DEEPER DIVES: Goldman Sachs Is Betting $293M on Your Delivery Future

Good Morning,

First, as always, thank you for joining.

What a crazy couple of weeks.

A reprieve from tariff talk this week. Even with the US pulling back on De Minimis restrictions from China and Trump announcing ‘reciprocal’ tariffs on every country coming this week — I’m hitting pause.

If there was one thing that was super clear from the flurry of activity everyone posts about, is that it created a lot of noise and uncertainty with the amount of incorrect or misunderstood information that got around.

I’ll definitely be sharing my thoughts and guidance for everyone here, but like everything else, it will be by the numbers and accurate to give you the best tools to navigate the situation.

Here’s what this issue brings:

• Tariffs aren’t the only place that eCommerce is going to see a squeeze. Warehouses are quietly becoming a real estate battle ground. Location, location, location. Here’s what you should know and be watching.
  

• Shippers are still getting deep discounts when it comes to parcel shipping, how long can it continue?
  

• 966 startups shut down in 2024, a 25.6% increase from 769 in 2023. While the promise of new tools and tech to help you win is alluring, nothing will hurt your business more than migrating to a platform that fails fast

The Urban Warehouse Squeeze: eCommerce’s Next Big Bottleneck

Logistics has always been a numbers game.

Warehousing isn't any different. Square footage, cost per pallet, pick path and distance.

These days, those numbers are more important than ever.

But one is becoming more important than people realize. With growing land scarcity and the economics of last mile delivery, location matters.

Consumer proximity is jumping up the priority list.

The demand for urban warehouses is at an all-time high.

eCommerce sales were forecasted to reach $6 trillion globally in 2024. In the US, estimates had it around $1.2T for the year (based on $879B through Q3).

Fast fulfillment isn't a nice to have, it's baked into consumer expectations. And with the type of growth we are seeing, having space in the wrong location doesn't help.

Retailers and service providers are scrambling to secure new facilities. Land that's available for new warehouses is disappearing fast. This is causing costs to surge. Add in regulatory or community opposition, and the option to build new while being closer to consumers is almost impossible.

Fighting For Advantage

Urban fulfillment space is becoming one of the most valuable assets in logistcs.

Even Goldman Sachs Group has been pushing deeper into warehouses.

They recently purchased $293M worth of assets from Blackstone (an American multinational private equity, alternative asset management and financial services firm).

Along with its partner Dalfen Industrial, they now own 94 logistics buildings covering approximately 19 million square feet.

With companies shifting away from massive rural distribution centers and focusing more on strategically located facilities, they know the importance of urban locations will only go up.

Micro-fulfillment centers are growing. Same with sortation facilities.

Same day delivery promises are pushing everyone to think differently about their warehouse networks. They are prioritizing locations that can serve densely populated areas with short drive distances.

(This is why I share regularly about value added and non-value added activity and have gone into detail explaining those models in previous editions)

But securing these locations isn’t easy.

Land scarcity is a major issue.

Developers are competing with residential and commercial real estate for prime urban locations. If space does become available, it’s expensive and usually comes with strict zoning regulations.

Local residents are another challenge.

Warehouse developments bring more trucks, noise, and emissions into a community and we have been seeing more and more people who and standing up against it (despite the shopping trends of the same base!).

Opposition from residents has stalled or killed multiple last-mile warehouse projects.

And even when companies can find the right space, there’s tons of competition from giants like Amazon who have the scale and capital to dominate the market.

Small providers are left fighting for scraps.

The Surging Value of Existing Warehouses

Because of the challenges faced by new construction, the value of existing buildings is skyrocketing.

With only so many of these facilities available, prices are starting to reflect that reality.

Since consumer proximity is a key value driver, retailers are willing to pay a premium for space that allows them to significantly reduce their last mile delivery costs (and meet fast delivery promises).

With a market that is insatiable for new products and innovation, demand for storage space has never been stronger.

But simply owning a well-located warehouse won’t be enough.

These older facilities are being upgraded with robotics and automation to squeeze every bit of optimization for every square foot.

How Tech Is Changing The Floor

Dark, dingy and manual is quickly becoming a relic from the past.

Space constraints are forcing businesses to get a lot smarter about how they use their warehouses.

ML-driven inventory systems, robotics, IoT and RFID sensors are all helping to improve visibility across the supply chain.

Companies are now even building digital twin technology into their daily workflows (check out this post I made yesterday for a great example). These systems allow for deep levels of control over execution as well as allowing to quickly test new layouts and your customers change, or their volume and mix does.

