U.S. warehousing market remains solid, says Armstrong report

The United States warehousing market continues to remain in a position of strength, according to a report issued earlier this month by supply chain consultancy Armstrong & Associates.

The report, entitled “First Wave Pick: The Business of Warehousing in North America – 2018, Market Size, Major 3PLs, Benchmarking Costs, Prices and Practices,” was based on information Armstrong collected from more than 500 contract warehousing operations, nearly 400 contract customers, and 10 public warehousing operations.

U.S. warehousing costs for 2017 were estimated to be $148.7 billion, a 3.3% increase over 2016’s $143.7 billion, according to Armstrong. Nearly $70 billion of that tally, $68.6 billion, was attributed to commercial warehousing, and the third-party logistics (3PL) value-added warehousing and distribution (VAWD) market accounted for $39.1 billion in 2016, with a 2017 estimate of $40.5 billion.

When looking at U.S. warehousing costs over longer period, from 2010’s $112 bilion to the 2017 estimate of $148.7 billion, there has been a 24% cumulative increase over that timeframe, with commercial warehousing, which includes public warehousing) up 23.8% ($52.3 billion in 2010 to a 2017 estimate of $68.6 billion) and 3PL VAWD up 22.5% (from $31.4 billion in 2010 to a 2017 estimate of $40.5 billion) over the same period.

Armstrong & Associates Chairman Dick Armstrong said in an interview that these rising numbers make the case for the increasing sophistication and system capabilities of 3PL and VAWD.

“They offer great opportunities, and what we have seen over the years is that high-tech, automotive shippers, as well as other verticals, that have especially concentrated on establishing those 3PL relationships [as they relate to warehousing],” he said. “That has been very steady and where the gains are coming from.”

Another shipper sector that has seen gains over the years, he noted, is the food and beverage vertical, due to that sector having a lot of warehousing space of their own and realized they do not need to make as significant of an investment and can instead work with a 3PL instead.

One area of warehousing that has seen a decline, according to the report, is public warehousing, which now accounts for roughly 40% of the commercial warehousing market.

Armstrong said this segment typically revolved around 30-day agreements, which would renew with the understanding was that public warehousing services would be temporary. To a large degree, he said public warehousing has been replaced by contract warehousing, which normally have three-year contracts.

“The emphasis for these types of contracts has very been much on established partnerships and a reliance on value-added warehousing rather than just a place to store goods for a short-term,” he said. “The 40% figure is still a big number, and you find a lot of that are important VAWD 3PLs that will do about 80% contractual work and about 20% public warehousing.”

Not to be overlooked in the report were North American e-commerce logistics revenues, which Armstrong said came in at $9.5 billion in 2016 and anticipated to double by 2020.

A 3PL provider said in the report that the warehousing industry has continued to evolve year over year, especially with e-commerce becoming an increasingly larger sales channel and consumer buying behavior shifting more online. The 3PL provider added that shippers are continuing to evaluate how these shifts will impact them, leading some to reconfigure their networks to be in closer proximity to customers. On top of that, the 3PL provider said that e-commerce is causing shippers to increase the number of products and SKUs they offer, which is leading to the need for more warehousing space.

“What is really driving e-commerce, of course, is Amazon, and people need to keep up with Amazon,” he said. “Amazon is sometimes a 3PL and sometimes an online retailer, so they really do drive the market. A lot of what we are seeing is 3PLs and shippers setting up relationships so that they can compete with Amazon. We are seeing companies like Walmart really doing innovative and creative things that one never really would have anticipated ten years ago.”