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Surge in consumer demand creates shortage of warehousing capacity


A surge in consumer demand has led to shortages in warehouse capacity across Asia, according to a report by the BBC.


During the lockdown, households accumulated around $5.4tn globally due to being unable to spend physically in shops. This has not only meant that consumer spending surged as lockdowns were lifted but have also led to an increase in online sales as individuals spent their spare time online.


Online shopping is estimated to have grown by 43.5% to reach $2.87 tn globally since the start of the COVID pandemic, with roughly half of this increase in demand coming from Asia.


The goods sold need to be shipped and stored - in warehouses.


This surge in demand has combined with global supply chain bottlenecks, creating a lack of capacity for the storage of goods. These supply chain issues include a shortage of containers, largely due to containers that carried millions of masks to countries in Africa and South America remaining empty and uncollected because shipping carriers have concentrated their ships on the more profitable Asia-North America/Europe routes, meaning that there are fewer containers available. This results in goods being stored at warehouses as they cannot be shipped.


A further issue is labour shortages in key industries, including truck driving. Trucking is the main source of container transport as soon as cargo is unloaded. A shortage of drivers (due to drivers re-evaluating their job options during the lockdown as working conditions are poor) means that most of the cargo remains idle at capacity-constrained warehouses.


This has all resulted in a huge amount of pressure being placed on warehousing, with vacancy rates at record low levels. Henry Chin, Global Head of Investor Thought leadership at CBRE explained that ‘’ the current vacancy rate in Asia is around 3% which is a historic low. The stronger demands from e-commerce and the ongoing supply chain disruptions mean that companies want to hold the highest safety stock on hand.’’


An example of a company dealing with both the pressure of rocketing demand and supply constraints is the Singaporean firm RedMart - Singapore’s largest online grocery firm. They have opted to deal with pressures by using larger warehouses and relying on automation.


The firm recently moved the stock to a larger warehouse. The warehouse has an area roughly equivalent to 7 football pitches. The company also uses data and automation to determine how many products it needs at a time. This use of automation has meant that RedMart only needed to hire 200 extra workers to work at their larger facility, easing pressures during a time of labour shortages.


A recent CBRE survey revealed that more than three-quarters of firms utilising warehouses in Asia are keen to expand in the next three years - an indication that demand for extra capacity in warehouses will grow. As demand for warehousing grows, supply will struggle to keep up as warehouses take time to build.

 

Written by Deandra Peiris

Research compiled by Kristina Njeru

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