What the Move Towards Urban Fulfillment Centers Means for Last-Mile Logistics

Online delivery has become the norm for many Americans living in urban areas. An average city resident generates approximately 0.1 deliveries per day. In a major city like Chicago, which has a population of 2.7 million, that is a minimum of 270,000 deliveries a day. 

Online retailers have turned to urban infill to get closer to their customer base and are looking to former retail, office and even parking structures as potential launching points for distributing goods.  

JLL Managing Director Keith Stauber has witnessed the growing number of retailer, third-party logistics companies and developers experimenting with adaptive reuse. JLL is working with Millennium Parking Garages LLC, the owner of Downtown Chicago’s Millennium Parking Garage, to repurpose some of the space into an urban fulfillment center, as well as other alternative uses like self-storage. Stretching across 3.8M SF over two floors, Millennium Parking Garage is one of the largest underground parking systems in the world.

 As car ownership dwindles, more parking structures have underperforming space.

“Despite its fantastic location, it is actually somewhat under capacity from a parking perspective," Stauber said. "Because of that, we have to consider how we can maximize revenues for the garage and City of Chicago while also utilizing it to its full potential." 

Multistory warehouses built in the early 1990s have made a comeback in dense urban areas where it makes more sense to build up than out. Reclaimed space is more cost-effective for e-commerce players, who favor short-term leases while their growth rates remain unpredictable, Swisslog ‎Senior Director of Business Development David Schwebel said.

A shifting last-mile delivery model has allowed e-commerce players to move closer to their consumers into smaller urban spaces. Fulfillment centers have started receiving mixed-case pallets with a variety of products. While that keeps quantities lower, a constant supply line from larger regional distribution centers keeps up with demand.

“E-commerce and retail replenishment are now considering environments where they don’t need standard four- or five-high racking and 30-foot clear ceilings,” Schwebel said. “What they need now is highly dense, mobile robotic storage on the floor with nine-foot clear ceilings and the eaches (individual product units) being brought to the picker, who selects one or two eaches based on the order, and then sends the inventory back on its way.”

Warehouse automation has also started to shift from conveyor belts to mobile robots and vehicles. Rather than focusing on the movement of large quantities of product, automation selects specific items. Human participation remains important under the new paradigm, Schwebel said. Rather than follow the 1970s goal of an entirely robotic facility, automated processes handle repetitive tasks while human workers can solve creative problems like sorting through damaged products or adding a personalized note to an e-commerce order.

Urban fulfillment could also involve the consumer in last-mile logistics. Schwebel sees the days of waiting for a cardboard box at the doorstep as obsolete.

“How do we entice the consumer to participate in last-mile delivery?” Schwebel said. “Can we say: On your way home, take a five-minute detour, swing by your local urban fulfillment center and someone will run the package out to your car, not in a cardboard box but in a shopping bag?”

In cities where an increased population has already worsened traffic congestion, customer participation could be essential as urban fulfillment becomes the norm. Congestion costs caused by time wasted in traffic and fuel consumption are estimated to be 200% more than they were in the 1980s. Cities will have to work with 3PLs and online retailers to coordinate when, where and how deliveries can reach customers.

Urban fulfillment could benefit from smaller vehicles, bike delivery and even electric cars, Stauber said.  Cloud-based software that tracks the location of delivery trucks and shipments also helps mitigate congestion and improve delivery times. Like the peak demand warnings that show up on ride-sharing apps, technology could allow 3PLs to make decisions that account for the consumer’s location and potential delays. Delivery trucks could resemble a pizza delivery van stocked with inventory, waiting to receive an order and respond in the most efficient way possible, Schwebel said.

Frost & Sullivan expects global urban logistics spending to increase from $2.5 trillion to nearly $6 trillion by 2020. Residential, office and industrial will have to learn how to work together to improve last-mile delivery.  

“It’s kind of interesting how we have come full circle back to the late 1800s or early 1900s when manufacturing was side by side and floor by floor with retail or residential,” Stauber said Learn more about urban fulfillment centers and other real estate news and trends at NAIOP's CRE.Converge 2017, from Oct. 10 to 12 in Chicago.

Written by

Travis Gonzalez


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