Greening logistics

According to Cushman and Wakefield, in their 2020 report logistics real estate will continue to be driven by key trends in e-commerce and technology.

There is no doubt that the growth in internet shopping has benefited developers and institutional investors in the warehouse and logistics sector. It is also clear that the impact of COVID-19 has accelerated the shift in consumer behaviour to more online purchasing. This inevitably leads to an increasing demand for facilities from big box floorspace to small local delivery centres for the last mile of the journey. In their United Kingdom Logistics Market Update in June 2020 CBRE highlighted that "built-to-suit" and pre-leasing preferences has kept supply under control, and this is likely to continue going forward.

Urban logistics and last mile deliveries is a key element of the logistics sector. Last mile delivery is defined as the movement of goods, most likely from a transportation hub, to the final delivery destination (the last link). Cushman and Wakefield's Last Link Report revealed that the last link in the e-commerce supply chain can account for 50% or more of the supply chain spend. Increasingly, the focus of last mile logistics is the speed of delivery to the end user. It should also be noted that this is not all one-way traffic from seller to buyer; e-commerce is a two-way transaction. In December 2018 goods worth an estimated £2.4 billion were returned after the Black Friday and Cyber Monday sales Increasing last mile delivery capability means that more space is needed in urban and often densely populated areas.

The COVID-19 crisis inevitably brought about significant uplift in customer demand which put pressure on the “just in time” supply model. The just in time method of manufacturing and inventory control helps to control the amount of stock in the supply chain. However, in order for the just in time model to work there needs to be careful planning at each stage of the supply chain and most importantly it relies on accurate predictions of customer demand. COVID-19 saw large surges in demand which could not have been predicted and in some cases this led to a lack of stock in the supply line. Nowhere was this more obvious than the empty shelves in the supermarkets during the height of lockdown.

This could mean that in the future retailers may be tempted to revert to the model of holding more stock and manufacturers may consider the "onshoring" their industrial processes. Bringing manufacture onshore helps to de-risk supply chains as highlighted by McKinsey in their report "Risk Resilience and Rebuilding Global Supply Chains." However there is an important balancing act here between building resilience and managing costs. This debate will no doubt continue, as highlighted in this article in the Harvard Business Review and as yet it is probably too early to say what long term effects the pandemic might have on global supply chains.

All of these factors point to continuing demand for logistics real estate. As a result investors, owners and occupiers are keen to maintain and preserve the value in their assets and this means considering how to improve sustainability. Logistics is a necessary part of many industry sectors and inevitably logistics operations have an effect on the environment. In response to this the transport and logistics industry has been investing in new practices and technologies in the movement towards greener logistics. Pressure on corporates with global supply chains to lower GHG emissions comes from a number of sources including ESG investing, consumer demand for sustainable products, domestic regulations and international agreements such as the Paris Agreement 2015 which sets out a global framework to avoid dangerous climate change by limiting global warming to well below 2°C and pursuing efforts to limit it to 1.5°C

It is inevitable that logistics operations use significant amounts of energy and increasingly facilities are utilising on-site power generation to deal with capacity issues on the grid. A low carbon future means being energy efficient by adopting new technologies and making use of renewable and low carbon energy supplies. Switching to renewable energy could mean purchasing renewable energy directly from the grid, on-site generation or direct purchase arrangements with wind, hydro, and geothermal installations.

Developers and landlords are already building more flexible, sustainable buildings for the logistics sector using innovative design and construction methods. As a result buildings can be more sustainable as well as achieving operational and cost efficiencies for the business. Additional features can also be incorporated such as solar panels to capture energy, charging points for electric vehicles and low energy LED lighting in the office and warehouse facilities.

Recent years have seen massive advancement for the logistics industry in areas like artificial and augmented intelligence, advanced analytics, and automation. Logistics companies are continually adapting to a changing landscape and addressing the need to future proof their business. This includes ensuring that their buildings ae designed with these technologies in mind.

The advancement of the internet of things (IOT) means that buildings can become "smart" by utilising a network of connected sensors to optimise the indoor environment. Vast amounts of data can be collected and analysed in real time to enable operational adjustments to be made to reduce energy consumption, improve efficiency, save costs, flag potential maintenance issues and bring health and wellbeing benefits to the workplace..

Collecting real-time data and being able to analyse it can improve every part of the supply chain, making it smarter and more efficient. IOT applications are being used for supply chain monitoring, vehicle tracking, inventory management, safe transportation and automation of processes in order to improve quality control and operational efficiency, inventory tracking, and demand forecasting.

These are just some examples of how the logistics sector is embracing sustainability and taking on board the recommendations by the World Green Building Council for "building green".

Last-mile delivery is traditionally very time and energy-consuming. To lessen the negative environmental impact it may be possible to take advantage of a number of technologies, from electric vehicles to AI-based software that will calculate the most environmentally efficient route.

The Department of Transport produced a position statement in June 2020 on last mile logistics which considered the merits of a number of technological solutions including:

• light vans: Although mostly petrol or diesel now, in the future, electric or fuel-cell powered could be used in cities, towns and, to some extent, larger rural areas if refuelling is available. However, there are still very few ultra-low emission vans on the market and hydrogen refuelling stations are currently very scarce.
• e-Cargo bikes and similar: Would be suitable for urban areas where there are many small items to be delivered in a reasonably contained area 
• drones: At present these are not considered suitable for urban areas due to congestion and potential security concerns around detecting which drones are being operated with malicious intent and which are legitimate delivery vehicles. If these issues can be resolved, drone delivery could be a good solution for rural areas due to the distances involved

The consensus does seem to be that different modes of transport, more efficient routes, and alternative fuels are key considerations for delivering transport emission reductions.

So, there can be little doubt that the logistics sector is forging ahead, embracing innovation and technology to build resilience by improving efficiency, reducing costs and driving carbon emission reductions.  As highlighted by Savills in their European Logistics Outlook report in September 2020 - "the fundamentals of the logistics sector position it as one of the most resilient through this economic downturn."