By Michael D. White, author and freelance writer
In late October 1991, Hurricane Grace formed near Bermuda and moved toward the coast of the southeastern United States. Grace continued to move north, where it encountered a massive low pressure system moving south from Canada.
The devastating, epic clash of Atlantic weather systems, later dubbed ‘The Perfect Storm,’ caused 40-to-80-foot waves while some reports put the waves at more than a terrifying 100 feet in height.
Suffice it to say that, over the past several months, the COVID-19 pandemic has melded with several other developments – the chokehold on imported raw materials or finished products, the continuing ‘Amazonization’ of delivery fulfillment, and consumer demand – to create a ‘perfect storm’ of sorts causing a tectonic shift in how goods, from face masks and respirators to fresh produce and computer components are transported, stored and distributed.
As the pandemic slowly recedes and, while states and metropolitan areas reopen piecemeal, the businesses and logistics providers that provide the impetus for the nation’s economic well-being have been forced to reappraise their operations.
In many cases, that means reforging their over-extended supply chains by removing the weakest links to insure that the movement of goods from Point A to Point B is accomplished in the shortest amount of time and the most efficient way possible.
For the past several decades, Just-In-Time (JIT) inventory management meant maintaining inventory on an as-needed basis. The logic of the concept balanced on reducing warehousing and inventory costs by moving product through the pipeline as quickly as possible and virtually eliminating overstock.
Enter COVID-19. When it struck, companies with low inventory levels suffered major setbacks as they were ill-prepared for an avalanche of demand and were without the means of getting new shipments to meet demand.
Initially, according to the American Association of Port Authorities, as of April 30, 2020 the nation’s ports were operating at reduced levels with containerized cargo volumes down by 20-25 percent from the same time period in 2019 as ocean carriers operating in critical trade lanes reduced vessel sailings.
Additional restrictions placed on the movement of goods resulted in some retailers and manufacturers unable to gather and stockpile product and much-needed raw materials as operations at their warehouse and distribution facilities were limited.
As a result, that led to a sharp increase in demand for warehouse space at ports which in turn reduced the space available for any new cargo.
In March, the New York Times reported that the country’s largest automakers—General Motors, Ford Motor and Fiat Chrysler—had decided to close plants after the United Auto Workers union pressured them to do so to protect workers from the COVID-19 virus.
In addition to G.M., Ford and Fiat Chrysler, the paper reported, “Honda, Toyota and Nissan also said they would idle their North American factories.The shutdown of car plants will force hundreds of companies that produce parts and components to follow suit over the coming days.”
Prior to the announcement, the auto plants, heavily dependent on a steady flow of imported parts and sub-assemblies, were feeling the impact of closures of auto parts factories in China, which manufactured and shipped nearly $35 billion worth of auto parts in 2018, according to UN data, with a major disruption of the supply of parts spreading not only to the U.S., but around the world.
China also serves as the primary global source of smart phones and countless other telecommunications components and assemblies.
Smartphone manufacturing companies in China generally prepare for the migration season by building up inventories and stocking up warehouses so that the manufacturing plants can shut down while the workers return after the holiday season, according to Quantzig, the UK-based global data analytics and advisory firm.
But, the company said, “The unfortunate turn of events due to COVID-19 has prevented Chinese smart phone manufacturing units from returning to its full capacity. As a result, the build-up and inventory are now near exhaustion.”
Since Chinese smart phone manufacturers assemble more than 70 percent of smart phones for the world’s leading brands, more than half of the world’s personal computers, and a big share of other home appliances and electronic goods, “a total lockdown of its supply chain is poised to have a seismic effect on the operations worldwide.”
Already struggling to keep their heads above water in a time of sharpened consumer expectations, a growing number of the country’s iconic, traditional ‘brick and mortar’ retailers, already hemorrhaging cash and having trouble paying their heavy debt loads, have found COVID-19 pushing them faster and faster to what many see as their inevitable demise.
The shake-out comes as the U.S. is ‘over-retailed’ with roughly 24 square feet of retail space for every man, woman and child, compared with about 17 sq. ft. in Canada and 11 sq. ft. in Australia.
One of the nation’s most iconic retailers—J.C. Penney’s—filed for bankruptcy May 15 in the midst of the COVID-19 outbreak. The company announced it would close 242 stores, or nearly a third of its total roster of outlets.
At the time, the Plano, Texas-based retailer, founded in 1913, said in an SEC filing that it plans is to close 192 stores by the end of this year and an additional 50 in 2021, adding that “the remaining 604 stores will represent the highest sales-generating, most profitable, and most productive stores in the network.”
