Prologis CEO Expects Shift Away from Lean Supply Chain Strategy Post-COVID

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Just-in-time supply chain strategies that have been in place for decades are likely to switch to a just-in-case approach in response to COVID-19, as well as recent natural disasters and trade disruptions, according to Prologis, Inc. (NYSE: PLD) Chairman and CEO Hamid Moghadam.

Speaking July 29 during an NYU Schack REIT Leadership Workshop webinar, Moghadam said “the world is becoming a much less predictable place and havoc is the enemy of having a very efficient supply chain.” He added that going forward, supply chains will be built for resilience.

As a result of the supply chain shift, companies may be carrying 5-10% more inventory in the future, Moghadam said. “That could double the growth rate of demand for logistics facilities, in addition to e-commerce, for the next five to 10 years.”

Moghadam also touched on the supply outlook for logistics facilities. In major metropolitan areas with the desired income and population levels, he noted, it’s very hard to find a 50-acre site on which to build.

“Land is getting scarcer and scarcer, buildings are getting bigger and bigger…and municipalities are becoming more and more anti-growth in the areas where you have the affluent, educated populations,” Moghadam said.

Heading into the current downturn, logistics’ vacancy rates were under 5%, while utilization rates were at 86%, almost a peak level, he noted. “There’s not a lot of shadow space. I think the supply side is in good shape; you have a couple of new demand drivers and that’s what makes for a good market.”

Moghadam also discussed opportunities that Prologis sees on the revenue side, including its Prologis Essentials platform that offers customers a range of warehouse services. “By offering more and more of these services to customers we’re taking more and more of their pain points away from them and…trying to turn the business from just price and location to something more than that, and customer service is a key element.”

During times of trouble, proximity to the customer becomes much more important, Moghadam said. “We try to earn more stripes during a downturn than in the good times, when everyone’s doing a good job,” he added.

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