Friday, August 10, 2018

Three Commercial Real Estate Trends - Part One - 3PLs

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One of the cool things about my profession is I rub shoulders with some VERY smart people - small business entrepreneurs, commercial real estate investors, brokers, and trusted advisors in the insurance, wealth advisory, tax, and banking professions.

I believe the imperative is to listen, learn and spot trends.

Lately, three trends have surfaced in my conversations - business exodus from California, mergers and acquisitions, and the use of 3PLs - third-party logistics providers.

As all three topics are meaty, I will dissect one each week for the next three - so stay tuned, dear readers.

Today, we will discuss third-party logistics providers - 3PLs.

What is a 3PL? A third party logistics provider is an outsource for the warehousing function of your business.

Generally, an industrial company makes, ships, or services something - or some combination of the three. Simple, right? As an example, that percolated product you are enjoying while perusing this periodical - yep, beans grown and harvested, manufactured by someone, finished cans stored in a warehouse, shipped to your retailer and delivered to your house - either in your grocery bag or an Amazon van. Imagine, the amount of warehouse space necessary for storing all of that coffee - plus the folks needed to receive the boxes, forklift them around, place them into inventory, access them when ordered, package them up, and ship them out the door - whew! Lots of steps, people, and space.

Now, let's complicate the above with a seasonal ebb and flow of the work. You are committing employees and space - which are largely intractable to a workflow that changes. Said simply - during some parts of the year - workers are idle - yet you are paying them. Worse - your rent - for which you are committed long-term - covers a half-empty warehouse!

Enter the 3PL. All of the receiving, inventorying, material handling, order picking, packaging, and shipping is done for you - at item or pallet pricing and with a shorter time commitment - generally a year at a time. You pay for the space and handling you need without the overhead of a lease, full-time employees, or the appurtenant compliance headaches.

Why are companies using 3PLs? Aside from the reasons above - overhead and flexibility - 99 of every 100 industrial buildings are occupied - a vacancy of 1% - the lowest in history! If you need to expand - and choose to do so by leasing or buying a building - your choices are limited. Let's say your business growth will come from adding a new machine - but you don't have anywhere to put it - because that warehouse racking consumes a portion of the plant. Simply engage a 3PL, outsource your storage and shipping, and bingo! You have just found some space for that new machine. A similar scenario occurs when your expansion is employee driven - but you lack sufficient office space. Clip that warehouse and build a new suite - you're done!

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