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Demand outpaces supply – the phrase fits perfectly for the US cold storage warehousing industry. The demand for cold storage has skyrocketed over the years; however, the supply has been largely unsatisfactory. The rising costs of setting up cold storage facilities, coupled with the aging of current facilities, are preventing growth in the sector. However, big fishes in the market have found value in it and have started to invest heavily. Speaking of big fishes, two of the biggest players in the e-commerce industry – Amazon and Shopify – have announced a significant integration. Find out more about these developments in this issue of CrossDock.
- US Cold Storage Demand Increases Amidst High Costs and Aging Facilities
- Inventory Costs and Warehousing Prices Increase
- Shopify Merchants Can Now Offer ‘Buy With Prime’ Option
- Amazon Raises Free Shipping Minimum to $35
- Walmart Marketplace Rolls Out New Self-Serve Tools for Merchants
- Ulta Invests in In-store E-Commerce Fulfillment
- U.S.-bound Imports to Increase in the Coming Months
Warehousing 🏭
Increased Demand for US Cold Storage Supply Amidst High Costs and Aging Facilities
Cold storage warehousing in the US is unable to keep up with the growing demand for capacity in the sector, with more than 70% of existing assets too old to be energy efficient. Furthermore, speculative builds are also deemed too risky because they can cost triple the price of dry warehouses and are highly specific to each tenant’s needs.
Vacancy levels
According to Colliers, a commercial real estate services firm, existing vacancy levels in the US cold storage market are about 4 million square feet — a far cry from the 100 million square feet of dry warehousing vacancies and 681.2 million square feet under construction.
There are only about 2.3 million square feet of cold storage under construction in the US, and growing markets such as Charleston, Savannah, Gulf Coast, and central Florida need new assets. As of July, construction in the southeast alone accounted for 43% of all cold storage development in the country, as reported by the Journal of Commerce.
The rising cost of building cold storage facilities
Building a cold storage facility in the US today is a herculean task. From site acquisition to development, new cold storage facilities take about two years to complete. Let’s get to the financial aspect now. According to the report, current construction rates can cost approximately $200 to $300 per square foot to build a cold storage facility, compared with about $70 to $100 for dry warehousing.
Using older assets is also not a viable option since facilities built in the last 20 to 40 years require nearly 50% more energy consumption and double the maintenance costs of new facilities.
New investments
Owing to the growing demand in the sector, big names such as Nestlé and General Mills have identified the market and have started to invest. In 2012, Nestlé invested $100 million to expand its frozen food factory in South Carolina, and General Mills announced a $50 million investment to expand its frozen dough operations in Missouri.
Todd Steffen, executive vice president at Colliers, told the Journal of Commerce, “In the near future, supercenter grocers will begin building standalone cold facilities on their properties to automate fulfillment of high-request items. I see great investments overall still on the horizon for this sector [cold storage].”
Inventory Costs and Warehousing Prices Increasing at an Accelerating Rate
The latest US Logistics Manager's Index (LMI) report shows that growth is rising at an increasing rate for inventory costs, warehousing utilization, and warehousing prices in the US. The LMI score was 51.2 in August, up from 41.9 in July – the fastest expansion rate since February.
What's an LMI score
The LMI score combines eight unique components of the logistics industry, including inventory levels and costs, warehousing capacity, warehousing utilization, warehousing prices, transportation capacity, and prices.
The August expansion
The increase in the LMI score in August was driven by increased activity across all eight sub-metrics of the index. Inventory levels are still contracting but at a much slower rate. Inventory costs and warehousing prices are increasing. Transportation utilization is moving out of contraction, and the transportation price contraction has slowed down.
The LMI report also noted that aggregate logistics costs jumped up 18.6 points to a reading of 175.3 in August. The greatest source of increased costs in August was inventory costs. Factors like lack of storage capacity and a restocking of inventories at large firms drove this increase.
Takeaway
Overall, the LMI report suggests that the US logistics industry is recovering from the recent slowdown. However, it is still too early to say whether this is a one-off event or the beginning of a sustained recovery.
Retail and E-commerce🛍️
Shopify Merchants Can Now Offer ‘Buy With Prime’ Option
Amazon and Shopify recently announced a significant integration that will now allow Shopify merchants to offer “Buy with Prime” feature on their Shopify stores.
However, this partnership comes as a surprise for many, given only last year, Shopify stated that Amazon’s Buy with Prime button violated the company’s terms of service, and for years, both companies have been considered competitors.
Free and fast delivery for Prime members
The Buy with Prime app for Shopify gives Prime members the option to select Buy with Prime on a product’s detail page before completing their order within Shopify’s Checkout. Additionally, Buy with Prime offers Prime members fast, free delivery and easy returns through Amazon’s fulfillment network.
The app will start rolling out as invite-only to select Shopify merchants, and it will be available to all U.S.-based Shopify merchants who are already using or want to use Amazon’s fulfillment network by the end of September, according to Amazon.
Significance of the partnership
This new partnership is significant for both companies, for Shopify can now attract more Prime members to their platform and boost sales. For Amazon, this partnership is a great way to increase the reach of Buy with Prime and offer Prime members more places to shop.