J.C. Penney isn’t the only national retailer one seeking bankruptcy protection as J. Crew; Neiman Marcus; Earth Fare; Pier 1 Imports; True Religion Apparel; Stage Stores, which owns Goody’s; Forever 21; Jo-Ann Stores; David’s Bridal; and Bealls and Gordmans stores have all filed for Chapter 11, as well.
As a growing number of brick-and-mortar retailers were struggling before the COVID-19 pandemic hit and with consumers ‘sheltering in place,’ online retailers are experiencing an unprecedented surge in business. In fact, the nation’s consumers spent $146.5 billion online with U.S. retailers in the first quarter of this year, up an impressive 14.5 percent from $128 billion for the same period in 2019, according to data compiled by the U.S. Department of Commerce.
While some of those traditional retailers were experiencing hard times pre-COVID-19, a growing number of online operators—Walmart, Costco, Macy’s, Home Depot, eBay, for example—were reforging their own supply chains and redefining both the art of logistics and how more-keenly honed consumer expectations of total product gratification carried on the wings of same–day, cheap—or even free—delivery are satisfied.
Amazon Sets the Pace
Leading the pack is, of course, Amazon which has created an expansive national network of interconnected and strategically sited distribution centers—each of which stocks inventories of the broadest possible range of products.
As of May 2020, the company operates 173 U.S. fulfillment centers that cover more than 126 million square feet of space, according to Montreal-based logistics and supply chain consultancy MWPVL. And more are on the way with plans to open 63 additional facilities that will add more than 37 million square feet of space to its network, the consultancy has said.
- Amazon has said it will open a distribution center near Syracuse in upstate Onondaga County, New York, that is expected to open in the third quarter of 2021. When the facility is completed, it will be the second largest warehouse in the world, according to Onondaga County officials.
- Amazon has confirmed some details of a much-expected new warehouse center at the former General Motors plant site just west of Wilmington, Delaware, according to the Philadelphia Enquirer.
The online retail giant pledged “more than 1,000 full-time jobs” and a first-floor, robotics-heavy 820,000-square-foot operations center at the site, where developer Dermody Properties has filed plans to build as much as 3.8 million square feet, making it potentially larger than any current Amazon center.
Dermody erected its first U.S. East Coast warehouse in New Castle, Delaware, in 1997. The company opened the doors at a larger facility in Middletown near the Maryland border in 2012.
- In Georgia, Amazon has said it will make a major brick-and-mortar investment in Columbia County with the construction of a 600,000-square-foot, multi-level distribution facility in its White Oak Business Park. The new center will occupy the southern section of the 300-acre park and is scheduled for completion in late 2021.
The company has invested more than $3.6 billion in Georgia through its local fulfillment center and cloud infrastructure, research facilities and compensation to thousands of employees since 2010, according to the Georgia Department of Economic Development Commission.
- California is home to the most Amazon distribution facilities in the country. The company has said it will start construction on a new $21.3 million, 111,000-square-foot distribution center on a 17-acre site in Elk Grove, near Sacramento, by the end of this year. The new center will act in concert with 20 other local fulfillment warehouses in the state, which allow the company to ship items to customers in days or even hours.
- Ground has been broken for a new Amazon distribution center in Mills River, North Carolina. The $28 million project is slated for completion by the end of this year.
- The 1.4 million-square-foot Amazon facility being built in Deltona, Florida is scheduled for completion by the end of November of this year, just in time for the holiday shopping season, which accounts for about 20 percent of the revenue generated by U.S. retail sales every year, according to the National Retail Federation.
- Amazon will invest $150 million in a new 1.2 million-square-foot fulfillment center near Interstate 57 and University Parkway in University Park, Illinois. According to the Chicago Tribune, the new center will handle larger customer orders, such as sports equipment, patio furniture, bicycles and larger household items, according to company sources.
- In Colorado, Amazon has bought land at the Colorado Springs Airport where it will build a four-million-square-foot distribution and sorting center. According to the Colorado Springs Gazette, the commercial project “will be one of the city’s biggest ever and one that could propel additional development at the airport’s business park.” The company reportedly paid $6.33 million for 69.2 acres in the Colorado Springs Airport’s Peak Innovation Park, where it plans to build the center.
In addition to its distribution capabilities, Amazon, which no longer has a shipping contract with FedEx, has embarked on its own air freight service. Along with the company’s $1.5 billion Amazon Air hub under construction in Cincinnati and the regional hub in Fort Worth, it is also reportedly looking to add a hub outside Tampa, Florida.
