Can Portcentric logistics work in the South East?
No one would invest a total of £1.5 billion in the most significant UK port development for 20 years if they didn’t think there’d be some return. In fact, on paper, DP World’s London Gateway project seems perfect, and shippers, retailers and manufacturers would be mad indeed if they didn’t at least look at its prospects.
The new development on the 1,500 acre former Shell Haven refinery site on the north bank of the River Thames in Thurrock, Essex will boast a 435 acre port capable of handling up to 3.5 million TEUs a year as well as a 560 acre logistics park totalling 9.25 million sq ft of warehouse space.
The port will include a 2,700-metre-long container quay with six deep water berths able to handle the world’s largest ships; even Maersk’s new Triple E super large container ship which will hold 18,000 TEU and which Maersk has already commissioned to service routes between Europe and Asia.
The first three of the port’s 24 giant quay cranes, manufactured by Shanghai’s Zhenhua Port Machinery Company, are already en-route to London Gateway and are due to be landed in March. Towering 138m high, these monoliths have a reach that will allow them to pick up containers 25 rows across deck – beyond the width of the world’s largest container ship.
As well as the port terminal with its automated container handling systems and controls making it one of the fastest and most efficient in the world, the scheme will also boast rail terminals in both the port and the park.
However, looking out across a windblown brown landscape on a cold February morning it is hard to believe that this port is going to be operational by the end of the year. There are no perceivable roads, nor are there any completed buildings port side but there is a lot of activity, more than enough large yellow dumper trucks and diggers to keep any Bob The Builder fan happy, and a glowing confidence from DP World that everything is on track.
Drewry, the independent maritime consultancy, has indicated that shippers will be able to reduce round-trip transport costs by £59 per container to the Midlands and the North-West and £189 per container for London and the South-East, representing about 90 per cent of the UK deep-sea market. And that is before you start looking at the other advantages of portcentric logistics which could reduce the supply chain further.
Peter Ward of DP World London Gateway says: “The increasing need to reduce transport costs means that the location of hubs and distribution centres must take into account primary and secondary container movement and consumer market density.”
The port-centric model, where DCs are based close to the port in key markets rather than in a centralised location, makes sense for a lot of companies as it often reduces the distance goods needs to travel by road.
Logistics consultant Lisa Fitch of BNP Paribas Real Estate concurs: “The portcentric logistics model [where DCs are located close to a port to reduce transport distances] will be compelling for many businesses as it adds capacity to the market that will enable end users to reconfigure their supply chain.”
Not everyone though is in agreement. Martin Palmer of Norbert Dentressangle says: “The container is the single most important invention in the history of transport after the wheel, why would you off load it at a port when you need it at the epicentre of your supply chain?
“There may be 16 million consumers in the South East but there are still 50 million more to be served elsewhere. The South East may be a considerable draw but it’s not the best place to be holding stock. It’s no accident that the Golden Triangle is in the middle of the country.”
Les Beaumont of supply chain consultancy Total Logistics notes: “In whatever form retailers have come up with the same answers whenever they look at their supply chains the location between Leicester, Northamptonshire and Rugby has always provided the lowest cost distribution point.”
But he says that was before land was made available for warehousing at the ports. “In the last 30 years people have wanted to get their goods away from the ports as quickly as possible due to the high storage costs and the fact there were no facilities but that has been changing.”
Only recently Forth Ports, which owns the Port of Tilbury, teamed up with developer Roxhill to build out the London Distribution Park on a 70-acre site just outside the port’s gates.
Roxhill has purchased a 50 per cent share in the development scheme from Forth Ports, and the two companies will work closely together in the delivery of the logistics park, which has outline permission for up to 940,000 sq ft of space. It is being marketed by Lambert Smith Hampton and Knight Frank.
Infrastructure works are due to start shortly and buildings will be available on either a pre-let or pre-sale turnkey basis, with occupation possible by the end of the year. Charles Blake of Roxhill is keen to push forward the idea that companies do not have to use the port just because it is there. “Of course customers can use the port but the aim is to develop a predominantly standard industrial scheme in the south east.”
Cameron Mitchell of property consultant Jones Lang LaSalle comments that the country could be facing a shortage of distribution facilities. He says: “There is a shortage of good quality distribution capacity looming as a result of a recession related lack of speculative builds over the last two years.”
Indeed Lisa Fitch says that DP World London Gateway port and logistics park development, which offers almost 9.25 million sq ft of space, is well timed given current market conditions.
For some retailers looking to consolidate and upgrade their DC network the opportunities to locate in the South East must be overwhelming. It is estimated that the top retailers in the country have 50 per cent of their shop floor space in the south east.
Ward says: “Up to 63 per cent of unitised imports enter the UK through South East ports but only 10 per cent of large distribution warehousing is situated in London and the South East.”
Geoff Lipitt of PD Ports adds: “You can get to a point where the warehousing you have has either outgrown its economic life or proven to be in the wrong place at that point you have a possibility of moving closer to a port.
“An interim step is a shared user portcentric model where you have access to the value added service that possibly a specialist will be able to supply at the ports instead of securing your own dedicated facility.”
PD Ports runs its own multi-user consolidation centre in a 500,000 sq ft warehouse out of the Port of Felixstowe and DP World has committed to a similar sized consolidation centre at London Gateway aimed at SME businesses so they can either benefit from incubator or shared space while gaining flexibility in their supply chain.
Beaumont notes: “The usefulness of portcentric logistics especially in the South East will depend on your business, what it is and where your market is. This is something new and it is not attractive to everyone.
Lipitt says: “One of the challenges for ports in the South East is that a number of retailers already have DC networks.”
Stuart Hearn of Total Logistics agrees and adds: “There is a significant cost to change; a lot of business has been conducted in the traditional way for a long time and is well served from a single distribution model. Many companies will have high embedded costs and not many companies will be able to justify duplicating their supply chain [just to secure portcentric foothold].”
It’s not just storage and shipping at ports, there is also the issue to securing onward transport. Both Felixstowe and London Gateway are pinning hopes on rail freight to secure business. At present London Gateway is proposing two rail terminals in the Port that will primarily handle deep-sea containers. The Park rail terminal will also be equipped to handle European containers and swap bodies for UK domestic and continental European flows, as well as deep-sea containers.
Local rail connections with London Gateway will be enhanced by the double tracking of the Thameshaven branch line, which links the Port to the main rail network at Stanford-le-Hope.
Rail Access to the Channel Tunnel, as well as the West Coast Main Line for the Midlands, North West England and Scotland, is at W10 Gauge, which allows 9ft 6in containers to move on standard wagons.
Intermodal trains of up to 750m long (35 standard wagons) will be able to be loaded and unloaded at the port rail terminals, which will be located immediately alongside the port container handling areas. Equivalent lengths will also be serviced at the Park terminal using reception sidings. It is estimated that upwards of 30 per cent of all containers at the port will be forwarded by rail.
Hutchison Port, the owner of Port of Felixstowe is also promoting its rail credentials with the development of a third rail terminal that can handle 30-wagon long freight trains, capable of carrying 90 TEU. The port already moves 750,000 TEU per year by rail and the new terminal will eventually move more than double its capacity for intermodal traffic.