The CRA Report: Q3 2024 – “I’ve Been Working on the Railroad”
By Robert G. (Gary) Bender on Jul 16, 2024
Rail-Served Industrial Space: “Hedge” and “Hybrid”
“I’ve been working on the Rail Road, all the live long day” may be well known words to an age-old song; however, these words might also offer a good strategy for companies looking to evaluate their logistics spend for their distribution network. As companies, on average, spend two to three times as much annually on transportation as compared with their annual spend for warehousing (storage and handling), considering rail-served warehouse buildings for their distribution network could offer significant transportation savings.
Think of rail-served buildings much as a hybrid car offering gasoline and electric power options. With rail-served buildings, you have the option for both rail delivery and truck/trailer delivery. In essence, rail-served warehouse space should offer an advantageous “hedge” for companies looking to reduce their transportation spend. With oil and gas prices trending higher and the current price of a barrel of oil at $ 80.00 (significantly lower than the price of $ 127 per barrel recorded in June of 2022), this strategy could have a big payoff.
That said, there is an additional “perk” for evaluating rail-served warehouse buildings. Our research shows that the current annual rental rate for available rail served warehouse buildings is $ 6.79 per square foot annually with a 7.9% vacancy rate, while the annual rental rate for available truck/trailer (logistics) warehouse buildings is $ 11.17 per square foot annually with a 7.3% vacancy rate.
In summation, there is a good case (both for lower transportation spend and warehousing spend) to be made for considering rail-served warehouse buildings as both a “hedge” for transportation spend and a “hybrid” for warehouse delivery. Although rail-served warehouse space has historically been the choice for highly industrialized companies with heavy products and a long shelf life, The “Oracle of Omaha” or Warren Buffett has been an investor in rail companies for years and our research suggests it might be a good time for your company to pursue this option/investment as well.
