Copyright 2004, Traffic World, Inc.
Despite ongoing consolidation and intense competition from the big 3PLs, family-owned businesses cling proudly, even stubbornly, to their corner of America''s $78 billion warehouse industry.
"Family-owned warehouses have never been healthier," said Jim McBride, president of Affiliated Warehouse Cos., which services and brokers space for 110 closely or privately held warehouse companies.
Third-party logistics providers'' relentless focus on cost control has forced family firms to differentiate and to re-emphasize what all agree has long been their strong suit - customer service.
Shippers have consolidated space as warehouse management systems have enabled regional distribution networks. Warehouse companies have merged, creating big new competitors while also opening opportunities for smaller businesses.
Thomas K. Ryan, vice president of value chain research for Aberdeen Group in Chicago, said there are probably "tens of thousands" of mom-and-pop, single-site facilities with 100,000 square feet or less for hire. As besieged as some of these small companies are, Ryan said family-owned warehouses are more likely to go out of business for lack of a transition plan to cope with an owner''s illness or death than they are to be crushed by competition.
The big trend in warehousing over the past 10 years or so has been the move from public to contract facilities. Dale S. Rogers, Ph.D., director of the Center for Logistics Management at the University of Nevada, estimated as part of a research project for the International Warehousing and Logistics Association that the percentage of IWLA members describing public warehousing as their primary business fell from 80.5 percent in 1994 to 75.9 percent in 2003. Meanwhile, the percentage of IWLA members engaged primarily in contract warehousing jumped from 18.2 percent to 44.4 percent over the same period.
Family-owned warehousers tend to work in multiclient, public warehousing, Ryan said. That keeps their client base diverse and minimizes their exposure to revenue shocks. Many shippers have moved to contract warehousing for the logistics cost advantage that consolidation and a third-party provider may offer, leaving public warehousers the more labor intensive capacity overflow, multiclient and even temporary labor markets. Yet 3PLs have moved in here as well, with low prices facilitated by high volumes, thin margins and technology services.
The result over the past decade has been an accumulation of the largest warehouses in about a half-dozen regional distribution points, among them New Jersey, Atlanta, Chicago, Dallas and southern California, said Ben Cubitt, principal at supply chain consulting firm Tompkins Associates in Raleigh, N.C. Family-owned businesses have been able to carve out their own niches mainly in secondary markets - Portland, Minneapolis, Boston and others - where smaller shippers need local and regional warehousing.
Family-owned warehouses survive in these environments in part by differentiating themselves from commodity-priced 3PL warehouses, Cubitt said. Materials handling and automation, superior labor management and skills and cartage availability are premium services, he said.
Warehouse executives said their competitive ace in the hole remains customer service. "I think the family-owned companies are more in tune to that, because that''s what they do," said Brian McFarland, general manager at Smith Transport, a family-owned warehouse company in Tyrone, Pa. Knowing they are often at a disadvantage in technology offerings and price compared with 3PLs, family-owned warehouse operators concentrate their efforts on basics - delivering the right goods to the right place on-time and undamaged. "We only get one opportunity to supply the customer," McFarland said.
David E. Wilson, vice president, COO and CFO at Worley Warehousing in Cedar Rapids, Iowa, said smaller companies are more agile, flexible and responsive because they have less bureaucracy. McFarland recalled meeting a local manufacturer of school supplies that needed additional warehouse space; Smith executives agreed on the spot to add 200,000 square feet to their nearby facility. McBride said many family-owned warehouses have a decision-maker just a phone call or door-knock away. "When was the last time the CEO of Exel saw your inventory?" he asked.
Of course customer service only takes a small business so far. Smith Transport maintains a fleet of 800 trucks; readily available transport capacity has given the company leverage against nonasset based 3PLs, McFarland said. Wilson said Worley is still reaping benefits from a warehouse management software system the company wrote a decade ago, and which the warehouser has used to more closely integrate customers with warehouse operations.
"I think the family warehouse still has something to offer because people will always shop on price" at bigger, commodity warehouses, leaving all sorts of premium services to enterprising specialists, Ryan said. "There are smaller companies that need logistics help that the big logistics providers can''t cope with. The idea of the small selling to the small is something that still works."