Wheel of logistics

Wheel of logistics

Industrial – Workplace September 2018

Smarter solutions

Making the logistics wheel go around - E-commerce is driving and fuelling the demand for warehousing in New Zealand as fulfilment centres seek to satisfy shoppers’ demand for almost-instant delivery of products ordered online.

Internationally, the evolution of “hub and spoke” centres and the refining of this fulfilment model is ongoing, as delivery timeframes condense in response to e-commerce expectations and merchants’ promises.

Imagine a bicycle wheel with the hub being the central processing facility and the spokes being the connectors radiating outwards to remote points of supply origin.

Successful businesses optimise the model to speed up deliveries, increase efficiency, reduce costs and keep products moving. For Auckland, this could mean mega-hubs being located in South Auckland and even through to the Waikato, with smaller hubs inside the main urban area.

Shipping companies have been utilising this distribution model successfully for a long time to escalate delivery times and keep costs down. They pick up cargo from the point of origin (the outward edge of the spokes) and transport goods back to a central processing facility, the hub. Thus in turn can radiate out to new spokes delivering goods to other hubs, each with their own spokes.

On the ground in the logistics centre, it may play out like this: Driver A leaves from the origin hub and meets Driver B at an exchange point where they swap trailers. Driver B continues to the next switching point, while Driver A heads back to the originating hub. Products are continually in motion, drivers to return to their home base at the end of the working day and long-haul is reduced.

There are cost-efficiencies and environmental efficiencies in having a hub and spoke model that is well-thought through and well-executed. There’s a lower carbon footprint thanks to fewer “empty kilometres” being travelled, reducing fuel requirements and emissions.

In the U.S. and other key markets, the model is becoming more and more sophisticated with Amazon investing huge sums of money in the quest to control end-to-end supply chains to meet next-day and same-day delivery targets.

Other companies are following suit and on the back of this unprecedented demand for warehousing from the big industry players, are the piggy-backers – the delivery vehicle services, third party logistics and packaging companies.

In some international markets, nailing the hub and spoke model is really challenging despite localised advantages such as motorway, rail, and port access and large population centres which should make the value-proposition work. The freight, labour pool and customer service requirements are converging in a perfect storm.

Industrial land prices are skyrocketing – and there’s not enough of it – and speculative industrial property development is simply not keeping up with the demand for logistics/distribution space, particularly from those companies needing large building footprints.

In Gurugram, southwest of New Delhi in northern India, warehousing is booming given the city’s strategic location along the NH8, the busiest highway in India. Large tracts of agricultural land are being swallowed up by huge distribution warehouses and the hub and spoke model is in full-force.

How will this scenario play out in New Zealand?

E-commerce will continue to have lasting and broad impacts on the logistics sector of the New Zealand market, so companies need to be savvy to secure their future in an ever-increasingly busy market place by proactively addressing their long-term space needs.

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