Warehousing: Fleets Acquire Storage Space to Expand Role in Supply Chain
By Dan Calabrese, Special to Transport Topics
This story appears in the Aug. 11 print edition of Transport Topics.
Trucking long has been considered more cost-effective for shippers than warehousing — at least before $5-a-gallon diesel fuel.
The cost advantage offered by shipping direct and avoiding paying for warehousing and inventory is dwindling, possibly forever, as the price of fuel rises. As a result, more carriers have started looking at warehousing to play a larger role in the logistics process.
But branching out into warehousing isn’t cheap, especially as more shippers expect warehouse operations to include load-consolidation planning and automation, besides the mere storage of inventory.
Carriers that have moved into warehousing said they have done so cautiously. Industry observers said increased, strategic use of warehouses can reduce less-than-truckload miles and help better manage the supply chain, which can be a net cost-saver with fuel prices so high.
Joel Anderson, president of the 450-member International Warehousing and Logistics Association, said the movement from transportation into warehousing can be seen in the profile of some of his new members.
“Several of my brand-new members were truckers,” he said. “They’ve gone into trucking, and they’ve gone into warehousing for two things. One — capture the customer. They’re keeping themselves in the customer’s supply chain. And two — spread the risk of trucking. Trucking is highly cyclical. Warehousing, although cyclical, tends to have higher valleys.”
Thomas Moore, who is president of logistics software company Transportation/Warehouse Optimization, Franklin, Tenn., said truckload shippers are doing less with warehousing, but LTL shippers are doing more.
“As we project the companies that are shipping to their customers in full truckloads, there’s going to be a reduction in the number of distribution centers they have,” Moore told Transport Topics. “It makes more economic sense to ship full truckloads directly from the producing plant. The folks doing the LTL smaller shipments are more likely to increase the number of warehouses they’re going to have. That gets them closer to the customer, so the LTL miles, which are the most expensive miles, are mitigated more than the longhaul miles.”
Anderson said while warehousing is growing, it actually has slowed slightly in the past year.
“It’s better times for warehousing than for trucking,” he said, “but everything is spotty. When Pacific trade was blasting through the United States, it was hard not to make it in warehousing. Now, it’s getting tougher again.”
As trade entering the United States through West Coast ports has slowed, warehousing providers also facing lower demand, particularly those who assist shippers with customs issues.
Truckload carrier Landstar System is one example of a trucking company that recently moved into the warehousing arena.
Jim Handoush, president of the Landstar Global Logistics unit, said the company two years ago chose to form a network of existing warehouse facilities — which would all retain their original ownership — rather than acquiring the facilities or establishing new ones.
“We had started to meet with some regional warehouse owners around the country and started talking with them about what types of things were impacting them from a growth standpoint,” Handoush said.
“They commented that they had lost some opportunities to the big-box players, with customers who like the services of a warehouse and were utilizing maybe six or 10 around the country,” he said.
The small warehouse owners tried to form their own association, Handoush said, but lacked direction.
“It didn’t work because you had a bunch of independent owners and no real leadership,” Handoush said. “So, as we started to hear this, we had a light go on and said, ‘This may be an opportunity to expand our business model.’ We’re an agency-based model made up of [owner-operators] on the transportation side, and we thought we could supply the same model in the warehousing industry.”
He said this model allowed Landstar to do more for customers who already had expressed a need for both transportation and warehouse services but previously had to be sent elsewhere for the warehousing.
“We are in the process of further ramping up our efforts to promote this new business among our independent sales agencies so that we can provide our customers with complete supply chain solutions,” Handoush said.
Like Landstar, truckload carrier Schneider National has delved into the warehousing market, although it did so through the simpler step of buying a logistics company and folding it into Schneider’s existing operations.
Schneider acquired American Port Services in 2005 — retaining all staff, systems and facilities and bringing it into the organization as Schneider Logistics.
“It’s a very competitive industry,” said Todd Ericksrud, vice president of global logistics sales for Schneider. “It’s just not as simple as saying, ‘I want a warehouse’ and opening one up. I think people are going to see that adding that to their balance sheet is going to be a challenge for them.”
Ericksrud said Schneider customers, seeing the company’s wider array of offerings, are more often seeking Schneider’s strategic advice on issues relating to both transportation and warehousing. The result has been a growing number of engagements that have involved many Schneider services and facilities.
“In the same breath, we face the same challenges in the market that all [third-party logistics operations] are dealing with — the imbalance of imports to exports, the weak U.S. dollar, rising fuel costs, not to mention lower inventory levels in the facilities that are a direct reflection of the depressed consumer spending,” Ericksrud said.
He added, however, the company’s expanded scope of services is helping minimize the consequences of those factors.
Moore and other industry consultants said an expansion into warehousing would be only part of the solution to rising fuel costs. They said they expect more shippers to increase their use of rail to reach regional warehouses and to limit the use of trucking to shorthaul runs.
Paul Schweet, senior vice president of Chicago-based logistics consulting firm Tom Zosel Associates, said that figuring out exactly how a warehouse facility should operate remains a challenge for carriers — including handling varying lead times and blending with bulk goods.
“It goes back to where the customer base is, where the tradeoffs are going to be from the inventory perspective and how they’re going to operate that facility,” Schweet said. “We’re seeing more people doing the bulk-type warehouse. Those larger shipments get them closer to the customer, and then they have the slower-moving warehousing of materials out of their main facility, and they feed them to the satellites.”
Schweet cautions carriers against being too willing to handle shipments of any size just to get business.
“You don’t want to service every customer just because he wants to be serviced,” Schweet said. “I think people are going to get a backbone and say, ‘Here’s the minimum shipment that’s going to be required. And if you don’t want it, then the cost is going to go up.’ ”
Similarly, ILWA’s Anderson said carriers who decide to build their own warehousing operation should not expect an easy task.
“Any time you open a new facility, it’s all about sourcing the labor, sourcing the location,” Anderson said. “If you’re establishing multiple centers, you can’t do it without a labor supply because warehousing today is so value-added. It’s highly labor-intensive, so you have to find a skilled workforce that can do more than just sort boxes.”
Kelly Killingsworth, transportation life-cycle management product manager with supply chain consulting firm Manhattan Associates, said that even if record fuel prices are causing more carriers to consider expanding into warehousing, it takes time for such operations to get established.
“When you look at the software and what it takes to implement it, and the effort to put a distribution center in — there’s a capital outlay and a time investment up front,” Killingsworth said. “So we wouldn’t see the immediate impact of the trend. We are seeing today people have a strong interest in these systems.”
Killingsworth said she has seen a flurry of intermodal bidding and procurement activity, as shippers try to make sure they have enough capacity in the right modes.
To assist carriers with potential warehousing pitfalls, Schweet said TZA recently added an element to its client-needs assessment that considers whether it’s viable to add a warehouse. The measure is based largely on what happens to costs at different per-gallon fuel-cost levels.
Moore, who is the president of Transportation/Warehouse Optimization, said as warehousing expands, there will be more need for software to become adaptable to individual situations.
He said that in too many situations where existing software cannot alter an obviously illogical routing scheme and that his company was working on software to address this shortcoming, designed to automate adjustments like one for a client in the United Kingdom.
“We were working with a client in Manchester,” Moore said. “If a customer was north of the M-60, it automatically got shipped out of Manchester, even if the product was made in London. We looked at it and said, ‘Geez, this is a lot of money here.’”
