During the three years to 2017, the price of general warehousing and storage has been rising at an estimated annualized rate of 1.0%. Volatility has been low during the period, which is beneficial to buyers because it indicates a low risk of significant price fluctuations. As a result, buyers have the ability to make more accurate cost estimations and budgets.
Price growth is partially a result of increasing input costs for suppliers. Operating a warehouse includes costs such as labor, rent, utilities, depreciation and maintenance and repairs. Of these costs, wages account for a significant portion of supplier revenue. As demand for warehousing services has risen, demand for additional staff has grown as well, thereby inflating average wages. Growth in labor costs has contributed to expanding operating costs for suppliers. Suppliers have transferred these growing costs to buyers in the form of higher prices.
Price growth has also been spurred by increasing demand for general warehousing and storage. Demand primarily stems from businesses that sell physical goods, such as retailers and wholesalers. During the past three years, economic growth has been fueling an increase in consumer spending, which has generated an increase in inventory levels for retailers and wholesalers. As inventory grows, these businesses look for ways to efficiently store and manage their products, resulting in demand growth for warehousing and storage. Furthermore, the growing economy has led to a greater level of business investment, driving new businesses to open. As a greater number of businesses emerge, the number of businesses selling goods will rise, resulting in an expanding downstream market and further demand growth. The growth in demand has reduced competitive pressure on suppliers to offer lower prices, resulting in weakened buyer power and expanding service prices.
Due to growth in price during the past three years, buyers have not experienced significant benefits in delaying their purchases. Although low price volatility allows buyers to take their time in choosing a supplier, buyers are encouraged to secure a service provider now to avoid paying higher prices in the coming three years.
During the three years to 2020, the price of general warehousing and storage is forecast to grow at an annualized rate of 1.4%. Despite the expected increase in prices having a negative effect on buyers, price volatility is expected to remain low. As a result, buyers will continue to have a low risk of facing extreme price fluctuations, allowing for more accurate cost estimations and budgets.
For the most part, trends that have been supporting price growth during the past three years are anticipated to remain the primary drivers of increasing prices during the next three years. However, both wages and utility costs are anticipated to have different effects on price than in the previous three years. Oversaturation in the warehousing labor market and increased use of automated processes is forecast to slow wage growth, suppressing price growth slightly. Conversely, as oil and gas prices increase, key inputs in energy production, the cost of utilities is projected to rise and contribute to growth in service prices.
In addition to rising input costs, continued demand growth is projected to fuel price growth in the next three years. As the economy grows, corporate profit is forecast to increase at a quicker rate. Although outsourcing warehousing and storage is fairly common among businesses, many perform these tasks in-house to help cut costs. However, as corporate profit rises, companies will have more money on hand, which will allow them to seek methods of improving efficiency and convenience, such as outsourcing warehousing and storage. Furthermore, during the next three years, consumer spending is anticipated to climb. As consumer spending rises, businesses will have to increase their inventory of goods to cope with rising demand. In turn, these businesses will seek more storage space, driving up demand for warehousing and storage services. Forecast growth in demand will weaken the pressure on suppliers to offer competitive pricing, resulting in price growth.
Given the expected increase in the price of general warehousing and storage, buyers are encouraged to purchase these services now. Moreover, buyers that require these services on an on-going basis should sign a long-term contract sooner than later to lock in the current rates.