Demand Drives Expansion
Whether by air, rail or sea, transportation, “[distribution] center expansion is expected to continue to be the catalyst for U.S. warehouse growth. U.S. markets with the highest demand for new industrial space are near major logistics hubs,” according to a report released earlier this year by Los Angeles-based commercial real estate services and investment firm CBRE.
Texas: To illustrate the point, consider North Texas, which is considered one of the hottest areas in the country in terms of warehouse/distribution development.
The region, particularly the great Dallas-Fort Worth area, currently boasts close to 25 million square feet of new logistics facilities under construction.
Wilmer, located about 14 miles south of downtown Dallas, is seeing the construction of a one-million-square-foot warehouse complex to serve as a component of its ongoing 242-acre Southport Logistics Park development.
Chicago-based Logistics Property Inc. bought the property in 2018 and quickly secured two tenants—Amazon and food products maker Smucker’s. The entire Southport project will have the capacity of 3.6 million square feet of warehouse/distribution space.
In May, industrial real estate developer CIM Group announced that it has acquired Junction 20/35, an industrial property of approximately 1,128,000 square feet consisting of cold and dry storage, and an adjacent 14.42-acre land parcel located in South Fort Worth, Texas.
Junction 20/35 is well-located with strong transportation networks including Interstate 20 and Interstate 35, which provides access to other areas of Texas and the greater southern United States, as well as to three airports, DFW International, Alliance, and Love Field. The property is also convenient to rail transportation and two major intermodal facilities, the BNSF Intermodal Facility and the Alliance Global Logistics Hub.
Last year, Pennsylvania-based PPG Industries opened a new, nearly 450,000-square-foot facility at the Lakeside Ranch Business Park in Flower Mound, just northwest of Dallas. The facility can inventory in excess of four million gallons of more than 4,500 of the company’s products.
The distribution center is the paint and coatings manufacturer’s largest distribution center in the company’s U.S. and Canadian business network serving more than 1,000 company stores, national retailers and independent retailers in the southwest U.S. region.
Arizona: Another hotspot for warehouse and distribution facility development is the greater Phoenix/Glendale area, which serves more than 35 million consumers within a day’s truck haul of the region’s logistics facilities, according to AZBigMedia.
“Phoenix is well-positioned not just because of its location, but also because it has a robust freeway system,” the company said. “New freeways like the Loop 303 and the South Mountain Freeway have opened up new areas of development that will put more square footage within close proximity to major freeways.”
According to the Colliers International’s Q4 2018 Industrial Market Report, “developers delivered 7.8 million square feet of new industrial space to the Phoenix’s ‘Valley of the Sun’ market in 2018. Of that space, 5.4 million, or 70 percent, was warehouse space and 1.6 million was distribution space.”
Late last year, ground was broken for a 539,000-square-foot Central Logistics Center just south of downtown Phoenix, bringing 700,000 square feet of space to the newly opened South Mountain Freeway corridor. The Center’s frozen/cold storage facility is currently undergoing renovations including the addition of 64,000 square feet of freezer space and a 10,000-square-foot refrigerated dock area. The renovations are expected to be completed in late June or July of this year.
The biggest cluster of new distribution space is being built in cities such as Avondale, Buckeye, Goodyear and Tolleson in the Valley’s Southwest region, where several distribution/warehouse projects are in various stages of development.
Quetico Logistics, for example, is moving its Chino, California operations to a new 39-acre, 719,520-square-foot facility in Goodyear when it is completed later this year.
California: Southern California’s Inland Empire region has firmly established itself as one of the nation’s most active distribution/warehouse centers with ready highway and rail connections to the entire Western U.S. and the ports of Los Angeles and Long Beach.
Industrial developer and manager Dermody Properties recently completed construction of the LogistiCenter, located in the Inland Empire community of Rialto. The property sits on 19 acres within the Inland Empire West Industrial Market, and has ready access to Interstate 210, Interstate 15 and Interstate 215. The new distribution center is located in the established Renaissance Rialto Business Park, which serves as home to a number of corporate tenants including Amazon, Target, Under Armour, Ozburn-Hessey Logistics, Niagara Bottling, Medline Industries, Monster Energy, Distribution Alternatives and Lifetime Brands.
Delaware: In addition to it work with Amazon, Dermody Properties has broken ground on its LogistiCenter at I-95 Wilmington distribution center, a first-of-its-kind multistory facility for Delaware. According to planning documents filed with New Castle County, the proposed 3.8 million-square-foot structure will have five floors, feature 69 loading docks, nearly 2,000 parking spaces for employees and nearly 1,000 spaces for tractor-trailers, according to the Delaware Business Times.
