Season 5, Post 3: Sun Tzu was right

Ask most people about logistics and their eyes may glaze over. However, as the Chinese General, Sun Tzu, highlighted many years ago, “the line between disorder…

Season 5, Post 3: Sun Tzu was right

Ask most people about logistics and their eyes may glaze over. However, as the Chinese General, Sun Tzu, highlighted many years ago, “the line between disorder and order lies in logistics.” Think back to the start of 2020 when the COVID-19 pandemic began for a perfect case study in disorder – empty shelves in supermarkets and a run on toilet paper. Fast-forward to today and two conversations we had this week with significant players within the logistics space suggest that there is still much that needs to be done.

Begin with the toilet paper problem. Talk to the management team of Prologis (who reported quarterly earnings yesterday and hosted a subsequent conference call) and they will tell you that the market is “less than halfway to equilibrium in inventories.” Put another way, the shift from just-in-time supply chains to a just-in-case model where capacity is built in at every stage to deal with unforeseen events still has a long way to run. This is why, “customers need to commit to supply [of warehouse space],” especially since “little is available,” according to Prologis.

So, we need more warehouse space, particularly against a backdrop of “strong demand… and a continued lack of availability” (Prologis), but it is also becoming increasingly apparent to us that we need to use the space more intelligently. This was one of the main conclusions that became apparent to us from spending a morning with the management team of GXO, the largest pure-play contract logistics provider in the world. The business works with around 30 of the Fortune-100 businesses including Nike, Pepsi and Zara in order to help solve their complex supply chain problems.

We all know (as much as anything from personal experience – as your author can attest) that e-commerce is growing, at the expense of conventional physical retail. While convenient for the consumer, it introduces disorder for the retailer. Businesses need up to three times more warehouse when retailing e-commerce. Packets require more logistics than pallets and returns are higher. GXO highlights three market challenges: c40% of inventory ends up being discounted by retailers, c30% of e-commerce items are returned and c25% of returned items are sent to landfill. The solution: use a combination of advanced technological solutions to drive automation and reduce variable warehousing costs (as well as boosting net-promoter scores). The model works in other industries too. Have no doubt, logistics is becoming cooler.   

19 January 2023

​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​The above does not constitute investment advice and is the sole opinion of the author at the time of publication. Heptagon Capital is an investor in Prologis. The author of this piece has no personal direct investment in the business. Past performance is no guide to future performance and the value of investments and income from them can fall as well as rise. 

​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​Click here to view all Blog posts

Alex Gunz, Fund Manager ​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​


The document is provided for information purposes only and does not constitute investment advice or any recommendation to buy, or sell or otherwise transact in any investments. The document is not intended to be construed as investment research. The contents of this document are based upon sources of information which Heptagon Capital LLP believes to be reliable. However, except to the extent required by applicable law or regulations, no guarantee, warranty or representation (express or implied) is given as to the accuracy or completeness of this document or its contents and, Heptagon Capital LLP, its affiliate companies and its members, officers, employees, agents and advisors do not accept any liability or responsibility in respect of the information or any views expressed herein. Opinions expressed whether in general or in both on the performance of individual investments and in a wider economic context represent the views of the contributor at the time of preparation. Where this document provides forward-looking statements which are based on relevant reports, current opinions, expectations and projections, actual results could differ materially from those anticipated in such statements. All opinions and estimates included in the document are subject to change without notice and Heptagon Capital LLP is under no obligation to update or revise information contained in the document. Furthermore, Heptagon Capital LLP disclaims any liability for any loss, damage, costs or expenses (including direct, indirect, special and consequential) howsoever arising which any person may suffer or incur as a result of viewing or utilising any information included in this document. 

The document is protected by copyright. The use of any trademarks and logos displayed in the document without Heptagon Capital LLP's prior written consent is strictly prohibited. Information in the document must not be published or redistributed without Heptagon Capital LLP's prior written consent. 

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