Logistics: 10 key trends to look for in 2021
The UK logistics sector was booming even before the turbulent events of this year. COVID-19 and the consequent impact on internet sales have served to fuel the sector's growth. According to the Office for National Statistics, internet shopping in September 2020 accounted for 26.1% of total retail sales, up from 18.1% in September 20191. This is slightly lower than the peak of 32.8% in May 2020 during the first national lockdown but still represents a huge increase year-on-year.
In this article we identify 10 key trends to look out for in the logistics sector over the next 12 months, as logistics providers seek to maximise efficiencies against a backdrop of increasing demand.
Build, build, build
Traditional locations for logistics centres (i.e. next to motorways and on urban boundaries) are no longer enough to cover demands for last mile deliveries and reverse logistics. More warehouses will be needed close to city centres, particularly London. However, there are few sites within the M25 offering easy access to the city centre, even brownfield. One further challenge is that of competing land uses. As a result, we may see increased mixed-use solutions, including in some instances residential combined with urban logistics. For example, SEGRO and Barratt London have designed a mixed-use scheme at a former Nestlé factory in Hayes, which brings 230,000 sq ft of industrial space alongside 1,381 new homes2.
Meanwhile, warehouses in key hubs continue to grow in demand and value. This year, Ashurst advised Panattoni on its £200 million forward funding of a logistics warehouse in Swindon - thought to be the largest ever single asset logistics deal in the UK. With a 600,000 sq ft floorplate and three mezzanine floors each over 500,000 sq ft, it serves as a reminder of the continued need for high-quality assets in prime locations.
Sustainability and environmental regulation
The drive towards net-zero will play a significant role in the future of logistics, both in the construction of warehouses and for operators. In terms of construction, the sector should continue to embrace the "green building" recommendations of the World Green Building Council3. Developers and contractors will need to integrate renewable and low-carbon technologies to supply buildings' energy needs, such as purchasing renewable energy directly from the grid, on-site generation or direct purchase arrangements with wind, hydro and geothermal installations. Additional features might include solar panels and charging points for electric vehicles.
The sustainability drive is particularly integral to future transport developments, including vehicle pollution problems. In central London, for example, 2019 saw the introduction of the world's first Ultra Low Emission Zone (ULEZ) and Clean Air Zones (CAZs) are set to launch in Bath on 15 March 2021 and Birmingham on 1 June 2021.
With further CAZs planned, the logistics sector needs to tackle the question of transport in conjunction with the sustainability agenda. In the short term, this might mean fitting abatement technology to purify emissions or upgrading transport methods to fully electric.
Solving the last mile
An extension of the sustainability drive, we expect logistics companies to focus on last mile efficiencies. Last mile delivery is defined as the movement of goods, most likely from a transportation hub, to the final delivery destination. Cushman and Wakefield's Last Link Report revealed that the last link can account for 50% or more of the supply chain spend, as rising home delivery expectations enhance the risk of encountering inefficiencies4.
The UK's Department for Transport produced a position statement in June 2020 on last mile logistics that considered different technical solutions that could be deployed (e.g. light vans, e-Cargo bikes, autonomous ground vehicles and drones). The statement noted that no single solution suits all scenarios and some combinations of these solutions will likely be required.
Resolving last mile inefficiencies will remain a key focus for logistics companies in 2021. For example, in 2019, Amazon agreed to buy 100,000 custom-built electric vans made by Rivian Automotive Inc. This summer, Amazon announced it is buying 1,800 electric delivery vans from Daimler AG's Mercedes-Benz, the retailer's biggest commitment to date to cut the carbon footprint of its European delivery operations5. At the same time, electric vehicles will be a key part of its pledge to be net-zero carbon by 20406.
Growth of the Internet of Things
The Internet of Things (IoT) will help to drive value within the supply chain by connecting nearly everything together, from people to parcels. The data provided by IoT devices allows logistics companies, among other benefits, to track shipments in live time and predict crucial maintenance. The same technology allows consumers to check when their much-needed parcel has left the warehouse and been delivered to their door, helping to reduce theft.
For example, the global fleet of Maersk, the industrial container transportation provider, uses IoT technologies to track and monitor 380,000 refrigerated containers as they move around the planet. This allows Maersk's customers to always know where their shipments are and atmospheric parameters can be adjusted so that food and medicine from one side of the globe are in perfect shape when they arrive on the other side of the world.
As the full benefits of IoT are realised, IoT devices will follow normal technological trends and become smaller and more accessible. We can expect to see even more innovative use classes next year as logistics companies seek to drive change and create new solutions.
Blockchain
Blockchain is an encrypted, distributed computer filing system designed to allow the creation of tamper-proof, real-time records. Blockchain brings transparency to the entire logistics process and enables the use of smart contracts to automate commercial processes.
One of the first start-ups to pursue smart contract applications in the logistics industry was ShipChain, a freight tracking company. ShipChain's blockchain-based system allows them to track and trace a product from the moment it leaves the factory to final delivery at the customer's doorstep. All relevant supply chain information is recorded in a blockchain-based database that can execute smart contracts once the conditions have been met (e.g. once the driver transmits confirmation of successful delivery). Participants on the ShipChain platform purchase digital "SHIP token" to pay for freight and settle transactions.
