Asia Pacific's warehouses adapt to the e-commerce effect

Shopping online has become so easy that we forget how much work goes into getting the latest fashions or gadgets to our doors.

November 16, 2017

In recent times many retailers across Asia Pacific have had to rethink their entire supply chains just to keep up with demand. Across Singapore, Hong Kong, Japan and Australia, logistics space has become increasingly hot property as retail and logistics firms secure the sites they need to keep up with growing delivery volumes and ensure their networks can best serve a diverse customer base.

And these surging activity levels have led to many of the region’s markets ranking among the world’s strongest for industrial real estate investment, according to the World Bank.

Further growth is on the cards across the region. E-commerce already represents 15 percent of total retail sales across Asia Pacific, or US$1.4 trillion, according to research firm eMarketer. And this figure is expected to more than double to $3 trillion by 2021.

Out with the old

ne of the biggest challenge for online retailers is handling the huge variety of items in shopping carts. Pelham Higgins, Director, Industrial & Alternatives Capital Markets – Japan & Korea for JLL, says that because products are now shipped from warehouses at different times and in different quantities to cater for each specific order, retailers need three times the warehouse space.

“Consumers are buying more goods across the retail spectrum more often, so today’s retailers need industrial real estate in more strategic locations to manage the flow of products,” says Higgins. “Often people aren’t buying in bulk, so warehouses have higher numbers of small package deliveries. Then, there’s also the rise of same day delivery where you have to get to the person’s house in the next three hours. It all adds up to a lot more variables, and therefore more truck movements.”

Competition in the market is heating up. Earlier this year, Amazon launched its same-day delivery service in Singapore, marking its first foray into the Southeast Asian marketplace. Meanwhile Chinese giant Alibaba recently took a controlling stake in e-commerce company Lazada which opens up its services to an additional 23 million people across Southeast Asia.

With many customers in urban areas and delivery speed a growing priority, leading online retailers are increasingly turning to smaller distribution centers in urban areas to complement the larger out-of-town centers.

In South Korea, for example, a new government initiative known as e-Logis Town is transforming old truck terminals and distribution centers into high-tech hubs. These already have well established transportation infrastructure in place and can offer easy access to districts in Seoul and other cities.

Sungmin Park, Head of Research for JLL in Korea, suggests that e-Logis Town could slash delivery times and further drive the growth of online shopping, which is set to account for 30 percent of the country’s retail sales in 2018. “They have the potential to transform into futuristic logistics hubs armed with robots and IoT technologies,” he says. “These hubs will be a centralization location integrating and connecting distribution, logistics and technology industries.

In Tokyo too, demand from its aging population, which is increasingly dependent on online shopping, is helping to drive competition for logistics space, especially for properties close to transport links.

Yet in recent times it’s no longer a one-way flow of goods. “Businesses have soon come to realize that because of reverse logistics – where items sometimes have to come back to the warehouse – you need new facilities in particular locations to deal with these returns,” says Higgins.

Turning to technology

Systems and processes within Asia Pacific’s warehouses are also evolving rapidly. “Both new and renovated warehouses are often fitted with cutting-edge technology, says Higgins. “A lot of warehouses now have robotics and with the growing number of products all coming from different suppliers, warehouses must also connect to management software.”

Many retailers call on real-time data from these software programs to better control stocking, picking, packaging and shipping – basically all the tasks of fulfilling a customer order.

In Singapore, for example, third-party logistic firms like LF Logistics and DHL are opening high-tech spaces to help retailers cope with growing volumes of online orders. DHL’s US$160 million Advanced Regional Centre, for example, includes a specialized automation system with robotic shuttles to pick and store products from 72,000 locations, over 26 levels.

Meanwhile, warehouses in Sydney’s suburbs are being refitted to enable them to keep pace. For example, Synnex uses fully automated technology in its western Sydney warehouse for picking, labelling, dispatch and back-end operations to speed up the selling process for its clients.

And technology will only become more of a feature of all aspects of warehouse operations from smart glasses already in use to improve efficiency levels for the likes of UPS and DHL to voice-prompted AI. Technology and manufacturing firm Honeywell, for example, has smart headsets that workers speak into as they move through the warehouse.

Machines are also set to come into their own in coming years. Technology company Unisys predicts that drones will start to perform inventory checks and monitor environmental information such as light or temperature for perishable food, pharmaceuticals or even livestock.

“With so many different products being packed and delivered at different times of the day, these new technologies are key to meeting growing demand for deliveries in Asia Pacific,” says Higgins. “In the next few years we’ll see less human involvement on the warehouse floor, as robots and drones speed up the fulfillment process. Change is coming fast.”