Stem time is an important factor for logistics companies to consider when choosing where to locate their warehouses and distribution hubs, according to a new report from JLL – ‘Assessing Last Mile Logistics in Australia’.

Stem time is the amount of time between when a truck leaves a warehouse or distribution centre and when it makes its initial delivery. This time is considered to be some of the least productive and profitable, and therefore least desired transportation time in a company's supply chain, especially in the last mile delivery sector.

One of the most critical considerations that must be weighed up by an industrial occupier engaging in B2C transactions is where to locate their distribution hubs. This is primarily a balance between locating as close as possible to a defined customer pool and the relative cost associated with industrial assets in those locations. 

JLL’s Senior Analyst, Logistics & Industrial Research Australia, Sam Butler said, “Location of distribution hubs is an important consideration for retailers, with courier companies needing to be in close proximity of both customers and industrial assets.

“Profitability is at its lowest during the stem time period of a company’s supply chain, and an important factor in the site selection process. We have seen this with operators in the “Postal and Courier Pick-up & Delivery Services” sub-sector heavily focused on proximity to major population bases, with 94% of gross take-up recorded in the sub-sector since the start of 2015 across three eastern seaboard states.

“The importance of being close to customers is also evident in the weighting of gross take-up by retailers by market. Sydney has seen the highest share of activity from the sector since the start of 2020 (43%), followed by Melbourne (38%),” said Mr Butler.

According to JLL Research, the Retail Trade & Transport, Postal and Warehousing sectors have been the most active in the Sydney market since the start of 2020, accounting for 63% of total market gross take-up in that time.

The majority of this take-up (87% of that 63%) has been located in the outer precincts, which is a reflection of land availability to build new assets.

However, the Inner West is one of only two precincts where those two sectors have been the two most active. This indicates that whilst the volume of activity is not as significant in the Inner West (again, due to the lack of opportunities to secure space), whenever there is space that comes up, there is considerable interest from a large number of retailers and 3PLs. 

JLL’s Director of Supply Chain – Industrial, Bruce Myers said, “Stem time is of high significance for both supply chain and logistics professionals, but also for those making site selection property decisions.

“For companies considering a distribution centre in a remote area as a result of highly attractive leasing arrangements and incentives, think again. Exercise due diligence to determine how this location will affect the average stem time of your distribution process. Often, the potential savings can be vastly outweighed by the increased transportation costs,” said Mr Myers.

JLL’s report, ‘Assessing Last Mile Logistics in Australia’, can be downloaded here.

Related reading:

New JLL podcast reveals the impact of automation on the logistics job market

Managing last mile logistics in Australia: The most important link of the supply chain - JLL

JLL 3Q Research: Industrial rents grow at highest levels since 2004