Whether extended storage is a natural part of your business, or a matter of adapting to supply chain flows, long term warehousing satisfies a specific set of criteria you should be familiar with.
Why Would You Need Long Term Warehousing?
You may need long term warehousing for any number of reasons. For instance, you may want extended warehousing terms to maintain a reasonable amount of inventory to avoid stock-outs of seasonal products, or perhaps you’re in a business (such as one that archives paperwork) where holding inventory long-term is part of your normal operations.
Moreover, as the supply chain continues to recover and adapt to a post-pandemic new normal, some inventory levels are also being affected as the system plays catch up. In all cases, long-term storage is a necessary part of the process that keeps your customers satisfied.
Additionally, there are other key factors attached to long term warehousing:
- General storage – The primary function of warehousing and dependant on customer’s needs.
- Price stabilization – Time has a critical effect not just on the price of warehousing, but on financial market fluctuations as well. Exchange rates rise and fall as do commodity values.
- Safety of goods – Warehouses holding inventory must offer reasonable protection of the goods and safeguard against the risks of extended storage.
- Grading and packing – Many warehouse logistics providers provide added value services for grading, packing, and further processing of goods.
- Bulk production – Storing large quantities of raw materials in the warehouse allows manufacturers to draw on materials as needed.
What Defines Long-Term Warehousing?
While technically there’s no precise measurement for exactly what qualifies as long-term warehousing, the phrase implies storage of commercial goods for an extended period of time.
In some cases, depending on the parties involved, it may mean inventory that sits unsold in the warehouse for more than a few weeks or months. Another way to express the length of time in storage would be to say the inventory is ‘slow-moving”, 180 to 365 days for example, as in the case of many fulfillment providers.
The achilles heel financially is in the goods that take up space over extended periods also incur the extra costs of warehousing, which in turn are usually passed along in the form of extra fees until the inventory turns over.
Short term storage by comparison could be considered anything less than three months. Short term warehousing also puts more focus on the requirements of movement, turnover and replacement.
Overall, warehousing continues to be at a premium, therefor traditional long-term warehousing requires careful assessment. Additionally, slow-moving inventory requires additional overhead which creates a challenge for 3PL providers who often operate on a lease basis. As the supply chain evolves, so do logistics partners who need to develop storage models and have appropriate long-term storage policies in place to manage risks.
Types of Warehouses Geared Towards Long-Term
Long-term warehouses typically come in three types:
- Bonded warehouses – Typically found near sea ports and border crossings, bonded warehouses are licensed government facilities used to accept imported goods for storage until they are free of customs duties.
- Private warehouses – For larger companies, owning and operating private warehouses gives them complete control over their storage and distribution needs.
- Public warehouses – As a common method of storage in a consumer-driven society, public warehouses provide storage facilities to the general public for a fee. These types of warehouses can also be co-opted and are beneficial to smaller businesses due to their logistically convenient locations and scale of economy.
How Much Does Long Term Warehousing Cost?
Obviously, the cost of long-term storage is dependant on the region you’re holding your goods in. For the purposes of this article, we’ll reference data relevant to the North American market. Moreover, we’ll look at the cost of outsourcing warehousing from the customer’s point of view; the most common factor being cost per pallet.
Since much of your cost is based on vertical space (your footprint on the warehouse floor), warehousing storage costs will also be dependant on how much space you need and how efficiently your products can be palletized, or stacked.
(Prices are listed in USD)
|Warehousing Service Costs, Pricing, Rates and Fees||2020||2021||2022|
|Cost Per Square Foot of Warehouse Space||$7.81||$7.91||$7.96|
|Average Warehouse Storage Price Per Pallet Per Month||$14.58||$14.79||$16.21|
|Average Pallet Storage Fee Per Cubic Foot Per Month||$.495||$.45||$.50|
|Average Pallet Storage Fee Per Square Foot Per Month||$.77||$.75||$.91|
|Average Pallet Storage Fee Per Bin Per Month||$3.30||$4.07||$3.18|
The above figures should be considered as estimates and will of course be subject to your service provider and perhaps to a greater degree, the location.
Factors That Influence Warehousing Costs
Evaluating your long term storage needs is based on a few fundamental factors:
- The amount of space you require
- The type of warehousing required (for example: temperature controlled, hazardous materials etc)
- The warehousing cost per square foot
- Estimated operating expenses (subject to the agreement type)
Let’s have look at how these figures combine as an example formula:
(Rental Space x Warehouse Base Rental Cost) + Total Operating Expenses = Monthly Rate
As mentioned, there are variables which can affect the final number. For instance: warehouse size, capabilities and location. You’ll also need to factor in additional costs often associated with a longer-term warehousing contracts: electricity, water, insurance, and janitorial and HVAC services.
To determine the actual cost, let’s use the above formula to calculate an estimated fee based on a footprint of 10,000 square feet.
Rental Space: 10,000 sq. ft.
Warehouse Base Rental Cost: $1.50 sq. ft. per month
Total operating expenses (Triple net lease: NNN): $0.50 sq. ft. per month
The resulting calculation would be:
(10,000 x $1.50 per month) + (10,000 x $0.50 per month)
Or, $15,000 base rate + $5,000 operating expenses = $20,000
How Can You Reduce Warehousing Costs?
Reducing your long term warehouse storage costs is, like any other type of overhead, a matter of controlling expenses within your control. A few points worth understanding and examining in detail would be:
- Reduction of excess inventory
- Frequency of shipments
- Improving inventory flows
- Cost-effectiveness of current warehouse space
- Warehouse operation efficiencies or deficiencies
- The viability of outsourcing warehouse services
Should You Rent or Buy a Warehouse?
Whether you should rent or buy a warehouse is ultimately a matter of company size, operational costs and sensitivity to risk.
Given the opportunity to be in a situation where you need to make a decision, each option has its own set of pros and cons:
If you decide to Rent:
If you decide to Buy:
Do you really need a long term warehouse? Or can you outsource your warehousing needs to a fulfilment centre or 3PL partner that can handle all the details of storing your inventory as it moves through the supply chain?
Until your business grows to the point where a self-reliant wholly-controlled warehousing system makes sense out of your dollars, you at least have options.
Choosing the right warehousing and storage solution that matches your current situation and where you see your business in the future should be a matter of discussion with someone who knows the intricacies of logistics and warehousing needs. For more information on warehousing, whether long term or short term, contact Brimich Logistics today!