2-1. Ratio of Land and Costs in Logistics Costs
When planning the establishment of a new logistics hub or the review (reorganization) of a distribution center, the most critical and careful discussion is required for the validity evaluation of "land and facility costs (storage costs)."
In the total logistics costs borne by a company (logistics cost-to-sales ratio), the standard level for costs related to land, buildings, and storage facilities (storage and facility costs) is considered to be about 15% to 20%. The largest portion of logistics costs is still transportation costs (over 50%). However, driven by recent factors such as driver shortages typified by the "2024 problem," soaring labor costs, and rising land prices and construction material costs particularly in urban areas, the impact of hub location selection and facility design on the financial performance of the entire company is increasing year by year.
Based on the latest survey data from the Japan Institute of Logistics Systems (JILS) and other sources, this article systematically explains the standard composition ratio of logistics costs by function, the breakdown structure of land and facility costs, the fluctuation mechanisms by business format and location, and the practical steps to realize an optimal cost structure.
1. General Composition Ratio of Logistics Costs by Function
A company's total logistics costs are broadly classified into four categories: "Transportation Costs," "Cargo Handling Costs," "Storage and Facility Costs," and "Logistics Management Costs." The following is a general composition ratio by function, referencing the "Logistics Cost Survey" by the Japan Institute of Logistics Systems (JILS), among others.
| Cost Item | Composition Ratio (Approx.) | Main Generation Factors and Contents |
|---|---|---|
| Transportation Costs (Trunk transport / Delivery) | 50% - 55% | Primary transport costs between factories and hubs, and secondary delivery costs to customers and stores. Heavily dependent on fuel costs and labor costs (drivers). |
| Cargo Handling Costs (Work costs) | 20% - 25% | Direct and indirect labor costs associated with receiving, inspection, put-away, picking, packing, and shipping operations, as well as material handling equipment operation costs. |
| Storage and Facility Costs (Land / Facilities) | 15% - 20% | Rent of the hub, depreciation expenses, fixed asset tax, facility management fees, utility costs, storage equipment costs, etc. |
| Logistics Management Costs | Approx. 5% | Information system costs such as WMS (Warehouse Management System), labor and administrative costs of the headquarters' logistics management department, etc. |
At first glance, storage and facility costs account for 15 to 20% of total costs and do not occupy the majority. However, it must be noted that the facility plan itself—"where to locate the hub and what structure it should have"—becomes a determining factor that directly dictates the amounts for the remaining transportation costs (distance and routes) and cargo handling costs (work traffic lines and mechanization).
2. Breakdown and Components of Land and Facility Costs (Storage Costs)
The "storage and facility costs," which make up 15-20% of total costs, have vastly different cost structures depending on whether a company acquires and owns land and buildings itself, or leases properties such as advanced logistics facilities (renting).
This is the cost structure when renting facilities like large multi-tenant logistics facilities, which have become mainstream in recent years.
- Base Rent (about 70-80% of the total): Unit price per tsubo × leased area (tsubo). Influenced by location, building age, ceiling height, floor load capacity, presence of rampways, etc.
- Common Area Maintenance (CAM) / Management Fees (about 10-15%): Lighting and cleaning fees for common areas, security maintenance costs, disaster prevention equipment maintenance costs, etc.
- Utility Costs (Electricity, Water, Air Conditioning) (about 5-10%): Lighting within the facility, air conditioning, usage fees for power receiving and transforming equipment, etc.
- Other Initial and Fluid Costs: Opportunity cost of capital tied up in security deposits/guarantees, provisions for restoration costs, brokerage fees, etc.
This is the cost structure when operating and owning a dedicated BTS (Build To Suit) type hub as a long-term corporate asset.
- Depreciation Expenses for Buildings and Equipment: Depreciation costs based on the useful life of construction costs (building main body + electrical/HVAC/fire prevention systems) and material handling equipment.
- Taxes and Public Charges on Land and Buildings: Taxes incurred annually, such as fixed asset tax and city planning tax.
