https://www.gettyimages.com/detail/185782049
You may have heard the expression about a non-relevant topic not having “anything to do with the price of tea in China.” It’s essentially saying that whatever point someone might be trying to make has nothing to do with the issue at hand.
We don’t know about the price of tea in China but we do know about the price of land and how it relates to the warehousing industry. And those two factors are incredibly relevant. We expect the cost of land in China to rise exponentially next year as demand increases and government control of land is not likely to lessen.
Even as early as 2012, China’s e-commerce companies were seeing more than triple growth in their sales and that meant drastically more warehousing space was necessary to fulfill the orders.
Even as recent as last month, DHL Supply Chain announced it would increase its warehousing and transportation capabilities in China by 50 percent over the next three years. The company has already been working for two years to expand in China.
Another company, Global Logistics Properties also seeks to increase warehouse space. According to a November 21 article on JOC.Com,
“Global Logistics Properties estimates the market opportunity in China’s logistics property development sector to be in excess of $2.5 trillion by 2029 and its recent multi-billion dollar investment with a group of state owned companies and financial institutions was part of a plan to capitalize on the market opportunity. Over the last decade, GLP has built the largest logistics platform in China, valued at more than $8.2 billion.”
So what’s the catch? When companies want to build new warehousing space, they obviously have to have land. And if the government even releases the land for development, it comes at an incredibly high price.
An independent online publication for China’s real estate industry called Mingtiandi posted an article in early 2014 that started with a very straightforward point: “An unwillingness by local governments to sell land for logistics use, and the rapid expansion of China’s e-commerce sector, are driving up the costs of warehouse space for users on the mainland according to real estate analysts.”
The article concludes with the opinion that the land scarcity will require logistics experts in the country to be created by offering solutions such as multi-story warehousing, which provide the same square footage but take up a smaller footprint than its traditional warehouse counterpart.
We know that e-commerce growth on our own shores will likely increase the need for warehousing space in the United States. Since warehousing is a key component of On Time Logistics’ business model, we continue to watch the situation in China with interest.