Will UberRush drive the city center warehouse?

 —  Article by JLL Staff Reporter

Will UberRush drive the rise of the city center warehouse

Uber is entering the same-day delivery market in the U.S. by teaming up with some big retailers to offer UberRush – a city-center courier service.

Brands taking part, including Nordstrom, Rent the Runway and Cole Haan, will give customers the option to have their purchase delivered in a matter of hours by Uber drivers in three cities, Chicago, New York and San Francisco.

Rich Thompson, Global Leader, Supply Chain & Logistics Solutions at JLL, says: “The U.S. freight transportation market is a $700 billion industry which has been dominated by only a few big companies – USPS, UPS, and FedEx – for years. It is also one industry that is hugely inefficient in nature which makes it highly attractive to disruptive, technology-enabled new companies willing to break the traditional paradigms.”

As eCommerce sales continue to grow, demand for cheap and fast home delivery service has increased. “Uber and its competitors bring a fleet of drivers and scale that retailers would otherwise not be able to leverage on a cost-efficient basis,” Thompson adds. “Their UberRush delivery arm is still quite new and unproven, but for retailers looking for speedy, last mile delivery solutions, it makes sense.”

He points out that if even if UberRush were able to carve out a 1 percent market share, it would equate to $7 billion annually.

Last mile delivery

With the total global market for domestic courier services worth US$246 billion – in contrast to US$22 billion for taxis – Uber’s move into the last mile delivery space may not have come as a surprise but it is set to make its mark on the industry. Indeed, there is already speculation that a London service may follow.

Kris Bjorson, Head of Retail/E-Commerce Distribution at JLL U.S, says: “From a consumer and retailer perspective, the more delivery options – the better as it will drive competition on every lane and lower pricing. I trust Uber to bring my my kids home every weekend night for less than $20.  If they can leverage their scale to start delivering other items to me for around $5 based on my purchase price, then they will start taking market share.”

However, its impact on the upstream supply chain remains to be seen. “Contrary to what others are saying, I think the majority of the supply chain will remain unchanged,” says Jon Sleeman, director of JLL’s EMEA and UK Logistics & Industrial Research team. “But we could see some major changes in last-mile delivery.”

He describes UberRush as “the latest manifestation of supply chains becoming more consumer-centric”, less of a supply chain and more of a demand chain.

Providing the link between larger warehouses and urban customers could involve another tier of industrial buildings – the small consolidation center. Sleeman explains: “It makes sense for one driver to make multiple drops, so delivery drivers could visit consolidation centers – interim warehouse facilities – to either deliver or pick up stock to distribute it within a specific area. These centers will need good access but only limited storage.”

As a result of the need for speed when it comes to keeping customers happy, industrial real estate will adapt. With a lot of industrial land earmarked for residential projects in major cities, multi-storey high-rise warehousing developments – which are common in Asia –  could be developed in certain North American and European cities.

Big Data benefits

Making efficient use of this new type of space will rely heavily on Big Data expertise of occupiers. Sleeman says: “Logistics operators will want to predict which goods are most likely to be in demand for same-day delivery. Meanwhile, warehouses and drivers will want to give and receive real-time information about their capacity.”

Behind the headlines, however, he is quick to point out that any impact of Uber is all speculation at this stage, adding: “Alternatively, in the same way Uber can create an on demand delivery service  it could also create on demand warehouse capacity. In this event, potentially fewer warehouses will be needed because companies will see it makes sense to share space.”

He sees the sectors where emptier periods are predictable gaining the most from a sharing economy approach. For example, newsprint warehouses are busy at night but are guaranteed to be empty by early morning when the papers have been delivered.

“It’s an approach that’s already being tested. And as technology develops, it should be easier to see when industrial and logistics space is available” he adds.

The same principle could apply to delivery vehicles. Uber technology could be used to make sure vehicles are more fully utilized , in contrast to the long-established pattern of delivery trucks and vans starting out full and emptying throughout the day.

“As a result, we could see fewer vehicles on the road, fewer emissions and cleaner cities. There could ultimately be a green spin off.”

Regardless of the possible effects on last mile delivery, the complex workings of national distribution centers and their choice of location won’t be impacted by Uber’s latest operation, Sleeman believes.

“Although fast moving stock will have to be held locally close to customers, this will not diminish the need for larger distribution centers upstream of these which can hold a wider range of stock and keep local facilities replenished,” he says.

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