Amazon Raises Free Shipping Minimum to $35 for Some Users
Amazon is increasing its free shipping minimum to $35 for customers who don’t have a Prime membership in some regions to cut costs, according to CNBC. Until now, non-Prime members were paying $25 to qualify for free shipping.
Price changes in the past
It is worth noting that this is not the first time Amazon has changed its free shipping limit. Amazon tweaked the free shipping minimum for non-Prime to $49 from $35 in 2016, then reverted to $35 in 2017. In the same year, it brought the minimum value for shipping for non-Prime members to $25 in an effort to compete with Walmart.
The price increase could push more shoppers to sign up for the Prime membership program, which costs $139 annually.
Walmart Marketplace Rolls Out New Self-Serve Tools for Merchants
In the recently concluded Walmart’s first-ever-seller summit in Las Vegas, the retail giant unveiled new self-serve tools for merchants to help them expand their product catalog and, in turn, attract more customers to its marketplace.
New self-serve tools
Brand Shops: Merchants can build specialized digital storefronts to stand out on the Walmart marketplace.
Augmented reality: Merchants can show shoppers how an item looks and feels in their living room or couch.
Walmart Restored: A new premium tier for existing sellers to have the option to add refurbished items to their product catalogs.
Cross-border selling: Sellers in eligible countries can sell on Walmart’s Marketplace in Chile.
Focus on marketplace
Despite opening its online platform to third-party sellers in 2009, the marketplace did not really become a more significant focus for Walmart until 2020, when Walmart launched Walmart Fulfillment Services, a competitor to Fulfillment by Amazon.
The company said the number of customers buying items on its marketplace increased by 14% in the second quarter of fiscal year 2024, and the number of merchants using the fulfillment services increased by more than 50%.
Omnichannel retailer
The retail giant is now headed towards becoming a full-fledged omnichannel retailer and making rapid e-commerce strides. “Our biggest transformation in the last few years has been becoming a true omnichannel retailer,” said John Furner, president and CEO of Walmart U.S. “And we started moving this way pretty heavily in 2020 when we brought our store business and e-commerce business together. Our merchant teams work across all channels, stores, e-commerce, and marketplace.”
Ulta Tastes Success in In-store E-Commerce Fulfillment
In the latest Ulta Beauty earnings call, the company’s CEO, Dave Kimbel, said 39% of Ulta Beauty’s digital orders in Q2 were fulfilled by the store.
A beautiful strategy
Ulta has been enabling many of its brick-and-mortar stores to fulfill and ship online orders. The front end of the stores functions more or less the same, but the back end functions more like a warehouse, with less overhead cost.
According to the earning call, the retailer’s store fulfillment network grew to 400 locations in the quarter, nearly triple its size at the beginning of the year.
Store-based fulfillment
Recently, more retailers have moved to store-based fulfillment to speed up e-commerce delivery times and reduce last-mile costs. A case in point is Walmart. More than half of Walmart’s digital orders are currently fulfilled by stores.
Similarly, Target and Costco are testing larger-format stores with more e-commerce fulfillment space to strengthen delivery capabilities and save money.
Additionally, by expanding in-store fulfillment, retailers can offer more value to consumers, not just through faster shipping but also by enhancing services like curbside pickup, which are gaining popularity as consumers seek convenience without the burden of delivery fees.
Visualized: Click-and-collect is here to Stay
Credit: Insider Intelligence
The global BOPIS market is expected to reach more than $700 billion by 2027, according to a ResearchandMarkets.com report. Furthermore, US shoppers spent $95.9 billion through click-and-collect fulfillment options in 2022. These numbers prove that BOPIS is not just a passing trend but is here to stay and grow, and the biggest benefactor is Walmart.
According to estimates made by Insider Intelligence, the retail giant made up 25.4% of all click-and-collect orders in 2021, totaling some $20 billion in sales – most for any US retailer.
Freight and Shipping 🚢
U.S.-bound Imports to Increase in the Coming Months
The latest Global Port Tracker report, jointly released by the National Retail Federation (NRF) and Hackett Associates, suggests that the US's major container ports are on track to reach a significant milestone in import cargo volume.
Increased import volumes
According to the report, the United States-bound retail container import volumes are trending in the right direction, with monthly volumes pegged to be around 2 million TEU (Twenty-Foot Equivalent Units) in September for the second consecutive month. In July, US ports handled 1.91 million TEU, reflecting a 4.4% increase from June but marked a 12.4% decline compared to July 2022, the report stated.
Future forecast
The report forecasts that this high import activity will spill into October. The increase in import volume statistics reflects retailers' optimism as they gear up for the upcoming holiday season, signaling confidence in consumer demand.
Interestingly, the report further stated that the situation in the Panama Canal, which imposed restrictions on the maximum draft of ships due to drought conditions, has not posed any threat that some experts had initially predicted.
Number Spotlight
22.3 million TEU
This is the projected U.S.-bound container import volume for 2023, which would represent a 12.5% annual decline compared to 2022’s 25.5 million TEU.
Thank you for reading, we’ll see you in the next edition!