A panel of experts dove into all things supply chain at I.CON East: The Industrial Conference, led by Beth Rooney, port director for the Port Authority of New York and New Jersey. She kicked off the discussion by asking what strategies the speakers are seeing their clients pursue to reduce operating costs, increase productivity and improve operational resilience.
Grayson Scott, senior consultant with CBRE, said one of the biggest things his firm is being asked is to help with large-scale assessments. “Clients want to know where their weak spots are, if they’re operating in the best locations. We’re taking a bigger, broader look at their entire supply chain.”
Brewster Smith, head of supply chain solutions at Colliers, said he’s seeing migration away from Tier 1 port-adjacent markets to Tier 2 and Tier 3 markets that are a bit more tenable from a cost perspective and from a vacancy perspective. “In Los Angeles, companies that have been in Riverside County or Inland Empire are now starting to look at Fresno, Bakersfield, Phoenix or Salt Lake City to figure out what the costs are of migrating to that market.”
“Prior to 2019, prior to the COVID-19 pandemic, I would talk to companies about the need to do nearshoring, and they would say, ‘I’ll think about it,’” joked Jeffrey Garza Walker, MRED/MBA, executive vice president at NAI Horizon. Now, a lot of these companies are coming back, wanting a strategy to create redundancy in their supply chain and it’s created a lot of opportunity in Mexico, where he operates.
“There’s certainly been a lot of discussion about reshoring in the last 12-18 months, less dependence on China,” Rooney said. “I know from the Port’s perspective, we have certainly seen a diversification of sourcing. But is reshoring really happening, or is it nearshoring? Or is it diversification?”
Walker kept it succinct: “It’s real and it’s growing at an exponential rate. Mexico is at less than 3% vacancy and they are on fire with industrial companies, especially with Tier 1 companies realizing they need a mitigation strategy for China.”
“I think it’s a win-win if Canada, the United States and Mexico live up to our trade agreement, we can absolutely control and create a new region that could be quite frankly its own global port,” Walker said. And it might force China to maybe play a little nicer in the future, he added.
Before the pandemic, Scott said CBRE’s site selection business was divided about 50-50 between industrial and office. “Now it’s 90-10, with manufacturing companies wanting to take advantage of this momentum to nearshore and reshore. We’re asked about it all the time.”
But let’s be clear: “Manufacturing and reshoring is fun to talk about over a cigar and a single malt scotch, but it’s a lot more difficult to actually do,” Smith said.
He shared an example: A final process in manufacturing semiconductors uses filtration requiring neon gas. The largest suppliers of neon gas? Russia, Ukraine and China.
Rooney introduced the labor supply issue; there’s certainly not an industry out there that is not suffering with labor challenges. Is the warehouse industry utilizing automation or other technologies to help address worker shortages?
Smith said he’s seen a broader adoption of automation. “We thought the labor scarcity problem was transitory… It seems it’s more of a secular, long-term trend.” He said he’s seeing a lot of mid-cap clients from $100 million to $1 billion in revenue taking automation much more seriously “because it’s moved up the maturity curve and down in cost.”
One technology he’s seeing adopted more than any other in fulfillment operations is collaborative robots, or “cobots.” These robots effectively work in concert with a human order picker and the productivity lift is sometimes as much as 50%. The technology is sold as a service, so companies can flex up or flex down as needed.
“Packaging automation is also becoming quite popular,” he added. “Though that has more of a [capital expenditure] commitment to it.”
All panelists agreed that automation also needs to make sense for the business. “Not every facility should be fully automated,” Scott said. “Certain companies don’t see the financial payback for it.” With technologies like the “cobots,” there are opportunities for companies to make their current labor force more productive.
Switching gears to sustainability, Rooney asked: “Many cargo owners these days are looking to have a green supply chain, end to end, starting with which ocean carriers they’re using and which trucking companies they’re using. How is the warehousing community today dealing with the pressure from shippers in terms of sustainability?”
“Right now, they’re assessing their emissions, that’s their first step,” said Scott. “‘What are our current emissions and where can we do better?’”
Smith shared two observations: the first being that the focus on environmental stewardship or sustainability seems to be correlated to the size of the company. He’s noticed his mid-cap clients with revenue from $200 million to $1 billion are not as concerned about sustainability, “for better or for worse.” However, for his top-tier large-cap clients, sustainability is top of mind. “It’s almost like – I liken sustainability to becoming self-actualized as a human being. The more mature you are, the more likely you are to think about sustainability and environmental stewardship.”
The second observation Smith shared was that over the course of his career, he has noticed an association between emphasis on sustainability with where we are in the economic cycle. “The last time I saw a lot of emphasis on corporate sustainability was 2007, right before the big fallout with the mortgage crisis. And we’re coming off a very robust economic cycle right now… I think there’s a degree of association between the macro-economic health of the country and people having the cash reserves to focus on something like this.”
In closing, Rooney asked the panel if they had any advice for commercial real estate professionals as they look to build their businesses and manage these supply chain challenges.
“When you’re talking to a prospective or an existing customer about a requirement, stay off the real estate for as long as humanly possible,” said Smith. “What I mean by that is, ask probing questions about the business. What’s their strategic intent? What’s their operating model? What are their competitive concerns? What kind of pain points keep them up?”
When you’re done with those questions, Smith said, you’ll be able to make a much more well-informed real estate recommendation. Doing so will position you as a trusted advisor as opposed to just an industrial broker.