There’s a ton of warehouse space in the United States today: about 14.5 billion square feet, according to Jonathan Rosenthal, chairman and co-founder of Warehouse Exchange.
But that’s not the shocker, he told Karen Webster in this week’s Matchmaker. According to Rosenthal, the amount of space that goes unused on any given day is 4 billion square feet, or roughly 30 percent. And that’s just the U.S. — the stats in Asia are even worse, with as much as half of all warehouse space sitting unused.
Something that Rosenthal said is a sign of a bigger problem in freight logistics is nearly endemic levels of inefficiency.
“The entire ecosystem is entirely inefficient, a thread that runs the gamut from trucking – where trucks are running full only half of the time – or shipping, where freighters are running at 70 percent capacity even though they need to run at 90 percent to make any money,” Rosenthal remarked.
But the “low-hanging fruit” in the system is warehouses, an area that is also one Rosenthal knows a lot about, as his firm also has about 2 million square feet of warehouse space of its own to manage.
“We think of ourselves as the outlaw coming to set the system right,” he noted of Warehouse Exchange and its ambition to become the “Airbnb of commercial storage.” Right now, he said, the system is fundamentally broken, because it’s basically trapped in a bygone era of salespeople and back-and-forth negotiations over contract terms where the standard operating procedures no longer apply.
Unbreaking The System
The warehouse booking system, Rosenthal noted, is antiquated to the point that it basically doesn’t work for any firm that isn’t large enough to need a fairly substantial amount of year-round storage over a long period of time. Enterprises negotiate contracts with warehouse operators, he said, and those contracts are typically five years or more, or require businesses to pay year-round for cover their storage needs in the peak season.
According to Rosenthal, that doesn’t work in a market in which manufacturers and distributors want flexibility and agility – and don’t want to be locked into a space or forced to pay for value-added services they don’t need.
Furthermore, he noted, smaller firms are basically locked out the system, as their warehousing needs are generally shorter term and largely seasonal.
“I honestly don’t know what option exists for those firms in the market, except maybe storing goods in one’s office space or home,” Rosenthal said. “This is like going into the supermarket and asking for three bananas, and finding out you can only buy a case of bananas. If you really need the bananas, you’ll pay. But if you don’t, or can’t, pay for a case of bananas, you walk out with nothing.”
The disruption the system needed – and the one that Warehouse Exchange was built to deliver – is to make it possible for buyers to right-size their warehouse ordering, and for suppliers to keep their shelves more efficiently full.
Letting The Platform Decide
What Warehouse Exchange does, as Rosenthal explained, is to make it possible for buyers to access interim or short-term space that suppliers are not using and would like to monetize. Warehouse Exchange doesn’t set pricing – that’s for buyers and suppliers to negotiate – but it is the platform for those parties to find each other, negotiate terms and finish it all off with a digital handshake and automated payment system. Warehouse Exchange only collects its flat fee when a transaction happens.
“We can tell suppliers that it doesn’t cost them thing to sign up,” Rosenthal said, adding that all they are doing is providing the system with whatever capacity they’d like to offer. When they make money, so does Warehouse Exchange.
It is not a service for everyone. Some firms really are looking for warehouse space that they can rent out in half-decade intervals, or need very specific value-added services to go along with it. Those firms, he notes, are probably best served by traditional channels.
But for everyone else – including the small businesses that make up the backbone of the economy – Rosenthal said that Warehouse Exchange offers an efficient alternative.
Beating Legacy Thinking
Sounds great so far, right? Well, as with most platforms, it’s tough to get everyone (or, in the beginning, anyone) on board. The common objection Rosenthal hears is that warehouses are “a personal business,” and that’s it’s not just about putting goods in a box, but also about creating relationships that let the buyer know their merchandise is actually safe.
Rosenthal agreed with some of that, since retailer’s merchandise (particularly at certain times of year) can quite literally make or break a business, and it’s crucial to have confidence in the commercial storage facility that has been entrusted with the goods. But, he noted, the idea that those can only be done through direct relationships with salespeople and long-term contracts is false.
“I just don’t buy the legacy thinking,” Rosenthal said. “If someone would have asked me five years ago if I would consider renting my back bedroom to someone I had never met before, I might have done a double take. But today, Airbnb is doing $6 billion a year in revenue. If renting a room in your house and having breakfast with a stranger in their bathrobe is not too personal of a business for marketplaces, I think commercial warehouses are going to be just fine.”
Moreover, he notes, reviews and transparency for the product are “a cornerstone of the exchange. That means warehouses are extensively vetted, reviews are checked and rankings are often updated. So, if a buyer finds a warehouse that does not carry sufficient insurance, all that means is clicking a box and having us add our extra insurance.”
Rosenthal also noted that because the Warehouse Exchange platform uses AI (IBM’s Watson), it can help buyers really “think” through their decision. That means, for example, that Watson’s AI can show them warehouses that narrowly missed their criteria that can either offer a big upgrade in service or a big reduction in price.
The point, he said, is to make the system run more smoothly simply by making all those 4 billion square feet of inventory visible to buyers, and easy to capitalize on for sellers.
Warehouse Exchange started in Southern California, where 40 percent of nations flow through the various ports. From there, it has pegged its expansion around retail hotspots like New York and New Jersey. But the next goal, Rosenthal noted, is to really integrate those warehouse locations outside the beaten path, and to turn on distribution channels that may as of now be entirely invisible.
It is, Rosenthal said, a lofty goal, but one the retail logistics industry desperately needs.
“I am a believer in the marketplace,” Rosenthal said. “I think you put people together, provide as much information as you can – much more than they might be able to get on their own – and you let those buyers and sellers be the arbiters of value. I think you’ll get great things from those interactions.”