Warehousing and logistics – trends, challenges and the way forward …

Warehousing facilities – in size and sophistication - are changing worldwide. Managing director of Johannesburg-based Industrial Logistics Systems, Martin Bailey, offers his insights in conversation with FTW’s Kevin Mayhew. Bailey is also the chairman of the Chartered Institute of Logistics and Transport (South Africa). Is warehousing a growth point in logistics? MB: In theory it shouldn’t be because we are getting better at controlling inventory, so we should be holding less stocks. Perhaps what has happened in the industry is that there is a huge amount of consolidation and centralisation which is the big international trend. So what we are seeing is growth of big facilities as the two to three thousand m2 facilities are dying and being replaced by 20-, 30‑, 40-, 50 000m2 of highly mechanised and sophisticated facilities. What size is a survival minimum? MB: There is still room for the little guys as they argue that they have a lot of focus and personal attention to offer. Courier services have also changed things a lot as they have removed the need for little warehousing facilities in a number of centres as parcels can be delivered overnight to the final destination. But centralisation in major centres has meant a huge demand for warehouse space which has seen rentals skyrocket. This of course immediately makes the service more expensive and that will eventually affect the trend as people spreading their costs over greater volumes will probably follow. Is the trend for the industry to buy rather than rent space at the moment? MB: There is still a fundamental line of thought in many schools that warehousing is not strategic. Let’s go one step further. Some say supply chain is not strategic and choose to outsource labour, buildings, trucks, and all those kinds of things. And there are some companies who do see it as strategic and want to own premises. I would say that about 80% is probably still rented. It actually depends what industries are involved. Internationally the retail industry, for example, doesn’t outsource. They may not own a shed themselves so they may outsource one or two functions but in general you’ll find it’s very much an in-house element. With the motor industry you’ll find a lot of their operations will be internally handled. In South Africa, what areas are experiencing growth or needing it? MB: In most of the major centres it is difficult to find decent space. In Gauteng and Durban there simply is no more warehouse space which has meant that rent has rocketed. Something else that’s happening generally in Gauteng and Durban is that there is no more land to buy for new rental facilities and quite frankly people are getting desperate. I have seen land that was going for R100 a m2 selling at R500 six or seven months later. There still seems to be land available in Durban in areas like Mobeni MB: Yes, but not for very big warehouses. The other problem with Durban is that it’s all owned by Huletts – that which is available is generally in its hands and it is mainly on hills, making it unsuitable for warehousing unless at great expense. The Durban municipality specifically is also not proactive. In fact South African municipalities are not acting like their European counterparts and moving actively to provide attractive warehousing incentives to tempt new industry. Even the IDZ drives nationally are not positioning warehousing correctly as an attraction. I look at the Mercedes Benz warehouse in Germishein, which is the largest warehouse in the world. The Municipality gave them the land for nothing, they gave them a tax holiday for 20 years and they gave them everything they could and provided key elements such as electricity. We simply do not get that in South Africa. Nobody is saying: “Hey I want the pharmaceutical industry in my neighbourhood. I’m going to bring it here by offering all these good things.” And how is the technology of warehousing today, with RFID? MB: RFID is a figment of everyone’s imagination and it hasn’t happened. And it’s far away. Another figment of everyone’s imagination is this five cents transponder. So there is not one major user of RFID technology, yet. But it’s coming. The thing is it’s been coming for 20 years – so don’t hold your breath. So what’s dominating today? MB: Bar codes have many problems. I mean most warehouses use bar codes of some type or the other but there are plenty of disadvantages to bar codes because they slow down operations. The in technology at the moment is voice. Basically you stick headphones on and it tells you what to do. It says go to location xyz pick three and you say yes and from there you pick three and it then gives you the next instruction and automatically records what is being taken for restock. And is that in South Africa as well? MB: It is arriving here with some of the larger operators. I’d say in South Africa over the next two or three years it will gain major acceptance.