New research from global real estate services firm Cushman & Wakefield, reveals the last link of the eCommerce supply chain can account for 50% or more of total supply chain spend.
The findings in the Last Link: Quantifying the Cost report, were enabled by a newly-created model called Total Last Link Cost (or TLLC model) which allows developers, investors and occupiers to quantify the total last link costs for any property. The ‘last link’ refers to the final stage in the eCommerce supply chain, whether carried out by van or electric bicycle, urban or rural, to a collection point or a home.
As consumers become ever more accustomed to purchasing online, expectations about delivery service and speed have increased. Last link efficiency therefore has a critical impact on delivery time and cost by reducing the drive time between the urban depot and delivery point, or the ‘STEM distance’ as it is known.
Cushman & Wakefield’s report attributes the last link’s formidable share of total supply chain costs to various inefficiencies related to transportation, such as lack of delivery guarantee, sub-optimal delivery routes and separate return trips, all of which increase costs. This is especially true of the congestion-prone dense urban areas found across continental Europe.
Lisa Graham, from Cushman & Wakefield’s Logistics Research & Insight team, said: “Our findings from using the TLLC model prove why the logistics premium for urban land is worth it due to the enormous savings possible through total transportation costs. Unsurprisingly, the rents for urban land reflect the maturity of the eCommerce market in any given location. We expect rents for urban depots to increase significantly across major European cities as logistics hubs develop further. Strong rental growth potential for last link depots now puts logistics in the same revenue ballpark as traditional urban land uses.”
The tool provides insight to aid last link business decisions including portfolio management and restructuring, site selection and optimisation of delivery routes.
Chris Yates, Associate in Logistics & Industrial, at Cushman & Wakefield, said: “In a supply constrained South Wales industrial market, occupiers are acutely aware of the need to source well-located warehousing, particularly in the main urban catchments of Cardiff, Newport and Swansea where customer demand is greatest and availability is at a real premium (with prime rents continuing to rise by an average of 5.4% per annum as a consequence). However, with the release of our latest research, the same demonstrates that cost in the logistics supply chain is in fact dominated by transportation (accounting for over half of the total logistics cost) and not real estate. As such, we anticipate that the premiums being paid for well-located industrial sites, by occupiers and developers alike, but also rents for buildings in locations that compress the STEM distance (time between the depot and first delivery point) will become more commonplace and begin to reflect those prices paid for more traditional urban land uses.”
In the longer term, Cushman & Wakefield expects green solutions and technology to further improve distribution efficiency. Once legalised in Europe, autonomous vehicle technology has the potential to make a transformative impact on transportation costs, with a previous Cushman & Wakefield report, ‘The Changing Face of Distribution’, estimating the potential reduction in its share of total logistics costs from 50% to as low as 32%.