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Ecommerce reshaping logistics industry, facilities

28th September 2022

By: Schalk Burger

Creamer Media Senior Deputy Editor

     

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The factors contributing to growth in logistics facilities are primarily centred around ecommerce, as smaller companies continue adopting ecommerce and delivery in addition to larger companies and, with demand from smaller companies expected to continue, this will continue to drive growth into the foreseeable future, said logistics parks property company Inospace founder and CEO Rael Levitt.

South Africa is in the early stages of adoption and will see further growth as online retail grows, as companies adopt new technologies and as the country's delivery economy grows, he said during a talk hosted by JSE-listed real estate investment trust Fortress REIT on September 28.

"The global growth of ecommerce, as well as the supply-chain disruptions worldwide, are contributing factors to the growth in demand for logistics and facilities, and significant demand from smaller and medium-sized companies will continue to drive growth in the sector," he noted.

The changes in inventory and stock holding, based on changes in customer demands, are driving many of the changes in the sector, said engineering consulting and infrastructure design firm Relog CEO Gary Benatar.

While smaller distribution centres to serve smaller communities continue to be built, the big growth currently is in retailers and businesses moving their inventory to central locations and requiring warehouses. There is a move away from maintaining large inventories in retail stores, with companies preferring to top up store inventories from central facilities, which is driving the need for larger distribution centres, he said.

"Ecommerce has changed the landscape and demand from ecommerce is based on instant fulfilment. For stores to be efficient, they must be able to response quickly and accurately and be able to deliver quickly to customers, which they can only do if they have the correct availability of product. This will be important going forward," he explained.

The market has moved, with it becoming more convenience-oriented. Customers are very demanding, and retailers have learned new patterns of demand and responded, said mass retailer Pick n Pay (PnP) retail supply chain executive Marcel Basson.

"PnP also responded. Ecommerce is an exciting channel for us, and it is different from mainstream supply solutions. The main aspects are customer service, as we are now delivering to customers' front doors, as well as affordability," he said.

Further, the Covid-19 pandemic drove a faster move in demand than what PnP's omnichannel strategy had planned for, and the company had to convert some of its informal supply chain service providers into formal supply chain service providers to move stock to customers, often on small motorbikes.

With the impact of the pandemic mostly moderating, PnP is moving into this omnichannel space more formally and with a strategy to become more sustainable and ensure better availability of product and to get product to customers more affordably, Basson said.

"As a retailer, we want to innovate and respond to customers immediately. Now, after the Covid-19-impacted period, we are looking at how we can do so more sustainably and affordably. The market as it was before the pandemic is not coming back. Customers are online and, in our [online retail] ASAP environment, we can get stock within 40 minutes. Omnichannel is something that will remain and where we see the trend continuing," he said.

Meanwhile, dark stores - which are distribution centres or warehouses built to serve online or omnichannel demand - and omnichannels and ecommerce deliveries are dependent on the distance to the customer, requiring companies to serve the demand from a geographic point within a certain timeframe, said Benatar.

"When retailers had to rapidly introduce online shopping during Covid-19, they started to pick from their shelves in their retail stores. This led to various inefficiencies and challenges. All online sales are dependent on the availability of stock. In a dark store, a company can know exactly what inventory is present and can accurately deliver on its promise to its customers," he illustrated.

Further, while South Africa is seeing greater growth in the development of larger logistics facilities, such as the construction of PnP's 100 000 m2 East Port distribution centre, compared with continuing logistics facility demand from smaller companies, what is happening internationally is the development of hybrid retail stores, Benatar highlighted.

These hybrid retail stores, instead of the back storeroom, have a multifunctional micro-fulfilment centre dedicated to online orders, while retaining the retail front end to serve customers.

"The online store in the back uses this space to pick orders for delivery. The facilities use automation, miniloads and auto-store systems, which pick orders by unit for the customer quickly and accurately, and the availability of stock and the promise of service to the customer is accurate and can be fulfilled.

"We are going to see that start to happen in South Africa," he said.

Additionally, these types of changes in logistics will also reduce some of the double costs introduced by adding ecommerce to retail stores. For example, there are costs to deliver stock to stores and then a second cost to deliver it to customers from stores.

"This step needs to come out of the supply chain, as it is a waste in terms of online orders. With new identification, warehousing and Internet of Things technologies and data analytics, we can start to identify trends and can start to accurately model the entire supply chain in a much better way so that we can plan and work out what capacity we need," Benatar said.

The digitalisation of the supply chain is the big change that is happening, he highlighted.

"There has been an explosion in demand for logistics facilities and warehouses, and Covid-19 saw a huge acceleration in ecommerce and retailers gearing up for ecommerce. Currently in South Africa, retailers are looking for more and better space, as well as consolidation into one distribution centre," said Fortress REIT CEO Steven Brown.

Further, and interestingly in the warehousing space, is that the technologies and technical capabilities of suppliers and service providers, including roofing, post-tension flooring and concrete, are in place to enable super distribution centres larger than 100 000 m2 to be built and developed, he noted.

Fortress REIT and its partners built the PnP East Port distribution centre, which has more than 100 000 m2 of space under its roof and includes a host of novel engineering technologies, such as post-tension flooring, long steel spans for the roof and the reuse of waste heat and water and wastewater to reduce environmental impact and drive efficiencies.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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