Logistics for a growing Melbourne
How can Australia’s freight and logistics market evolve to deliver in timeframes seen in Asian and US markets? And how can Melbourne manage population growth and the community’s love of e-commerce?
Automation, drone delivery, vertical warehousing and even dark warehouses were canvassed as key drivers in a modern supply chain at the Property Council’s Logistics for a Growing Melbourne forum, held last week.
Fifty-six per cent of consumers now start their purchasing journey online – and this will skyrocket as a growing population comes together with Australians’ insatiable appetite for e-commerce, the audience heard.
According to James Stewart, head of retail at Ferrier Hodgson, the entry of Amazon “is a tsunami not an earthquake”. In the USA, Amazon now accounts for 49 per cent of every dollar spent on line and last Christmas alone, Amazon captured 6.9 million views in Australia. Does Amazon have what it takes to grow its Australian market share to emulate the success in the United States?
Arthur Dardoumbas, general manager with Toll, thinks our benchmark for performance should be Asia, not the US.
“Australia is in the region of the highest online shoppers in the world – Asia.”
Dardoumbas argued that the industry’s fixation on Amazon needs to shift. “Alibaba and JD.com are chasing aggressive growth in the Asia Pacific region.”
Meeting that growth while managing consumer expectations of service and delivery is a multi-dimensional challenge. How is Melbourne placed to cater for an order placed at 2pm for same day delivery?
The short answer is that it can’t – yet. Delivery from a distribution centre west of Melbourne to the south east suburbs can’t happen in an afternoon. The solution may well lie in multi-level warehousing.
Toll recently opened the doors on a multi-level facility in Singapore with a much smaller base footprint than traditional distribution centres, however achieving 100,000 sqm over five levels. Dardoumbas pointed out that facilities like this can play a key role in same day deliveries – or even shorter 2-3 hour deliveries. The question for Melbourne? With high inner-city land prices and planning controls favouring residential development, does the business case stack up for multi-storey facilities?
“Not yet,” said Janet Weston, Knight Frank’s director of occupier services. However, consumer demand for faster delivery will mean that smaller hubs, complementing larger distributions centres, could emerge in the next five years.
This is the missing piece of the logistics puzzle for Melbourne, the audience heard. While Melbourne has traditionally enjoyed strong land supply and attractive market conditions, rents in the industrial epicentre of Melbourne, the West, are growing. And they are growing fast. To maintain efficiency, industrial land supply will be needed in new and established areas.
Darren Searle, head of development at property logistics specialist LOGOS says competition is fierce for sites for distribution centres.
“If you look at the requirements for the kinds of warehousing needed to support e-commerce, sites are scarce” said Searle, who is chair of the Property Council’s Victorian Infrastructure, Industrial and Logistics committee.
“These sites are crucial to the supply chain. Not only do they need to be fit for purpose, they also need to be able to tap into good transport infrastructure.”
Ms Weston told the audience that “the industry is telling us there is not enough industrial land”, despite “policy makers are saying there is ample supply of industrial land in Melbourne”.
Future performance of the freight industry will rely on automation, technology and flexibility to respond to both business-as-usual and seasonal spikes due to ‘click frenzies’ or Black Friday sales.
Yet a flight to technological solutions is a significant capital investment. The challenge is to find the sweet spot between capital investment in technology and reduced operating costs. The solution depends on the company’s needs and priorities, but the difference in savings over a 10-year period between a traditional warehouse and a fully automated facility could be in the tens of millions. In a difficult retail environment, these choices could make or break a company.
The final challenge for the logistics sector is policy makers’ ability to respond to such a rapidly-evolving environment – from industrial land zoning to the use of drones. Can drones be part of the supply chain?
“Inevitably yes,” says Searle. “But only if they are effective safe, secure and reliable.”
The author of this article, Linda Allison, is the Property Council of Australia’s acting deputy executive director in Victoria.