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Keynote Interview: Global Logistic Properties
The logistics landscape keeps changing as technological advancements in retail continue apace. Understanding this development means logistics landlords can address current needs as well as future-proofing their facilities, according to Ming Mei, chief executive of GLP.
Global e-commerce sales are growing at exponential rates. This growth, driven by technological advancements, the expanding middle class and growing consumption, is altering logistics at the operational level, preferred development locations and how the assets are used. Global Logistic Properties – which has a $40 billion property portfolio encompassing over 570 million square feet of logistics facilities across China, Japan, Brazil and the US – is the industry leader when it comes to understanding how these changes will impact its customers. Ming Mei, the chief executive of GLP, tells PERE how his team is adapting to the changing logistics landscape through a culture of innovation.
PERE: How is e-commerce shaping the future of the logistics industry?
Ming Mei: Macro trends, including domestic consumption, the growing middle class, organized retail, changing technology and shopping patterns, are creating huge demand for e-commerce and consequently for logistics, and this is just the beginning of it. We went from desktops to mobile applications, changing the way people buy things. A lot of retail that used to be mom-and-pop stores is now being aggregated, formalized and organized. When this happens, companies start to require more efficient large-scale facilities. It is our view that in five years’ time, you will not hear of e-commerce, it will just be considered another channel within retail – that is e-commerce will be synonymous with commerce.
The traditional logistics model is changing, driven in part by e-commerce. We are now seeing retailers delivering products by the next day, or the same day, and in China they are now making deliveries within the hour. When that happens you need facilities that are closer to the population. Domestic consumption is driving a lot of demand and so you get a more ‘hub and spoke’ set up for our customers.
PERE: So, how does this impact where warehouses are now located?
MM: There is a need for national hubs but also for regional distribution and then city distribution, sometimes the city distribution serves as both the regional and the domestic last mile. Because of the frequency of delivery, gone are the days where you have large trucks making deliveries at night to fill the stores. Today hundreds or thousands of deliveries are being made from these facilities, so not only do they need to be closer to the consumer base but the warehouse configuration must facilitate goods in and out quickly and cater for big trucks, small trucks and so on. There is more focus on the configuration of these locations due to the evolution of e-commerce.
We are also seeing, due to changing retail patterns, changes in configurations and demand for more space, even in developed logistics markets like Japan. The existing stock of facilities in Japan does not accommodate these factors, creating opportunities in a market that is already well developed from a logistics perspective. There is also more demand than many expected in the US market, due to the pressures of next day delivery and e-commerce needing a different way of distributing goods. In the US, we have facilities in over 30 cities with a population of more than a million. Consumption is high in these areas and so we see a lot of opportunities for reconfiguration.
PERE: How are you using technology to ensure you are future-proofing your facilities?
MM: We have developed software to help our customers map out their delivery and frequency patterns to calculate their total logistic costs – not just the rental of the facilities but how efficiently they are making deliveries from these locations. So we are delving into the total trucking, shipping and delivery costs for these customers.
This research and knowledge we have built up over many years, combined with the way we structure our business, means we are able to look forward and understand the long-term needs of our customers. We segment our customers by different categories: trucking operates differently from an express company versus e-commerce; so they all have different requirements and we spend a lot of time understanding their individual current and future needs. The make-up of our team is atypical – not many of our team members, especially on the client facing side, come from logistics backgrounds, they come from manufacturers and retailers. We also use logistics consulting companies to better understand what lies ahead for our industry, using their research tools, in addition to developing our own tools to use with customers. Each customer category has a lead director who conducts research to understand the industry and provide a holistic service to our customers.
For example, five years ago an e-commerce company said to us, ‘We don’t need a 10-meter clear height on the warehouse, we only need the facility to be tall enough for our employees to reach with their hands when they are packing the goods.’ We anticipated that it wouldn’t be the case in five years’ time because technology changes and labor costs increase, so we maintained our discipline to build for the future. It is important to listen to your current customers, but also to understand where demand will be five to 10 years later in order to make sure we don’t build anything that will become obsolete.
PERE: What factors will impact the future leasing environment?
MM: It varies market-to-market, but for the more stable operating environments and more mature companies, the typical lease would be around five years. Where growth is a little higher for our customers it is harder for them to project beyond three years, so they tend to take leases around that length. However, some companies, even in high growth markets like China, commit to us for 10 years in build-to-suit facilities. Even in these cases, we are seeing companies run out of space and need to expand again by the fourth year, so different stages of growth for both the economy of a country and growth of the company dictates the leasing duration.
We are happy to see that 70 percent of our new developments are leased by existing customers. That is due to the investment in understanding what the requirements of our customers are and gives us a competitive advantage over others.