada and certain other countries to identify how Amazon might operate in Australia. </p>
<p>“Canada is a country with a population greater than that of Australia, and they have only established six facilities with the population distribution concentrated into a small number of cities,” J-Baleh said.</p>
<p>“We already know that Amazon has recently secured one of its purpose-built FCs at Eastern Creek within Sydney’s Outer West sub-market, that is around 100,000 sqm.”</p>
<p>“This is advantageous as it is adjacent to the Sydney Orbital Network, providing direct access to a large share of the NSW market.”</p>
<p>“However, with over 64 percent of the total NSW population currently concentrated within the Sydney Metropolitan, Amazon may struggle to find facilities which will allow them to adhere to their 1-2 hour delivery time within this area.”</p>
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jonathanchancellor-7SQnKwU6yx

Amazon faces tough entrance to the Australian market

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<p>GUEST OBSERVER</p>
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<p><span>Changing occupier requirements are the main driver behind the growing sophistication of industrial property. Warehousing has historically been one of the more passive property types however growth in eCommerce and the globalisation of logistics have driven innovative changes to internal fit out requirements. This is leading to greater complexities for occupiers and developers. </span></p>
<p><span>Distribution centres are now far more dynamic – goods are moving faster, higher clearances are required and there is greater demand for natural light and better performing slabs. Occupiers are changing with third party logistics (3PL) experiencing enormous growth and supermarket groups becoming more sophisticated in how they move goods through their distribution channels. Ecommerce providers frequently require specialist internal design and fit out of their warehouses. </span></p>
<p><span>While change is occurring, there is still a wide variation in how occupiers are utilising their space. From highly automated picking systems requiring very little human interaction to boxes on the floor with paper based systems tracking stock levels, the evolution depends on the rate of change in the industry in which the occupier operates. </span></p>
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<p><span>Change 1: eCommerce </span></p>
<p><span>Growth in eCommerce </span></p>
<p><span>More retail trade is moving to eCommerce, although it still remains relatively small compared to traditional bricks and mortar retailing. Although in recent months the weakening of the Australian dollar and the implementation of Goods and Services Tax (GST) on goods bought online from overseas has led to a slowing of eCommerce, it is forecast that for some product types, there will continue to be erosion of spending in traditional bricks and mortar retailing. </span></p>
<p><span>The biggest challenge for eCommerce in Australia is the cost of getting goods from the warehouse to consumers. The vast distances that need to be covered and the insatiable demand from consumers to get goods quickly can make delivering goods particularly expensive. For many operators, rent on a warehouse is a secondary consideration compared to the cost of logistics. </span></p>
<p><span>For traditional retailers with an eCommerce presence, the majority of purchases are still filled out of store. There are generally no specialist online warehouses or special systems developed within existing warehouses to fulfil orders. An exception to this is for particularly large items (e.g. fridges) that are delivered directly from a warehouse to customer rather than from a store when an online order is made. </span></p>
<p><span>This is starting to change for larger retailers. Major supermarket chains previously filled online orders from a store hub but are now starting to use “dark supermarkets”; basically a supermarket in a warehouse, inaccessible to consumers, where staff fulfil online orders. The perishable nature of grocery items means that it is likely that these dark supermarkets will need to be located in each capital city, as opposed to just one location. </span></p>
<p><span>For pure eCommerce groups, the way that they warehouse their goods and handle delivery depends on the type of product they sell, the size of the business and where they source their goods. For most groups, a 3PL service is utilised. The extent to which they use 3PL differs with some using them for delivery only, with others using them for the full end to end service. At its most complete level, 3PL can be used for an </span><span style="line-height: 1.3em;">eCommerce provider to provide a service from when a consumer presses “buy” on an online site to delivery or even return if the item.</span></p>
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<p><span>For large groups selling non-perishable goods that can be delivered in a small parcel, having only one warehouse in Australia makes the most sense. The cost of delivering goods in Australia is generally not dependent on distance and the nature of eCommerce means that it is difficult to predict where the next order will come from. Most products are produced offshore and hence close proximity to a major port is also generally a requirement for occupiers. </span></p>