The Road Foward

Warehousing in 2025 is going to be a game of positioning. Success is going to come to those that can secure the right space in the right locations. Investing early in automation and finding ways to be more efficient is also going to be a big differentiator.

Too many people right now are saying they are different, when more often than not, they are deploying the same strategies they always have but simply trying to wrap it up in a new way.

eCommerce demand isn’t going away.

Customers desire for more, isn’t going away.

To be successful a warehouse will need to manage an array of client types and will need to be able to get more value from smaller brands who need the support and penetration but aren’t shipping thousands of orders a month (at least, not yet).

Retailers and larger service providers know that the next few years are critical. Choices made today need to be aligned with mid to long term strategies. The ability to bounce around from provider to provider (warehouse to warehouse) is going to get harder once you realize that location and distance to consumer density contributes significantly to your profitability.

There simply aren’t as many (good) options as people think.

Discounts Are Staying Top Of Mind - This National Strategy Is a Disaster For Regionals

Great article a few weeks ago from Max Garland over at Supply Chain Dive.

We’ve all been seeing the news and the (constant) posts about GRI’s — and what shippers should being doing … but it seems like FedEx and UPS are still handing out hefty discounts.

Based on the larger clients that I’m working with, I can confirm that the majors are still making ridiculous deals.

Mingshu Bates, AFS’ chief analytics officer and president of parcel, said in the article:

“Carriers are continuing to communicate an emphasis on revenue quality, which would indicate tighter pricing control as the year progresses and continued pricing changes throughout the year”

“The Express parcel market is expected to stay highly competitive, driven by continued pressure from regional carriers, Amazon and the USPS, with aggressive discounting expected to persist into 2025”

The mistake however is believing that the large logistics solutions are looking at discounts as a means to an end.

They aren’t.

Discounting is going to do two things for them in the short term.

It’s going to allow them to bring back business that they may have lost to alternative carriers over the last few years.

And secondly, it’s going to create even more market pressure for alternative carriers that don’t have the same networks or options.

UPS, FedEx and Amazon have invested and are continuing to invest billions of dollars into their infrastructure.

They are all building out more programs to offer more one-stop-shop functionality to their platforms for the shippers that choose them.’

They don’t need their quality of revenue to come from just the shipping rates — they are looking at improving the quality of revenue by bundling in more services and functions on top of the core activity.

And this is the future.

No one can thrive on just the commoditized shipping revenue. It’s become wildly undervalued.

You have an entire generation of entrepreneurs and small brands that have grown up in a world where rate shopping, free shipping and subsidized offers has been the norm.

UPS knows this.

FedEx knows this.

Amazon knows this.

Even Walmart has been focused on adding more services to their services in order to drive better marketplace performance and adoption.

If you are a service provider and you have been hoping the market will turn and those low rates you offered to lock someone in could be a one and done and the next client will pay more — you’re wrong.

Success going forward for transportation and last mile will come to those that can do more for the people that choose to use their service.

Optimized routes, picture delivery, communication and high SLAs don’t mean anything anymore (because if you don’t have them, no one will want to use your service anyways).

Managing Data Is Important, But Execution Still Rules

We’re starting to see the effect of the pandemic boom.

Many startups that received funding in 2020 and 2021 at high valuations with minimal due diligence are feeling the squeeze.

Experts anticipate more shutdowns in the first half of 2025, with a potential decline in the latter half as companies either find new paths or cease operations.

SaaS companies were most affected, accounting for 32% of shutdowns, followed by consumer (11%), health tech (9%), fintech (8%), and biotech (7%).

(Side note — Supply Chain software is usually categorized as SaaS)

Venture funding for logistics startups experienced a huge decline, plummeting from $25.6 billion in 2021 to $2.9 billion in 2023—a nearly 90% decrease.

Why am I sharing all of this?

Because everyone’s inbox is getting slammed every day by sales people trying to get you to integrate the next to tech tool that will make you business great.

And don’t get me wrong, I’m sure there’s some out there.

But you have to be wary of new platforms making big claims.

Even if they can do what they say, there is always a risk of getting too integrated and too reliant on external services and then having to deal with an abrupt shutdown.

My advice for anyone looking at buying is to take your time.

There is no lack of options or providers for pretty much EVERY solution (for those of you going to Manifest this week, pay attention to how much similarity you will see and hear).

Everyone talks a big game but often when you get into the details, you will find that the capabilities are more focused than they seemed, or that the usage will be more expensive than you thought when you apply it broadly to your daily business functions.

Buy the tech and improve your business, but never forget to do the math on the risk.

That’s it for this week. Thanks for being here.