What Finding Nemo Teaches Us About Logistics

The marine world has always fascinated me, and as an avid fisherman and snorkeller, you’ll find me exploring the reefs off Ponta do Ouro or Inhambane in Mozambique whenever I get the chance.

Most people are familiar with the clown fish thanks to the hit movie Finding Nemo. Few Nemo aficionado know about the symbiotic relationship between the clown fish and the anemone it calls home.  When clownfish hatch, they reside near the surface of the ocean. However, when they reach a juvenile age,  these fish will travel down to the reef to find shelter in a host anemone. Once they find their anemone, they form a long-term symbiotic relationship with by fanning and removing parasites from the anemone and receiving protection against predators in return.

In the property sector, and particularly in logistics, I have seen symbiotic relationships increasingly working to the benefit of both tenants and landlords, primarily driven by the strong demand and market disruption as a result of the coronavirus pandemic.

E-commerce has been steadily growing in South Africa and Kenya, two of our major operating markets, with some analysts predicting an explosion in SA’s e-commerce sector to a value of R225 billion within the next five years.

Online retail has been a direct beneficiary of last year’s lockdown restrictions to curb the spread of Covid. While traditional retailers have been struggling, online shopping flourished, with consumers getting accustomed to the convenience.

World Wide Worx recently released a study showing that online retail sales exceeded R30 billion in 2020, due to a 66% spike in home deliveries due to Covid.

This growing demand has resulted in an uptick of retailers and entrepreneurs wanting to enter the online space. Some are focusing on specific items, such as white goods or furniture where they compete head-on with more established players. Other entrepreneurs have identified a niche to provide a distribution platform for small-scale businesses, similar to a mini third-party logistics model.

These would typically be small scale business owners who are importing or manufacturing goods but prefer to keep overheads low by working from home and who do not want to rent a warehouse. With economies of scale through thousands of customers, business owners are slicing and dicing the online marketplace differently to compete with the larger players.

The same scenario is playing out in Kenya, where high internet penetration of 82.6% and lower data costs are positioning the East African country as one of the best positioned in the region for an upsurge in online retail.

In addition, new e-commerce players are  filling US$680 billion market not serviced by e-commerce or formal retail offerings.

Current media reports on the property sector are highlighting the struggle of mainly office and retail landlords following the impact of a sluggish economy, exacerbated by the Covid lockdowns. The opposite is true for logistics assets, where vacancy rates are comparatively low.

And this is where the opportunity for symbiosis between tenants, landlords and the banks come into play, although a lot more needs to be done. Most landlords are cautious of locking in soft deals by reducing yields or cap rates of properties, for instance, but are mostly open to driving innovative transactions such as build-to-suit or flexible warehousing solutions. Banks, on the other hand, want surety that someone’s going to pay the bond.

A trend we’ve seen developing to address these constraints is where some international distributors increasingly outsource their operations to larger SMMEs and smaller businesses operators. A good example of symbiosis in this regard is where the main logistics company takes a head-lease on an A-grade warehouse facility and sub-lets to these contractors.

To support growth in the industry, an appropriate funding model for mini-warehouse units will be incredibly helpful and will ultimately ensure a more cost effective service to customers. Currently, a truly flexible funding model is very difficult to implement since banks extend funding to build only on the security of long-term leases.

Limited supply and high barriers to entry, such as building costs, scarcity of well-located industrial land close to metropolitans and enormous council fees associated with the bulk conversion of land points to the sector remaining buoyant for some time to come.

Finding a symbiotic solution to funding models for logistics space and funding could just mean that everybody wins in this movie.

-By Mark Truscott, Head of Leasing and Marketing | Developments at Improvon