Demand for warehouse space will decrease in 2023, experts predicted, but companies will still be looking to fill in network gaps opportunistically, while continuing to move sourcing and inventory closer to domestic customers to hedge against supply chain shocks.
There will also be more consolidation in the 3PL sector, a continuation of the spate of acquisitions this year, as large organizations look to buy seasoned talent and capabilities from smaller players. And a desire to nearshore production from China to places like Mexico and Central America is there, but infrastructure challenges will hamper those efforts.
Brian Gibson, Executive Director of the Center for Supply Chain Innovation at Auburn University, said the Amazon-driven land rush to develop large warehouse and fulfillment center facilities has slowed down, with retailers stepping back as network growth becomes much more selective.
“They’re looking to see where they need to be next to get to same and next-day delivery,” Gibson said. “Also, companies that have built recently are finding challenges filling in their facilities with racking, technology, automation and labor, all of which are headwinds to commercial/industrial space growing the way it has the past three years. It will grow, just not at the same pace.”
In its 2023 outlook, commercial real estate broker CBRE predicts leasing activity in the previously white-hot industrial and logistics sector will decline by 10% to 15% next year, with a decrease in construction starts. Even with slower ecommerce growth to drive warehouse demand, leasing activity will see positive net absorption for the 13th straight year, CBRE said, with a tight vacancy rate increasing slightly but remaining below its 10-year average.
Rethinking Supply Chains
A lasting effect of the pandemic is retailers realizing that a just-in-time inventory strategy combined with a 25,000-mile-long supply chain is too risky a model in the new era, said Marc Wulfraat, president of supply chain consultancy MWPVL International.
“The risk of out of stocks due to offshoring has negatively impacted sales revenues, and companies are rethinking their supply chains to nearshore or repatriate production and distribution to North America,” Wulfraat said. “Also, the risk of being out of stock for the holiday season has caused retailers to build up more inventory earlier in the year, driving up the need for more domestic storage capacity.”
“The desire is there, the effort is there, but there’s the challenge of making it happen, standing up those resources in other countries,” Gibson said of nearshoring initiatives.
Companies will continue to take advantage of Amazon’s significant pullback in warehouse capacity in 2023, grabbing development and expansion deals that weren’t available previously. According to MWPVL data, Amazon is closing, canceling or delaying orders for 88 facilities in the U.S. and 8 in the rest of the world.
“I was driving on I-85, going toward Atlanta, and there were new twin warehouse facilities, one operated by Amazon, the other under construction,” Gibson said. “Everyone assumed the second one would be Amazon as well, but now it has a big Shopify logo. This is creating opportunities for companies if the price is right.”
3PL M&A to Stay Hot
In terms of 3PL consolidation, Gibson said the market will continue to be robust in 2023 as large players look to fill service gaps in areas like white glove and next-day delivery or fulfilling orders from a particular marketplace.
Some major 3PL deals completed in 2022 included Cart.com acquiring FB Flurry; Geodis acquiring Need It Now Delivers; Seko purchasing Pixior; Ryder taking on Whiplash and Dotcom Distribution; and Weber Logistics acquiring Pacific Coast Warehouse Co. QuickBox acquired Swan Packaging in late 2021.
[Editor’s note: Multichannel Merchant recently published its Top 3PL directory for 2023.]
“One of the keys to this is, the value proposition (of the niche providers) is not only the physical capabilities and equipment but the people they have in house you don’t have to go out and acquire,” he said. “If you want to start up a last-mile capability, and you look around and don’t have that skillset internally, it’s extraordinarily difficult to create that today by poaching from other companies.”
Wulfraat said the move to reclassify gig workers as employees entitled to benefits, which has begun in California, will eventually domino across the country. In fact, the Department of Labor in October proposed a change to the way it determines classification of independent contractors. This is a challenge as so many retailers use third-party providers that tap into legions of gig delivery drivers.
“The impact will be higher operating expenses for companies that are highly reliant on this population of labor resources,” he said. “These companies should be concerned because this is a way of getting around the system that won’t last forever, in my opinion.”
Ports Freed Up, But Inbound Presents Challenges
Gibson predicted a smoother year in 2023 in terms of supply chain flow, as historic backups in Los Angeles and Long Beach led shippers to divert volume to places like Seattle/Tacoma, the Gulf of Mexico and the East coast. This forced port operators to quickly step up capacity and operations to move more ships and cargo quickly in and out, adding they’ve “gotten over the hump.”
Getting freight inbound from the ports into distribution networks will be more of a challenge, Gibson said, with the continued threat of a rail strike looming plus the ongoing trucker shortage.
“Spot rates are going down, which is a good indicator that capacity is getting better,” he said. “The key question is, can companies get a continuous flow of components and products from manufacturers, which is still disrupted at the source? Backlogs aren’t filled yet, and it’s not only chips but other key components in short supply. We’re still working through those shortages.”