The rapid development of e-commerce into a significant part of the UK shopping landscape, coupled with the growth of non-food sales over the past decade, has created huge opportunities for retailers and other enterprises. Many have built their online offerings around the quality associated with their offline brands, meaning they need to offer the same, if not a larger, range of items online as they do in-store – and to the same exacting standards.
This has huge implications in how retailers set up and manage their supply chains and logistics networks. Customers now expect online orders to be delivered the next day, or the following one at a push, and retailers need to be able to react accordingly. Failure to do so cannot only impact a business’s hard-earned reputation but, in an era when complaints and negative comments can reach thousands of people instantly through social media, also lose swathes of customers, possibly forever.
This means there’s a huge requirement for both agility and flexibility in a supply chain. Upstream optimisation, which works so well from a stockholding perspective, is less appropriate for e-fulfilment. Instead, retailers need to forecast demand as accurately as they can, but complement this with as much product differentiation and customisation as possible, with the ability to intervene back into their logistics networks at any point in the cycle.
The key to this lies in the establishment of an effective storage and distribution network based around portcentric logistics. By using facilities close to the ports themselves, retailers can store large containers of stock much nearer the point of consumption. This gives them the ability to react quickly to orders and unexpected buying patterns, as well as to withstand any unforeseen disruption to the supply chain. Crucially for e-fulfilment, it also allows them to draw on the same stock for both online and offline channels, and to intervene at a stock level much later in the process.
Over the past few years there has been a notable shift in where retailers are choosing to base such operations. With more than half of retail goods consumed north of Birmingham and long delays incurred queuing up to enter ports on the southern coast, many retailers have started to consider other options further north.
There are economic as well as practical benefits to using port-centric logistics in the north of the UK. Sea freight is not only the most carbon-efficient means of distribution, it is also the most cost-effective. Some of our customers have reduced their road usage by 40 million miles as a result of using northern ports with distribution facilities in the local area.
ASDA is one example of a company which decided early on to build a facility at Teesport to bypass the congestion in the south and build some resilience in its supply chain in the north. Others have followed, including Tesco, which has a 900,000-sq-ft facility at Teesport to service its northern operations. The cost and availability of land and labour to support portcentric operations is another consideration, and northern options also tend to compare favourably here.
Such decisions also make sense in light of the growing trend to source from Europe and the Baltic states, both of which have increased in volume in recent years. Televisions are a good example; a decade ago most were manufactured and shipped in from Asia, but these are now increasingly being shipped from Eastern Europe. Having a base that supports short-sea and Baltic services as well as deep-sea routes means retailers and freight companies can change their supply route at short notice, without having to change their distribution model.
PD Ports, which operates Teesport and delivers flexible portcentric facilities at Teesport, Felixstowe and the Humber estuary through its PD Logistics arm, has seen strong growth in the past decade as a result of the shift in logistics.
Seven years ago the port handled fewer than 40,000 containers a year and had four vessels arriving each week. By 2012 this had increased to 275,000 containers and as many as 25 arrivals every week, and a £17-million investment over the last year to upgrade one of the two container terminals means capacity is now in place to handle 500,000 containers a year. We expect this growth to continue with the development of the London Gateway port, which will only add to the cost of southern facilities and increase the need for nationwide retailers and shipping lines to maximise cost efficiencies.
A combination of the current cost-conscious landscape coupled with rising customer expectations around delivery times and service standards means the need to run an effective logistics network has never been greater. For some, the south will remain the best option but, increasingly, retailers and freight-forwarding companies are waking up to the benefits of using a more sustainable and longer-term solution. For those businesses, the attractions of the north – and Teesport in particular – may prove too compelling to ignore.
SEEING THE BIGGER PICTURE
The shift in emphasis towards north-east England as a logistics and distribution hub is playing a key role in revitalising the local economy.
Since PD Ports started offering portcentric logistics around seven years ago, some 3,500 jobs have been created in the port itself, the distribution facilities and the wider supply chain, while the company’s own research suggests that more than 50 per cent of incoming cargo is destined for a manufacturing or retail distribution facility within a 50-mile radius.
“We’ve identified logistics is one of the key sectors for the North East over the next few years and sitting at the heart of that is the port,” says Stephen Catchpole, managing director of local enterprise partnership Tees Valley Unlimited. “There’s a wide range of jobs on offer at different skill levels and that offers us the opportunity to explain to youngsters the prospect of a career in different types of activities throughout the logistics sector.”
He expects a further 1,000 jobs to be created as a result of portcentric logistics over the next five years, which he hopes will keep local talent in the area, as well as the development of more logistics facilities, such as the one opened by Clipper in Wynyard, and other associated supply-chain businesses.
“It brings a diversification to our economy in addition to the areas we have traditionally been very good at,” says Mr Catchpole.