The impacts on our sector of this strange year include record-breaking uptake of warehousing space as retailers adjust to the ‘new normal’ and gear up to serve the growing number of customers abandoning stores in favour of home delivery. By the end of Q3 2020 warehouse take-up had reached 38.6m sq ft, beating the previous annual record set in 2016 by 3.6%, with national vacancy rates down to just over 6%.
The pandemic has also raised the topic of supply chain resilience, with businesses stocking up and adopting less of a ‘just-in-time’ and more of a ‘just-in-case’ approach. According to leading real estate sources, this is likely to result in customers diversifying suppliers and sourcing locally to minimise disruptions. Demand for logistics space to support online growth, including micro-fulfilment urban centres and cold storage, is predicted to continue well into next year and long after the current corona virus crisis is over.
COVID-19 has had a huge effect on operations within the warehouse too. With the lifting of lockdown and the end of furlough, those warehousing and logistics businesses that had been in ‘hibernation’ (notably those serving the ‘non-essential’ sectors, such as fashion) or operating at less than full capacity, were brought back on stream, but in a new and challenging environment. To ensure the safety of workers, all warehouse operators have not only had to invest substantially in creating COVID-secure workplaces, with screens, sanitisation stations and home-working equipment such as desks and laptops, but they have also been required to implement social distancing rules, split shifts and other measures that, while necessary, have inevitably undermined productivity and increased lead times.
UKWA has been vocal in telling retailers and manufacturers – as well as government – that for an industry that operates on such low margins, while at present no costs are being passed along, in the long run it will become too much for us to sustain.
The Association has been – and continues – to lobby government for additional financial support for the sector in the form of a business rates holiday to help mitigate serious cashflow challenges; meanwhile we are calling on our customers (and consumers) for a fairer deal.
One of our key themes is that offering free deliveries and returns to compete for market share is a dangerous ‘race to the bottom’ that will ultimately prove unsustainable retailers and 3PLs alike. The exponential rise of online shopping this year has brought this fact into sharp focus. The days of bricks and mortar subsidising online channels are clearly numbered. As the balance tips rapidly and permanently towards online, retailers can no longer afford to deliver for free – and neither can we.
Until we address these issues of margin and profitability in our industry going forward, neither will we resolve the other long-running challenge for the sector – labour shortages.
Peter Ward
UKWA, CEO
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