The rise of flexible warehousing: part I

The warehouse… the bricks and mortar cornerstone of the supply chain is being disrupted. The ‘sharing economy’ is here, with arrival of the concept of flexible warehousing. In this, the first in a series of three blogs, we explain what flexible warehousing is and why the concept is emerging now

Flexible warehousing, or warehousing-as-a-service, is the concept of utilising a third party’s warehouse facilities in an “on demand” way, paying only for the required capacity, when it is needed. The services sold online can range from spare blockstack space in the corner of a warehouse, to fully managed solutions with value-added services including transport, as part of an end-to-end offering.
 
Touted as the “Airbnb for warehousing space” by the concept’s originator, Flexe, a US-based company founded in 2013, is an online marketplace connecting warehouses with spare capacity to companies looking for space on a short-to-medium term basis.
 
In the UK, the average length of an industrial warehouse lease is just under 7 years, representing a significant commitment in a world of flexible, agile supply chains.
 
In what has traditionally been a closed market without transparent pricing, warehousing-as-a-service bypasses the logistics middleman offering flexible access to a wide supply of facilities, including specialist space in chilled and bonded facilities.
 
Fundamentally different from the traditional third party logistic provider (3PL) model, capacity is shared with buyers and sellers online, including spare short-term areas of free space made available by companies looking to recover cost. Together with increasing price transparency, this allows companies to build a truly agile supply chain.
 
The emergence of flexible warehousing is driven by three trends; urban logistics, the peak conundrum and the desire for flexibility, all underpinned by the relentless growth in ecommerce.
 
Urban logistics
 
As the share of population living in cities grows, and ecommerce spending driving direct-to-home deliveries with aggressive lead times, the need for urban storage locations is increasing as companies seek to store products closer to customers.
 
The increased demand for near-urban warehousing is in stark contrast to a decreasing supply of available land. In London alone between 2001 and 2015, approximately 1.3 million square meters of industrial land was lost as different sectors compete with logistics for space.
 
With some companies reluctant to invest long-term in today’s high price environment and with the future customer service trends unclear – notwithstanding uncertainty surrounding Brexit and urban air quality regulations – flexible warehousing provides the ideal temporary solution.
 
We have seen flexible warehousing bringing online new urban capacity, including solutions such as vacant office space, back-of-store footprints, or even empty car parks – all solutions employed by Amazon.
 
As companies rethink the increasingly urban final mile. Flexible warehousing provides the perfect opportunity to better serve customers do so without major investment in fixed infrastructure.
 
The peak conundrum
 
The second driver is the growing headache of managing ‘peak’, which has been further complicated in recent years with events such as Black Friday taking hold.
 
Peak has traditionally been managed with temporary rental facilities, but with rental prices rising and start-up retailers adding to the battle for space around Christmas this is proving more difficult.
 
Some retailers have sized for peak accepting they will be left with empty space for some of the year. Others use Amazon’s fulfilment network but risk Amazon prioritising their own inventory when peak stretches capacity. Flexible warehousing offers the chance to rethink the model.
 
Retailers who do size for peak can more easily trade excess capacity thus altering the business case of a new investment and forcing some to rethink the model for peak.  For those that don’t, they now have access to an online visible marketplace for peak space offering more variety and price transparency, making peak less of a headache.
 
Supply chain flexibility
 
For many, there is increasing need for flexibility, both for start-up retailers unable to predict volumes and more established players looking for flexibility to support targeted marketing campaigns or disaster recovery events which generate localised spikes in the short-term.
 
Stowga, the most comprehensive flexible warehousing provider in the UK who count BT, Asda and Unilever as customers, also stood in to support KFC in the recent supply chain collapse.  They are seeing significant growth in demand fuelled by the need for flexibility, growth in urban logistics and the peak conundrum with a spike in new customers in recent months all planning ahead for Q4 peak.  With over 4000 units online and with demand and awareness growing rapidly, it seems the flexible warehousing concept is set to take off in the UK in 2018.
 
In the follow up blogs we will explore the main players in the flexible warehousing market and how the market might mature and respond to disruption.