Over the past several years, we’ve all been focused on the over-the-road and marine shipping markets, given the rapidly changing supply-demand dynamics, and it seems that much of the industry is still focusing on the road freight market as spot rates are continuing to rise, pointing to potentially higher freight cost inflation in 2018.
However, we’re increasingly focusing on another dynamic market — the warehouse and distribution (W&D) segment. E-commerce market share is surging, and from what we’ve seen, many retailers and brand owners are making e-commerce W&D a top priority after years of relegating it to second-fiddle status. Many shippers have overly relied on third parties, over-focused on traditional retail, and as a result, many are paying above-market rates because they are racing to catch up to more mature rivals.
This price pressure will likely only get worse. Why? Overall economic growth is finally accelerating (3.3 percent GDP growth in the third-quarter of 2017, for example), unemployment keeps falling, and wages may be rising because of tight labor markets.
There’s more: third-quarter 2017 industrial real estate vacancy rates fell to 5.6 percent from 6.5 percent in the same period of 2016. Major metro markets (Philadelphia, Chicago, Los Angeles, Memphis, Detroit, Orange County, and Raleigh) posted the lowest vacancy rates in decades. With macro and supply market pressure building, we think this could be the major story of 2018. Add the potential for more mergers and acquisition activity among the major suppliers, and this space could get even more interesting.
Heading into 2018, our strongest advice for clients is to actively review their network strategy, take a fresh look at pricing options that improve transparency and introduce variable pricing to match fluctuating demand, and focus on process improvement and better collaboration with suppliers. One thing’s for certain — 2018 will not be dull.