STOUGHTON, WIS.—A first-of-its-kind study estimates that the U.S. commercial warehousing market earned some $25.7 billion in revenue in 2003. It also said third-party logistics company Exel was the largest operator of commercial warehousing in the United States that year. (See table.)

The consulting firm Armstrong & Associates of Stoughton, Wis., best known for its annual assessments of the third-party logistics market, released those and other findings in a report titled "An Overview of Warehousing in North America—Market Size, Major 3PLs, Benchmarking Prices, and Practices."

Although public warehousing dates back to the early days of the republic, the practice of contract warehousing got its start about four decades ago. Unlike public warehousing, where customers pay standard fees based on actual usage, contract warehouse users make a commitment to pay fees whether or not their storage space is used. According to Armstrong, the chemical manufacturer DuPont helped initiate contract warehousing in the 1970s when it funded construction of buildings in Tennessee and Kentucky, then hired operators for those facilities.

The report notes that contract warehousing today accounts for 60 percent of the U.S. commercial warehousing market. Because contract warehousing provides a higher level of service to users, that industry segment has made gains over its public counterpart in the past decade, said report author Richard Armstrong. "Instead of being one guy among forty in a public warehouse, a company is THE GUY in a contract warehouse," he said.

Although both public and contract facilities offer value-added services in addition to storage, contract warehouses tend to offer more value-added offerings, such as small-item picking, kitting, labeling, and reverse logistics, the study found.

Armstrong estimates that 43 percent of the agreements signed with contract warehouses extend for a term of three years. Contracts lasting more than five years were uncommon, accounting for an estimated 14 percent of all contract warehousing agreements.

Fees charged by public warehouses are based on such factors as the amount of space occupied, stackability of items, inventory turns, and labor needs. The report estimates that the average charge for an unstacked, palletized item that sits on the warehouse floor and turns in inventory three times a year is $13.50 per pallet per year. If the same item turned inventory 12 times a year and could be stacked four high, then a public warehouse would on average impose an annual charge of $3 per pallet. "If they make money on handling, they'll charge you less for storage," Armstrong pointed out.

Charges for contract facilities generally include fees for storage space, administration, labor, and often a markup to cover the warehouse operator's operating margin. "Most contracts have a fixed component for space and administration, and a variable charge for warehouse labor," Armstrong said. "The labor charge is proportional to the volume passing through the warehouse." He suggested that companies negotiating for contract warehousing not get hung up on the size of the operating margin. Instead, logistics managers should focus on the total costs for the service. " 'Is the total cost market-competitive?' is the key question," he said.

More details about warehousing costs and trends can be found in the report, which sells for $1,495 each. To obtain a copy, contact Armstrong & Associates, 100 Business Park Circle, Suite 202, Stoughton, WI 53589. Tel: 800-525-3915. Website: www.3PLogistics.com.