Bruce Robertson, CBRE’s Head of Supply Chain Advisory for the EMEA region, discusses the unique set of advantages offered by ports to occupiers interested in pursuing opportunities in port-centric manufacturing and logistics.
Many UK ports have development land and want to know how best to use it. This requires an in-depth appreciation of each port’s value proposition to potential occupiers and the value to the ports themselves. Such a win-win scenario would offer the occupier a long-term economic solution for their operations and offer the port a profitable operation, often securing import and export volumes over the quay.
Development land, either within the port boundary or in close proximity, could be used to develop manufacturing and logistics operations that would be able to take advantage of the facilities and services that ports naturally provide, such as easy access to import and export routes, import and export administrative processes, rail heads and terminals, container and cargo handling expertise, green energy supplies and an abundance of labour. The recent Freeports initiative, likely to be implemented within the next two years, will enable certain nominated ports to potentially offer further economic and ease-of-planning benefits to prospective occupiers.
However, by their very nature, ports are often not necessarily front of mind when it comes to optimal location i.e. they may be far from the heartland of midlands manufacturing and the ‘golden triangle’ of UK logistics and distribution operations. This means that ports need to work doubly hard at attracting occupiers, being crystal clear about their value propositions and being willing to work collaboratively with potential occupiers to build up mutually attractive business cases.
Recent industrial property trends suggest that anyone with development land should be well-placed to offer occupiers the capacity they need. This is because the market for industrial space in the UK is booming, with take-up growing year-on- year and vacancy rates as low as 5%. The dynamics behind this are complex but one major driver is the rapid recent growth in online retailing, which typically needs three times the space of traditional store and wholesale fulfilment. Online penetration is forecast to grow even more rapidly over the next few years, increasing the need for UK industrial space.
Third party logistics providers (3PLs) and online retailers dominate recent space take-up at almost 50%. At the same time manufacturing take-up is less than 10% but growing slowly.
There is also an increasing need for design-and-build properties, i.e. those that are designed to an occupier’s exact specification rather than speculative ‘generic’ builds or unsuitable second-hand properties.
This increase in demand for design- and-build puts the onus on ports to have their development land physically ready. For example, they need to complete environmental checks, planning applications and plateauing so that occupiers need wait no longer than necessary once they commit to a build. Build and fit-out that takes 18 months or less to hand over in operational condition is the benchmark.
Although manufacturing is a small proportion of the UK’s GDP and recent industrial space take-up, it remains a key target sector for ports due to the relative insensitivity of transport cost to location, their need to often import and export and the potential to offer Freeport incentives.
Parcel carriers build and operate dense UK networks of depots, sortation centres and cross-docks, established in order to achieve high service levels (short transit times) at acceptable transport costs. This means that they build capacity nationwide, not only in locations that would be considered ‘optimal’ in less dense networks. This makes certain port locations attractive for parcel carriers, or indeed any other occupiers with high service-level aspirations.
Online businesses that use parcel carrier networks may also find port-based operations attractive. This is because parcel carrier rates in the UK tend to be very insensitive to the distance from occupier warehouse to customer – and often do not vary with distance at all. Proximity to a parcel carrier location, depot or sortation centre, is important to enable a late order cut-off time to be achieved, and many UK port locations are within a just few miles of such injection points. In addition, many online businesses import their volumes to the UK in containers, again making certain ports attractive locations.
Similarly, 3PLs build capacity nationwide to make themselves attractive to many types of occupier and so could benefit from establishing operations at or close to certain UK ports. Traditional UK outbound distribution networks made up of a central national distribution centre and several regional distribution centres (RDC) often have RDCs that are close to ports.
Container ports are natural places to establish inbound logistics centres where containers can be de-stuffed and products shipped to retailers’ and wholesalers’ distribution networks, branches and stores. Such a facility can provide cost-effective transport, e.g. Northern ports serving Northern locations. In addition, container import centres can remove the need for the retailer or wholesaler to establish complex, non-core and capacity-intensive activities at their own capacity-constrained warehouses.
In summary, port locations are attractive to many types of occupier. Especially where ports have land physically ready and are sure of different value propositions to specific occupier sectors. They also need to be willing to work collaboratively with occupiers to establish win-win operations in order to deliver projects successfully. This combination of factors offered by ports, together with the ability to establish an expert supply chain, labour, real estate, development, planning, port operations and financial terms is key to ensuring the best outcome for any potential occupier.
