My pieces for SHD Logistics have usually been about using and analysing data, but this one’s more about logistics trade-offs.
Without getting into the whys & wherefores of ‘Nocado’ in Islington, the recent High Court judgment which went against the grocery fulfilment specialist, Ocado, is thought-provoking. Preventing logistics operations from operating near their catchments ultimately adds to urban pollution (and congestion), while protecting a very locally sensitive environment, such as a school, in this particular case.
It’s not as if anyone would choose to locate in London for the fun of it. In the June edition of SHD Logistics, David Thame reported on recent data from Cushman & Wakefield “…London’s leading price-point is £17.60 per sq ft per annum, ahead of both Hong Kong and San Francisco…”.
So why be in the city?
When I started my career in logistics, I worked for the National Freight Consortium, which owned lots of city centre sites including The Granary at Kings Cross. While I can’t pretend it was great operating distribution to high street stores from a site which included a combination of both historic decay and listed buildings, it was extremely well-placed geographically from the point of view of minimising pallet-miles and thus fuel consumption.
These city centre sites were nearly always adjacent to rail locations – the parentage of the company had been rail so that’s why they were there. Unfortunately most (all?) of this city centre logistics infrastructure was sold off, for the very reason highlighted by the Cushman & Wakefield data – they were worth a fortune, and probably far more when used for non-logistics purposes.
What’s the break-even point?
For the sake of reasonably easy figures, let’s say that the Ocado building is 30K sqft and that the rate is the London rate given above. That gives an annual figure of £528K just for the building. Say you moved a bit further out, say 10 miles – perhaps you could get the same size property for about £300K pa. But now, instead of a trunk vehicle servicing your warehouse, your ‘local’ fleet have to do that mileage to get on patch.
What does that cost you? When I presented to the Cold Chain Federation’s Cold Chain Live virtual event last year, I talked about the benefits of bulk – how moving goods from A to B in a fully loaded artic could be, say, a third of the cost of the cost of moving the same goods in a smaller delivery vehicle. OK it’s only 20 miles there and back to get on to patch, likely to amount to a couple of quid per pallet extra – yes, I know Ocado won’t be using pallets to deliver to their customers, but it’s a useful industry standard-ish measure.
So, you’re saving coming on a quarter of a million each year on your warehouse by being further out, which means you can probably afford to operate up to about 40 local delivery vehicles carrying out that extra stem mileage and still be in pocket, and that’s not considering business rates etc.
Not all about cost
But it’s not just the cost, until we all go electric it’s all that pollution. If you were able to use artics to do that last bit of stem mileage, by having that little warehouse in town, the emissions would be about a third for that stem element. Oh, and even after those vehicles have gone electric, they will still be adding to congestion – possibly more so if the payload isn’t the same.
The price of land in cities tends to push logistics operations out to the edge of the urban area. There may well be a monetary saving to moving out, even after the additional delivery costs, but there are other non-monetary costs involved. And by protecting one environment, you may well be making things worse for others. The considerations go beyond logistics modelling – I’m not pretending it’s a decision I would want to have to make!
Kirsten Tisdale is principal of Aricia Limited, the logistics consulting company she established in 2001, specialising in strategic projects needing analysis and research. Kirsten is a Fellow of the Chartered Institute of Logistics & Transport and has a track record helping companies with logistics decisions.