In combination with the IoT, blockchain will enable even smarter logistics contracts in future. For example, on delivery a connected pallet will automatically be able to transmit confirmation and the time of delivery, as well as the condition of the goods. The blockchain-based system can then automatically verify whether the goods were delivered as per agreed conditions (e.g., temperature, humidity, tilt) and release payment, greatly increasing efficiency as well as integrity7.
Warehouse automation & Artificial Intelligence
In a socially-distanced world, we can expect to see increased reliance and investment in both warehouse automation and AI. Warehouse automation (e.g. pick and place technologies such as automatically guided vehicles) increases efficiency, speed and productivity by reducing human interventions. AI can be used for route planning and prediction, as well as playing a key role in warehouse management through the prediction of rotation of supplies.
Logistics companies will seek to be more 'elastic' to cope with demand spikes or falls caused by high-profile events or seasonal variations. Elastic logistics typically means using a transportation management system (TMS). When combined with AI advancements, a TMS acts as an early warning system to help to forecast risks, costs and demand to ensure the "on-demand" delivery that consumers now expect.
The expansion of self-driving AI and smart road technologies will also be a key area of focus for the sector. In the US, Luminar Technologies, the world's largest commercial vehicle manufacturer, recently announced a strategic partnership with Daimler Truck AG to enable highly automated trucking, starting on highways8. Testing requirements for more urban scenarios will undoubtedly prove more challenging but getting to this stage is surely a matter of when, rather than if.
Brexit
Regardless of whether a trade agreement is reached between the UK and the EU, customs formalities will be applied from 1 January 2021 and will have considerable impact on the logistics industry.
Supply chain costs will increase as all shipments will require customs documentation on departure and arrival, while the position on additional tariffs at either end remains the subject of negotiation. Delays are also inevitable – and are already occurring. The UK Government has announced plans for up to 10 inland sites to cope with Brexit congestion, including sites at Ebbsfleet and Ashford. Whether these measures will be adequate remains to be seen.
The innovative and flexible technological processes mentioned above will have to be harnessed to deal with the difficulties thrown up by Brexit. For example, the use of cloud-based electronic data interchange can provide regular updates on matters such as customs paperwork and routes. UK and European companies are also advised to work with and follow the example of international companies who successfully trade with the UK and Europe from outside the EU.
5G
5G could have the potential to push the logistics industry into full digitalisation by providing end-to-end continuous coverage for monitoring, tracking and theft detection. A report by STL Partners found that the adoption of 5G in the transport and logistics industry could add $280 billion in gross value to the global economy in 20309.
Adopting 5G is not without challenges and will depend on factors such as investment in 5G infrastructure and taking a different approach to roaming regulations and licensing terms to help telecoms operators collectively overcome the challenge of delivering 100% coverage.
Standardised contracts for occupiers?
Our experience indicates that there is little conformity among occupiers of retail distribution space as to the terms on which they engage contractors for the supply and installation of increasingly complex mechanical handling equipment systems (MHES). Typically, the supply agreement is concluded on the basis of one party's standard terms and conditions of supply, supplemented with schedules relating to the performance and maintenance of MHES.
As MHES become increasingly sophisticated and the potential consequences of their "failure" more severe, we believe there is a market for a standardised supply, installation, warranty and maintenance agreement for the sector. It would have considerable benefits for both occupiers and contractors in terms of promoting the identification, assessment and management of risk and facilitating cost certainty.
Contractual risks relating to Brexit and pandemics
As the realities of Brexit rapidly approach, and the impact of the pandemic continues to be felt, parties will be looking to mitigate the risks in their contracts.
In terms of construction contracts for logistics centres, the Construction Leadership Council has provided suggested amendments to the JCT Design and Build Contract 2016 and NEC 3 & 4 Engineering & Construction Contracts that seek to allocate the time and cost implication of pandemics between the parties10. However, the exact scope of any additional time or cost consequences will require careful consideration. The UK Government is also encouraging parties to apply the principles of acting "responsibly and fairly", as described by the Cabinet Office in their guidance on responsible contractual behaviour during the Covid-19 emergency11.
In relation to Brexit, the contractual position in relation to materials delays and tariffs is evolving as we write. While contractors may initially be expected to take the risk of some tariff increases, additional substantial costs to a project will more likely be shared between the parties.
2020 has been the most turbulent year of recent times, albeit that it has thrown up quite different challenges for a booming logistics business. 2021 will be another year of flux for the sector as it navigates the ongoing issues of COVID-19 and Brexit, while reacting to the rapid technological changes of the times we are living in.
1. https://www.ons.gov.uk/businessindustryandtrade/retailindustry/timeseries/j4mc/drsi
2. https://www.segro.com/media/press-releases/2018/03-04-2018?sc_lang=en
3. https://www.worldgbc.org/how-can-we-make-our-buildings-green
4. https://www.cushmanwakefield.com/en/united-kingdom/insights/last-mile-delivery
6. https://www.aboutamazon.com/planet
7. https://www.dhl.com/content/dam/dhl/global/core/documents/pdf/glo-core-blockchain-trend-report.pdf
8. https://highways.today/2020/11/02/daimler-torc-robotics-luminar/
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