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<p><span>Change 2: Globalisation of logistics </span></p>
<p><span>Logistics has gone global and is becoming more complex and sophisticated in how it operates. There have been some major changes to ownership in the logistics industry. Toll Group has now become part of Japan Post, Australia Post is now the sole shareholder in Startrack and has been rapidly reinventing itself as a logistics service provider, while global giant Brookfield has made a takeover bid for Australian freight logistics company Asciano. </span></p>
<p><span>These changes to ownership structure, as well as increased usage of 3PL services in Australia has meant enormous growth in the amount of industrial floor space these groups occupy, as well as significant investment in more sophisticated and automated warehousing facilities. The forecast growth these groups expect<br> is also aggressive. Many of them are now looking to partner with developers of industrial facilities, particularly those with significant land holdings, to ensure that they are able to access a pipeline<br> of development. </span></p>
<p><span>A new term for very large warehouses has also emerged. Campus Style Distribution Centres are now a requirement for major groups such as DHL and CEVA, both of which are looking </span><span style="line-height: 1.3em;">at distribution centres now in excess of 75,000sqm. This trend </span><span style="line-height: 1.3em;">to larger facilities, able to handle greater quantities, is expected to continue to be a trend in global warehousing. In Asia, most cutting edge facilities are now at least 150,000sqm with the Interlink in Hong Kong comprising 213,000sqm and Logistic Republic – </span><span style="line-height: 1.3em;">Taipei Park in Taipei expected to comprise 264,000sqm </span><span style="line-height: 1.3em;">on completion. </span></p>
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<p><span>Change 3: Design </span></p>
<p><span>Who are the leaders in warehousing design? </span></p>
<p><span>Historically warehouses have been relatively simple buildings<br> and there was very little focus put on the internal fit out. This has changed and the most sophisticated warehouses now have slabs that can handle greater loads, larger cubic capacity and high bays. To enable the best use of this space, greater use of robotics and high-tech picking systems are being implemented. </span></p>
<p><span>There is however still significant divergence from these highly advanced warehouses with more simplistic designs still commonly in use. At a broad level, it is primarily the large 3PL groups, as well as large supermarkets and fast moving consumer goods (FMCG) groups that are the most advanced. The scale required by these groups, as well as the speed required to move goods, makes significant investment in fit out worthwhile. They are looking to create improved efficiencies in better designed buildings. </span></p>
<p><span>Another driver of greater cubic capacity, as well as high bays, is the location of the warehouse. In a market such as Melbourne where land availability remains abundant, it is unlikely there will be as much demand. This contrasts to Sydney where land costs are significantly higher. </span></p>
<p><span>There is a greater focus on the indoor working environment of warehouses. This is to allow better working conditions for staff, but also better conditions for storing goods. Better ventilation, constant temperature and high security are a greater focus. The ability to operate the warehouse 24 hours a day is also frequently a<br> greater consideration. </span></p>
<p><span>Sustainability continues to play a role and more facilities are moving to a 6 Star Green Star rating. The focus is however less on committing to minimum targets but looking to achieve demonstrable cost efficiencies. Developers are looking to add value to occupiers and this can include offering such inclusions as power off facilities, advanced monitoring and geothermal generation. </span></p>
<p><span>High tech retrieval systems start to make a mark </span></p>
<p><span>There are still only a few occupiers that are using high tech retrieval systems. The capital costs are so high and hence this restricts investment for many occupiers. Spending on research and development of these systems is however continuing to increase and costs are expected to come down significantly over the next decade, to the extent that there will continue to be less people required to operate a warehouse. </span></p>
<p><span>There is a range of how sophisticated occupiers are being in the use if retrieval systems. At the most advanced level, automated robotics have the ability to completely do away with forklifts however these are too expensive for most occupiers. Mobile automation appears to be having quicker take up. An example of this is </span><span style="line-height: 1.3em;">mini forklifts that are able to operate on any surface. These forklifts are highly mobile, allow for higher stacking and provide the ability to pick one item, instead of taking a whole pallet. </span></p>
<p><span style="line-height: 1.3em;"><em>Nerida Conisbee is national director of research for Colliers International and can be contacted <a href="https://www.colliers.com/nerida.conisbee" target="_blank">here</a>.</em></span></p>
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