Understanding the business of warehousing

Paul Williamson (pictured), the Head of leasing at Nairobi Gate explains the business of warehousing and some of the logistics involved.

1. How best would you describe the warehousing and logistics business uptake in the country?

Logistics and warehousing as everyone knows is nothing new, however, the demand and especially the opportunity to lease world-class warehousing and logistics park infrastructure is seeing a huge upsurge.

Modern grade ‘A’ facilities are fairly new in Kenya but our model is based on proven and established systems used all over the world.

The idea is fairly simple, it’s about getting products into and out of the warehouse as quickly and economically as possible while doing it safely.

This includes being able to maximise the use of land and the building to store products efficiently, with quick access and turnaround time.

Specific examples of this include: making sure your trucks have enough space to park, turn around efficiently, unload and load quickly – that requires a large yard space – if a truck has issues it does not block the entire operation and multiple trucks can be in operation at any one time.

Our buildings are raised to the height of the truck's trailer – typically about 1.4m – this allows the truck to reverse up to the building and allow forklifts to drive in to unload or load – saving a huge amount of time and resources.

2. What is the best kind of warehouse?

A-Grade. It’s all about reducing the turnaround time and increasing efficiencies. Larger warehouses allow tenants to optimize their business through state of the art assembly lines, automated sorters, dimension weight scanning and automated packaging. This automation substantially reduces turn-around time and increases efficiencies.

Grade A warehouses are also designed with wider column grids and a high underside to eaves (typically around 13 meters) to allow for greater volumetric capacity. To ensure safe stacking, floor loads are increased and perfectly level.

Other standard features of an A-grade warehouse would include floors on grade or at dock height, allowing for the quick and easy loading of trucks and wide roads and yards to accommodate interlink trucks

A modern trend in logistics and warehousing is the integration of corporate office space with distribution facilities. This allows companies to increase their efficiency by consolidating operations.

Nairobi Gate offers all of the above in a parklike environment. The park will incorporate water and energy sustainable measures.

3. What legalities go into leasing a warehouse?

From a legal perspective – leasing is a much simpler transaction than purchasing. A lease agreement is generally a standard document, approved by local law.  Purchasing can be a complicated process, including a lot of due diligence and in the case where you have to build, there are a lot of approvals and servicing the land, building the facility can be a complicated and expensive exercise if you don’t have the right experience.  Financially, you are only required to out down a security deposit (usually 3 months), when compared to purchasing which is typically 30/40% of the building cost. 

4. What are the benefits of leasing a warehouse?

Leasing a property frees up a lot of capital that you would’ve spent purchasing a property, and instead allows you to put money into your business or to acquire equipment. The landlord is also typically responsible for Repairs and Maintenance - When you lease space, the landlord is generally responsible for common area maintenance.

Leasing typically gives you more flexibility than purchasing and it also allows you to sign relatively short term contacts (3/5 years) – so if the location of a building does not work for you, then you can move.

If you are a growing company, leasing offers a far easier method to accommodate growth than buying. You can build in expansion options within your lease, where you have the have first rights (also known as the “right of first refusal”) to acquire space that comes available.

5. What are the dos and don’ts in this logistics space?

Any decisions should be made with future-proofing in mind.  When making a decision now for medium or long term consider modern grade-A warehousing because no doubt your competition is doing so.

Efficiencies in modern logistics are going to be key – any operational savings will translate directly into lower costs for the consumer and quicker time to market.

If your competitors are more reliable, cheaper or can deliver quicker, then it’s going to be a tough challenge to compete with them.

6. What impact did Covid-19 have on and the logistics and warehousing industry at large?

There is not really a secret, our current successes are built on a long term strategy, with strong business fundamentals. This has probably allowed us to weather the pandemic better than others and should do with other challenges in the future.

Without question that we have been affected, like most businesses, however, the demand to modernise hasn’t changed and if anything has gotten greater because of the pandemic.

We have also been able to adapt and target areas that have benefited from the pandemic such as eCommerce and FMCG goods.

Kenya is set to follow most developed countries in modernising the logistics chain and warehousing might be the most important part of that, especially within Africa that it’s a part of the chain that you can control – especially when you consider other parts of the chain such as port + Roads

We know that more and more companies have this view and need to increase operational and financial efficiencies.

The pandemic may have given more impetus to companies to move sooner but it’s only a matter of time before they all have to go this route

7. Talk to us about accessing flexible financing on the Warehouse space and how it works?

What we are able to offer financial support for our warehousing or industrial facilities - this could be in the form of payment plans or lease to purchase schemes. A lease to purchase scheme is an alternative to a traditional mortgage.

This involves, leasing a warehouse for a certain amount of time, with a portion of the money going toward the purchase, over time the lease amount reduces as more of the building is owned.

8. Has the industry received any support from the government?

Although a lot more needs to be done, the government has been instrumental in the development of industrial parks. Improvements to the infrastructure of ports, rail and roads have seen huge time and cost savings. The creation of Special Economic Zones is attracting investment both international and local.  Other infrastructures including power are allowing new industries to grow such as Data Centers and Cold Storage facilities. 

9. What is the future of tech logistics in the country and what prospective future are you looking into as you find new technological ways to increase service efficiency?

If you look at what’s happening around the world when it comes to warehousing, the industry has moved away from manual and into more automated processes, in some cases as you have probably seen with companies such as Amazon, completely automated using robotics to manage the entire system. Although Warehouse management systems that allow for track and trace and increase speed of inbound and outbound movements, are already in use in Kenya, as a whole these systems need to be adopted more widely by the industry.

However, the industry needs to focus at this stage on developing the efficiencies gained through operational technologies. I’ve mentioned some of these above and include volumetric capacity, building at dock height, large truck yards and modern backed-up infrastructure.