Worley Blog

THE NEXT TO LAST STOP

Posted on: April 12th, 2022 by Clifford F. Lynch

During the past few years, the term “last mile” has become an ingrained part of the supply chain vocabulary. Referring to the last leg of transportation from distribution point to user, it has become increasingly important as service demands have increased. The last mile may be more or less than one mile, but the management of that segment has become critical. With consumers and other users expecting next-day, or even same-day delivery, the shorter the mile is, the better the level of service.

The location of the shipper and the consumer are of course the key drivers. Since the consumer is not likely to relocate to accommodate rapid service, the burden falls on the distributor to strategically locate its inventory in order to meet service requirements.

Transportation over the last mile has become as efficient as it is likely to be, so the location of the distribution center becomes the major factor in providing the necessary service. Warehousing is one of the oldest functions in the distribution pipeline. In Europe, a number of warehouses can trace their origins back to the Middle Ages. The first commercial warehouse operations were built in Venice, Italy, in the 14th century. Merchants from all across Europe used them as collection and distribution points.

The early buildings in the U.S. usually were 3 to 5 stories with 4 or 5 truck docks. Product was moved in and out of the warehouse by forklifts and freight elevators. Most warehousing transactions were standard 30-day public warehouse agreements.

The late 1960s and early 1970s saw an increase in true distribution centers where products were mixed for consolidated shipments to customers. Buildings became larger; and by then, it was clear that one-story buildings with multiple truck docks were the most efficient and economical, and the multi-story buildings became obsolete. While buildings were larger, at the time the conventional was that 200,000 square feet were about the maximum size that could be operated efficiently.

As operating technology increased, so did distribution center size. Conveyors, racks, automated sorters, robotics, management systems, and other warehouse technology became available; and today it is not uncommon to see buildings in excess of one million square feet, either fully or partially automated.

As online buying and its service requirements increased, it became necessary to shorten the last mile and locate these facilities closer to the markets. Amazon, not surprisingly, has been the leader here. They have hundreds of distribution points and at least one major distribution center in 45 states. Target and Wal-Mart are also making strides in improving their last-mile distribution, and there are many logistics service providers already located to provide the necessary service.

Now, however, we are faced with a new obstacle… where can we locate these next to last stop facilities? Warehouse space is scarce and expensive, and land costs are increasing rapidly. This has been an ongoing problem in Asia; and there, multi-story buildings are not uncommon. These facilities have ramps servicing the separate floors and trucks can move to the upper floors for loading and unloading. Each floor is operated as if it were a separate facility; and there is little if any, traffic between floors. Several years ago, my company operated a distribution center on the 6th floor of a building at the Port of Hong Kong; and it was reasonably efficient considering the circumstances. The key factor here was the smaller trucks that operate in Asia which could move up and down the ramps easily.

While it is doubtful, that we will ever see such a facility in the U.S., we do have a special use, high ceiling, rack supported AS/RS buildings in certain industries. Amazon has patented a high rise, automated warehouse, and a “warehouse in the sky”, but bringing things closer to reality, it appears the Prologis has found at least a partial answer. They have developed a 590,000-square-foot facility in Seattle that allows access to loading docks on a second floor. This almost doubles the truck-accessible space compared to a single-story building with a larger footprint.

This is the first such building in the U.S., but I suspect it is just a forerunner to other creative ways that technology and ingenuity can reinforce the next to last stop.