Frank O'Kelly Written by Frank O'Kelly

Warehouse storage in the UK: less space, more demand

The past eight months have seen wholesale changes to buying patterns, supply chain operations and business strategy, in turn causing greater demands on the UK’s warehousing space. Between July and September 2020, for example, the leasing of warehouse space in the UK increased 73% on the same period last year. In this blog, we examine why this has happened and how it impacts the UK’s sugar industry.  

What is driving the rise in demand?

Three core factors, described as the ‘perfect storm’ by some commentators, are responsible for the increase in demand:

• The impact of the Coronavirus pandemic
• The lead up to Christmas
• The end of the Brexit transition

With the UK government announcing new lockdown measures last Saturday, which are set to last until at least 2 December 2020, the impact of the global pandemic is hard to ignore. The pandemic has impacted virtually all aspects of business and everyday life in the past year, and it continues to force businesses to change tack to mitigate risk.

Coronavirus is making the lead up to Christmas more challenging operationally.  

It is also making the lead up to Christmas, the busiest time of year for the UK’s business sector, more challenging operationally. Reports indicate that demand for products should not change dramatically as a result of the pandemic, but the way in which the products are purchased and supplied to consumers will.

A survey conducted by Rakuten Advertising in the summer highlighted that 73% of UK holidays shoppers will purchase primarily online this year, with the figure likely to grow further since the government announced the new lockdown restrictions. As a result, many businesses are seeking to hold more stock in warehouses so they can distribute more efficiently.

Furthermore, the impending end to the Brexit transition period is also causing the UK’s warehousing space to come into greater demand. With the prospect of a no-deal Brexit looking increasingly likely, businesses are currently searching for warehouse space to house huge volumes of goods that can still be imported on the EU’s clear-cut terms before 1 January 2021.

How does this impact sugar?

The uncertainty created by this ‘perfect storm’ of supply chain pressures is causing many businesses to start stockpiling to mitigate the risk of operational disruption. This is taking place across many sectors, from pharmaceuticals to food and beverages, and of course, sugar.

With more businesses stockpiling, though, the greater demand causes the price of the warehousing space to increase. In sugar terms, this extra cost gets added to the price of the raw sugar stored within the warehouses. Then, manufacturers must also factor in the cost of transporting the sugar from the warehouses to their production facilities.

These added costs therefore increase the price of the finished product, which subsequently increases the price of customers’ end-products. So, while stockpiling sugar is a common strategy, it is an expensive one.

Stockpiling sugar increases the price of the finished product. 

Is stockpiling sugar a long-term solution?

The external pressures causing the present rise in stockpiling will not last forever. The lead up to Christmas will not be an issue once we enter the new year, and neither should Brexit, with the new trade rules taking effect on 1 January 2021 – whatever they might look like.

Despite this, warehousing space will continue to be in great demand. The growth of online shopping and direct-to-consumer business models is driving this demand, with current predictions suggesting that 92 million square foot of warehousing space will be needed by 2024.

This demand will only further increase the price of warehouse leases, which demonstrates that stockpiling sugar is not a sustainable solution. It can be an effective risk-mitigation strategy in the short-term, but it does not solve any issues in the long-term – it just makes them more expensive.

Businesses are therefore advised to partner with sugar manufacturers who have full visibility of their supply chains. The pandemic will not be going away any time soon, but the last eight months is testament to the resilience and versatility of sugar supply chains and evidence that thorough and sustainable business operations are equally as effective as short-term solutions.

Ragus understands delivery turnaround challenges to help its clients meet the demands of their markets. Contact a member of our customer services team on +44 (0)1753 575353 or to learn how we can help you keep pace with customer demand in the short and long-term. For more sugar news and Ragus updates, follow Ragus on LinkedIn.