Demand Drivers

For more than a decade, the world has been undergoing a true revolution in the production and distribution of consumer goods. Manufacturing is steadily migrating from locations where labor is relatively costly (e.g., the U.S. and Western Europe) to places where it is relatively inexpensive (e.g., China, Eastern Europe, India and Mexico).

A number of factors have combined to spark and accelerate this change:

• the explosive growth of containerized shipping, enabling efficient transportation of goods and raw materials around the world;
• a steady trend toward more liberalized trade, formalized via government-ratified free-trade agreements; and,
• the rise of the Internet, which has allowed companies up and down the supply chain to interface seamlessly with each other through virtual, software-based business management systems.

Supply chains that emanate from domestic factories are quickly becoming a thing of the past. Today, supply chains are long, linear and complex, often stretching thousands of miles around the world and involving an intricate web of vendors and business partners.

Manufacturers, distributors, and retailers of consumer goods are constantly seeking to remove cost and friction from their supply chains. Transportation and logistics are now a major source of spending for companies, as well as key determinants of success in serving their customers.

For all of these companies, distribution centers in the right locations are critical to an efficient, smooth-running logistics operation:

• They enable basic routing – the accurate and seamless flow of goods to their appointed destinations, especially as they change transit “modes” (e.g., from ship to rail or rail to truck).
• They function as processing centers – physical locations where products can undergo a variety of “value added” activities before moving onto the next stage in the chain and toward their ultimate destination on the retail shelf. These activities include light assembly, RFID tagging, sorting, labeling and specialty packaging.
• They provide margin for error. Given the length and complexity of the modern supply chain, there is always risk of disruption due to parts shortages, vendor errors, labor strikes, shipping delays, natural disasters and other problems. Modern warehouse facilities enable companies to store enough inventory to meet unexpected surges in demand – and to cushion themselves from the impact of a break in the chain that otherwise is beyond their control.
• They serve as distribution nodes for increasingly dispersed consumer markets around the world, many of them located in emerging economies that have not previously been significant players in international commerce.

For these reasons, demand for industrial distribution space has surged globally in recent years.

Additionally, companies are being forced to overhaul, redraw and optimize their supply-chain networks in order to make them appropriate for a global environment. That, in turn, has required new, state-of-the art industrial facilities in locations that minimize transportation costs but also allow for high levels of service to the users.

There is also an increased need for flexibility. With the lightning-fast pace of change in this area, companies today have far less economic incentive to “lock in” a supply chain network with facilities they own themselves. As a general rule, it now makes more sense to lease from a facilities provider, which allows substantial freedom to reconfigure a network down the road in response to market conditions.

ProLogis has positioned itself to take advantage of these long-term trends. By building a truly global portfolio, an extensive land bank, and an industry-wide reputation for quality and service, it has established itself as the partner of choice for companies that need high-quality distribution space in key markets around the world.