What Large Warehouses Need to Stay Viable

In the future, the need to get products quickly to someone’s home could persuade companies to place 10 well-located facilities within a maximum 300-mile distance to 90% of the US population.

“You’re going to need more locations to get access to the population,” says Adam Roth, an executive vice president with Oakbrook, Ill.-based NAI Hiffman.

But that’s only part of the equation. To feed these smaller warehouses, which Roth calls deployment locations, he predicts there will be a change in where companies put their replenishment locations.

“There’s going to be a shift in where those replenishment are located,” Roth says. “You need to have something that’s feeding these deployment locations. So you’re going to be very picky about where you’re going to put your multi-state replenishment locations.”

Roth says there is one big factor that will inform companies about where to put those replenishment locations.

“They are going to be very strategically located in areas that have infrastructure that give you alternatives to long haul trucking,” Roth says. “The best and only alternative in a large quantity is intermodal rail.”

This could spell trouble for large warehouses that aren’t currently near major rail infrastructure. Roth says it’s essential for investors and owners of real to look at their larger facilities and adjust their strategy if they don’t have access to rail. “The trucking industry is going to have a lot of pricing power,” Roth says. “It is going to be too expensive by mid-2021 for corporations or earlier corporations to do multi-state distribution out of that location.”

Roth predicts that costs will make it inefficient for the current long-haul shipping situation. “It’s going to be too expensive to have the majority of your freight going truck over 200 miles,” Roth says.

Roth backs this assertion by pointing to new regulations that put scrutiny on drivers and their backgrounds, particularly with drug tests. Insurance rates should also continue to rise. “These regulations, like the drug and alcohol clearinghouse, are all safety-driven, and those aren’t going away,” Roth says.

Additionally, hiring new drivers is traditionally very hard, though the COVID-19 pandemic could help. “There’s extreme turnover in the trucking industry,” Roth says. The massive unemployment resulting from the COVID-19 pandemic could increase the driver pool, he says.

While there may be a new pool of drivers entering the workforce that could reduce costs, Roth doesn’t expect driverless trucks to be commonplace anytime soon. “I still believe that will be further away,” Roth says. “They’re doing different versions and variations of it in places like the open Plains area. But I don’t see driverless trucks, just from a safety perspective, for some time yet in the densely populated areas.”