Pennsylvania: Geodis, a third-party logistics provider, has signed a lease for the more than one-million-square-foot building in Allen Township, in the state’s central Lehigh Valley. Geodis is a subsidiary of French transport and logistics giant SNCF. The new warehouse/distribution center is adjacent to the largest FedEx Ground hub in the United States and is close to the cargo facilities at Lehigh Valley International Airport. According to the Lehigh Valley Economic Development Corporation, from 2014-19, the Valley had almost 26.7 million square feet of approved warehouse projects and just 2.9 million square feet of other forms of industrial development.
Kansas: Last December, Walmart has announced it will locate its newest distribution facility in Topeka, Kansas. When completed, the distribution center will be its largest in the state with more than 1.8 million square feet at approximately 35’ clear stacking height, and will compliment the company’s more than 1.8 million square feet of existing space spread across its three other distribution centers in the state. The new facility will occupy part of the remaining 236 acres in the Kanza Fire Commerce Park near the south side of the city.
Iowa: The state has come into its own as numerous warehouse and industrial projects are currently either planned or under construction in the greater Des Moines area.
Overall, 14 industrial projects with a total of 1.26 million square feet of space are under construction in the region, according to a research report by JLL, a commercial real estate and property investment company. Most of the buildings are distribution/warehouse facilities, each of which covers an average of 90,200 square feet.
Earlier this year, plans were unveiled for a new multi-tenant distribution center in West Des Moines. The 110,000-square-foot Meridian Distribution Center is proposed on a 42-acre site. But, says the Des Moines Register, construction of the ‘speculative’ building won’t begin until about 60 percent of the structure is leased.
Florida: A Home Depot distribution facility that will cover more than one million square feet has broken ground in Hialeah. The facility’s developer obtained a $98.7 million construction loan from Wells Fargo Bank for the 72.7-acre project which will be comprised of a 715,428-square-foot market delivery distribution warehouse and a 332,067-square-foot flatbed/bulk distribution warehouse. Such a facility would boost Home Depot’s supply chain in the region, allowing it to move goods to shelves faster, the company said.
Minnesota: Costco Wholesale Corporation will soon begin building its first distribution center in the state, a 354,000-square-foot facility at the Owatonna Industrial Park, some 62 miles south of Minneapolis-St. Paul. As part of its construction, Costco has said it will spend about $2 million on road improvements in and around the park. Daikin, the Japanese-based air conditioner manufacturer, has a substantial presence in nearby Faribault, and has already started work on a 150,000-square-foot warehouse/distribution facility adjacent to its Owatonna plant. When completed, the portion of its existing building used as a warehouse will be modified for more production.
Georgia: In support of its ongoing U.S. expansion, Lidl plans to construct a new distribution center in Covington. In January, the Germany-based retail grocer said the 925,000-square-foot facility will be its fourth such facility in the U.S. and serve as a regional headquarters, supplying products to its stores across the U.S. Southeast. The hard discount grocer has four stores in Georgia and 13 in neighboring South Carolina. Lidl’s other U.S. distribution centers are located in North Carolina, Maryland and Virginia.
If the COVID-19 pandemic has accomplished anything positive it has put warehouse and distribution networks under a microscope and has laid-bare the folly of maintaining an over-extended supply chain that is only as strong as its weakest link.
Applying the centuries-old theory of Occam’s Razor, the links in the supply chain or any company of any size “should not be multiplied without absolute necessity.”
Ever-extended fulfillment networks reliant on an antiquated Just-In-Time concept have proven to be inadequate to the task of maintaining acceptable inventory levels in times of critical need, while new technologies, finding domestic sources of both raw materials and finished products, and the strategic positioning of distribution centers and warehouses combine to equal increased delivery speed and network flexibility, reduced lead times, reduced cost, and, most importantly, customer satisfaction.
About the Author
Michael D. White is a published author with four non-fiction books and well more than 1,700 by-lined articles on international transportation and trade to his credit.
During his 35 year career as a journalist, White has served in positions from contributor and reporter to managing editor for a number of publications including Global Trade Magazine, the Los Angeles Daily Commercial News, Pacific Shipper, the Los Angeles Business Journal, International Business Magazine, the Long Beach Press-Telegram, Los Angeles Daily News, Pacific Traffic Magazine, and World Trade Magazine.
He has also served as editor of the CalTrade Report and Pacific Coast Trade websites, North America Public and Media Relations Manager for Mitsui O.S.K. Lines, and as a consultant to Pace University’s World Trade Institute and the Austrian Trade Commission.
A veteran of the United States Coast Guard, White has traveled in both Japan and China, and earned a degree in journalism from California State University and a Certificate in International Business from the Japanese Ministry of Trade & Industry’s International Institute for Studies & Training in Tokyo.