Harbouring Hopes

July 07, 2014 by Kirsty Adams
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With two major recent announcements in the space of two days, port-centric logistics has suddenly become flavour of the month, reports David Thame.

In the space of 48 hours in May two mighty port-centric warehouse developments were unveiled at either end of the country. Prologis announced its decision to team-up with DP World to develop at the London Gateway site, whilst Gazeley announced its partnership with PD Ports.
Suddenly, after a 50-year pause, dockside warehousing is back in fashion. But why now, and why the apparently sudden change of heart by specialist property developers?

In part, the answer boils down to numbers. UK port freight traffic has been growing steadily. December last year was particularly good – up 5% to 122m tonnes – and the first figures for 2014 are keenly awaited.

But growth in traffic isn’t the real cause. Instead, it’s about the latest steps in supply chain efficiency. This has created growing demand for port-centric warehouse space. Developers have moved in to mop up that demand.

Prologis, the US-owned warehouse giant, has formed a 50/50 joint venture with DP World to develop a 316,000 sq ft distribution centre at the London Gateway Logistics Park. The new 15m-high facility will be next to the DP World London Gateway container port on the north side of the River Thames. The target date for completing the building is spring 2015.

Andrew Griffiths, managing director at Prologis UK, explains: “This is the best opportunity in the south-east to offer multimodal connectivity. The park has the potential to offer big cost savings and efficiencies for global supply chains, and we believe it is a game-changer for the UK market.”

The 9.25m sq ft logistics park is a mighty gamble on the growing potential of port-centric logistics. Peter Ward, commercial director, DP World London Gateway, says: “DP World London Gateway offers unique supply chain advantages. The location drives out logistics costs as we are closer to the UK’s major areas of consumption than other ports. In addition, London Gateway Logistics Park will help shape the future of the UK’s fast changing retail supply chains by allowing goods to be moved to homes and shops faster, more efficiently and reliably than ever before.”

Griffiths thinks the port-centric market has more growing to do. “Retailers and importers have always held and stored at ports, but now they are closely analysing their market and deciding they don’t need to bring all their goods inward to a central holding centre somewhere in the Midlands. In the case of the London warehouse, London is a massive consumer market. So it ticks lots of boxes for occupiers,” he says.

Griffiths says this doesn’t mean established warehouse locations like the famous Golden Triangle face a threat, but that some occupiers can refine their supply chain costs by taking dockside warehouse space.

“My guess is that traditional warehouse locations will hold their own, but we see dockside space in London as a big opportunity for customers to drive cost savings by being close to both their market and their port of arrival.”

Prologis hasn’t committed to further development at London Gateway, but Griffiths gives the impression it’s something that could easily happen.

According to Jon Sleeman, industrial research director with surveyors JLL, the latest developments are part of a trend that began in the early part of the last decade – but which was put into the deep freeze by the recession. “Port-centric logistics was growing before 2008 on the back of increasing container traffic and expanding capacity at UK ports, but the recession knocked this off course,” says Sleeman.

He points to pioneers like Asda and Tesco, both of whom took large port-centric warehouses in the north-east. Asda/Clipper Logistics’ 840,000 sq ft warehouse at Wynyard Park, Teesside is the most conspicuous example.
Teesside has continued to flourish following successful build-to-suit developments constructed at the port for ASDA Walmart (360,000 sq ft direct import centre) and Tesco (900,000 sq ft ambient import centre).
“We are now seeing the construction of port-centric warehouses as the economy recovers. Plans are being dusted down and re-examined,” says Sleeman.

“Plainly, port-centric development works best if your customers are near the port – the London Gateway is the obvious example. But what nobody is quite sure about is how far from the port is too far from the port. There are always benefits in not using the public highways, and the uncertainty and cost of double-handling goods is unwelcome. For port-centric warehousing, the closer to the port the warehouse is, the better,” Sleeman insists.

That is the logic behind PD Ports’ partnership with logistics developer Gazeley to develop up to 1.6 million sq ft of build-to-suit sustainable port-centric logistics warehousing in the next phase of development at Teesport in the north-east of the UK. Up to 500,000 sq ft could be linked to the onsite raifreight terminal.

But not every port is so fortunate. The Port of Liverpool is no slouch among UK entrepôts and, combined with the Manchester Ship Canal, supports a 40m tonnes annual operation. But developing port-centric logistics at or near the port could prove difficult.

Howard George, partner at north-west logisitics property advisor B8 Real Estate, explains: “There is a genuinely serious problem because the Port of Liverpool is so hemmed-in by residential development. There is nowhere for warehouses to go – unlike London or Felixstowe. It’s possible this lack of land next to the port could hold the port back.”

Port-centric logistics will continue to grow for as long as retailers and importers think it is saving them money. And it may grow further inland, away from the container ports, predicts JLL’s Jon Sleeman.

“I think we may have to begin to pay attention to inland ports like Daventry’s International Railfreight Terminal and Verdion’s plans for Rossington. These have direct rail links from ports and fulfil many of the same criteria as dockside developments. They are well worth watching,“ he says.

May was a good month for port-centric development: it seems there could be plenty more good months yet to come.   

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