The legendary war philosopher Sun Tzu famously said, “The line between disorder and order lies in logistics.” Logistics is all about efficiency, and in today’s e-commerce-challenged supply chain, efficiency has been blown up to a large extent. Supply chains across industries, particularly in the retail-to-end-user world, have been undergoing complete reinvention for the better part of a decade.

Supply chain disruption resulting from e-commerce is rooted in the push to an omnichannel delivery model: Retailers are working hard to adapt to consumer demand to buy anywhere, accept delivery anywhere and return anywhere. Five-to-seven-day delivery is being replaced by one-to-two-day delivery, and the quest for the holy grail of low-cost, same-day or even two-hour delivery is stressing the old retail supply chain model. Failure to adopt an omnichannel strategy usually means death, as the many recently bankrupt retailers would surely attest.

With omnichannel, physical stores don’t go away. Retailers downsize and right-size as the need to retain more local inventory pushes storage out of stores and into warehouses. Those warehouses need strategic locations to satisfy consumers’ need for speed: Fulfillment centers are becoming larger and more efficient, and regional distribution facilities are diversifying geographically and often shrinking. The precious needle in the haystack is the “last-mile” location for direct delivery from warehouse to doorstep. As one of the pioneering firms in the business of e-commerce-driven real estate, my company is often asked by investors, developers and municipal officials about the impact of supply chain disruption on the warehouse market. We work hard to identify factors that may impact warehouse utilization in this dynamically changing environment. While our forecasted impacts dating back to the early days of e-commerce continue to play out before my eyes, one thing continues to change the landscape almost daily: technology.

The need for last-mile warehouses to facilitate same-day delivery can be an overwhelming obstacle in many markets. With the explosion of demand for delivery of online orders to doorsteps, the need for retailers to push standing inventory closer to population densities has posed a difficulty: how to get single-order product to the customer instead of having them come visit a store to buy it. And even with stores to ship from, if a package is purchased online and delivered to the home or business, why ship it from expensive retail real estate? Meanwhile, traditional warehouses are set up to manage bulk, not single-order, merchandise, and are not typically located close to population densities. Together, these issues form the last-mile delivery challenge.

In solving that challenge, logistics providers must first be concerned with transportation costs, so traffic congestion by itself can have a major impact on location decisions. Availability of warehouse labor, inefficient facility characteristics like inadequate loading and clear height and municipal resistance to warehouses in densely populated areas often limit or eliminate opportunities to locate in the choicest spots for logistical efficiency. Meanwhile, many of the most densely populated areas (often near downtowns) have old, functionally obsolete warehouses and municipal leaders who see gentrification through converting those warehouses (or vacant power centers) to mixed-use developments. Municipalities are motivated to increase population with “live-work-play” communities, but it comes at the cost of an ability to deliver to that new population without warehouses. So, it’s not likely going to get easier to gain supply chain efficiency.

Enter Driverless Trucks

The U.S. Department of Transportation announced last fall that it will not interfere with the advent of driverless truck usage, but many states and municipalities remain extremely concerned. Immediate push-back came from consumer rights groups concerned with safety and potential cyberthreats, and a significant public fear of autonomous vehicles. I believe if public fear manifests in delays and regulation, then even if the industry is ready to roll out these trucks in the next few years, they are probably many more years away from visiting your neighborhood streets. The logistics industry will be okay with that for now, while focus remains on driverless trucks for highway use only.

Ultimately, driverless trucks may certainly impact facilities’ location decisions in a few important ways. Intuitively, we are inclined to think the technology will allow for fulfillment centers to be in more rural/lower-cost environments, which may be true, but only to the extent those environments can still provide enough labor for the facility to operate. Despite rapid advances in robotics, e-commerce warehouses are labor-intensive, so locations will require a solid labor pool to be available.

I’ve heard some suggest the technology may limit the need for regional distribution centers (DCs) by turning these trucks into “rolling warehouses.” I doubt this could happen: If you think about how much freight can be packed into, say, a single 500,000-square-foot, 36-foot clear warehouse, which provides roughly 18,000,000 cubic feet of storage (less circulation and rack-height limits), then think about how many 53-foot trailers (with 3,816 cubic feet of storage) it would take to fill that up. Spoiler alert: It’s over 4,700 trucks. Against a backdrop of over 15 billion square feet of U.S. warehouse space, according to Cushman & Wakefield’s Q1 2019 MarketBeat report, you can see the folly of that line of thinking pretty quickly.

For the near future, the long-haul trucking segment may involve highway-only use with transfer points for human drivers to take over on local roads. Therefore, the idea of transfer points could cause some impact at the regional DC level. The pickup of a truck from a transfer point by a human driver may resemble the drayage system seen at ports and intermodal facilities, where drivers are employed to move as much as possible from point A to point B in a day. Quick back-and-forth means efficiency, so facilities would benefit from being located as close to those transfer points as possible.

Fascinating developments continue to emerge with driverless truck technology and regulation, so stay tuned. The one key takeaway is that driverless trucks will offer a welcome breath of efficiency to a challenged logistics industry, and perhaps help to blur Sun Tzu’s line between disorder and order just a bit. Let’s embrace them when they arrive.

Via Forbes