Transportation costs changes Japan’s logistics facilities

While rent is a key consideration for real estate owners, overall logistics cost including rent, is a more important consideration for tenants, particularly manufacturing and retail companies.

Logistics costs can be divided into transportation costs, storage costs and other costs such as packaging, loading, unloading, and logistics management. In Japan, 57.6% of logistics costs consist of transportation, 16.4% for storage, and 26.0%[1] for other costs. Warehouse rent is included in storage costs. Although these percentages vary between companies, transportation generally accounts for nearly half of logistics costs, while storage accounts for 10%-20%.

In 2024, Japan will regulate the upper limit on truck drivers working hours, thereby reducing transport distances and cargo volumes, and leading to rising transportation costs. Generally, transportation costs are proportional to the distance, and storage costs depend on the logistics base’s location. As transport distances are significantly affected by logistics base location, the choice of optimal logistics base locations has shifted as a consequent.

We assume two logistic bases to illustrate the impact of rising transportation costs on the logistics base location and transport distance, with the simplification that storage cost equals rent.

Logistics facility w1 has a short transportation distance (30), but high rent, representing high storage cost (50).

Conversely, logistics facility w2 has a long transportation distance (60) but low rent, representing low storage cost (10).

Assuming that transportation cost is calculated by multiplying the transportation distance by transportation cost per distance, denoted by “t”. Other costs are 10.

Figure 1: Illustration

Source: JLL Research

When t=1, the logistics cost is as follows, and choosing w2 is cheaper:

If w1 is selected: Transportation cost 30 x 1 + Storage cost (rent) 50 + Other 10 = 90
If w2 is selected: Transportation cost 60 x 1 + Storage cost (rent) 10 + Other 10 = 80

However, if the transportation cost per distance rises to t=2, the total logistics cost is as follows, and choosing w1 will result in a lower cost:

If w1 is selected: Transportation cost 30 x 2 + Storage cost (rent) 50 + Other 10 = 120
If w2 is selected: Transportation cost 60 x 2 + Storage cost (rent) 10 + Other 10 = 140

When the transportation cost per distance is less, low-rent facilities remain cost-effective, even with long transportation distances. However, as the transportation cost per distance increases, shorter-distance facilities become more economical, even with higher rents. Consequently, the demand for logistics facilities in locations with short transportation distances rises due to increasing transportation cost per distance.

While Tokyo’s logistics facility vacancy rate remains high, the Chiba Bay Area, near the city centre, maintains zero vacancy despite rising rents. On the other hand, facilities further from the city centre exhibit high vacancy rates. Moreover, increasing construction costs will lead to approximately 50% higher future rents. However, with ongoing truck drivers shortage, and the increasing difficulty to secure drivers, demand for logistics facilities with relatively short transport distances remain strong.

Figure 2: Vacancy Rate in Tokyo logistics facilities

Source: JLL Research 4Q24

_{[1] Japan Institute of Logistics Systems. Logistics Cost Survey Report 2023}