- Maintenance/Repair Costs and Insurance Premiums: Reserves for large-scale repairs, exterior wall and roof waterproofing repair costs, fire and earthquake insurance premiums.
- Financing Costs: Interest paid in association with construction financing (in the case of interest-bearing debt) or expected hurdle rate (in the case of equity capital).
3. Structural Differences in Cost Ratios by Business Format and Handled Products
The composition ratio of logistics costs is not uniform across all companies. Significant distortions occur depending on customer attributes (BtoB vs. BtoC), characteristics of handled products (volume, weight, expiration date management), and the degree of order miniaturization.
① Comparison by Business Format (BtoB vs BtoC / EC)
・ BtoB (Manufacturing, Wholesaling, Inter-business Logistics)
Cost Trend: High ratio of transportation costs (55%-65%) / Low ratio of storage costs (10-15%)
Because operations center on bulk deliveries in consolidated pallet units or case units, the space filling rate is high, excelling in storage and operational efficiency within the warehouse. As a result, the proportion of storage and facility costs relatively decreases, while the weight of transportation costs associated with long-distance transport increases.
・ BtoC (EC, Online Shopping, Consumer Logistics)
Cost Trend: High ratio of storage and cargo handling costs (40%-50%) / Increased ratio of storage costs (20-25%)
It is necessary to hold a wide variety of small-lot SKUs, which increases the required location and aisle space, consequently inflating the necessary total floor area (tsubo). Additionally, because piece picking, inspection, gift wrapping, and distribution processing occur, workers (cargo handling costs) and high-spec facility functions (such as HVAC systems) are mandatory, causing the ratio of land and facility costs to jump significantly.
② Differences by Characteristics of Handled Products
- Apparel and Daily Necessities (High variety, large seasonal fluctuations): Due to the large number of catalog items and seasonal replacements, high-density racks and storage shelves are necessary, tending to increase the storage cost ratio.
- Frozen Foods and Perishables (Three temperature zones, freezing/refrigeration): Refrigeration insulation work, fluorocarbon countermeasures, and 24-hour air conditioning and cold storage equipment maintenance costs are enormous. Compared to dry (ambient temperature) warehouses, the unit price per tsubo and facility maintenance costs soar by 1.5 to over 2 times.
- Heavy Goods and Machinery Parts: While flat storage and heavy-duty floors (floor load of 2.0t/㎡ or more) are required, it is difficult to build high-rise racks, making it hard to utilize the floor-area ratio. This lowers the storage efficiency per tsubo and increases land costs.
4. Verification of Trade-offs in Location Selection (Urban vs. Suburban)
The most advanced decision-making required in facility planning is the "selection of location." Land/rent costs and transportation costs have an inversely proportional relationship (trade-off).
| Evaluation Item | Urban/Bay Areas (High Land Prices) | Inland/Suburban Areas (Low Land Prices) |
|---|---|---|
| Land Cost / Rent Unit Price | High (Expensive price per tsubo) | Low (Can significantly suppress costs) |
| Transportation Costs (Delivery Costs) | Low (Close to consumption areas/ports, short distance) | High (Increased distance to major consumption areas) |
| Delivery Lead Time | Short (Advantageous for same-day/night delivery) | Long (Long-distance driving occurs) |
| Labor Procurement (Part-time/Employees) | Easy (High surrounding population density, close to stations) | Somewhat Difficult (Premised on car commute, higher recruitment costs) |
| Comprehensive Suitable Formats | EC last mile, store delivery, same-day delivery hubs | National trunk line mother hubs, long-term storage depots, heavy goods hubs |
The Concept of Minimizing Total Logistics Cost (TLC)
There is no end to failure cases where moving to the suburbs simply because "rent (land cost) is cheap" resulted in extended delivery distances to major customers, causing the increased transportation costs to exceed the amount saved on rent.
In logistics facility planning, it is essential to calculate the point that minimizes the Total Logistics Cost (TLC) expressed by the following formula.
Total Logistics Cost (TLC) = Facility Costs (Rent/Depreciation) + Transportation Costs + Cargo Handling Costs + Inventory Interest/Management Costs
5. Practical Steps to Avoid Failure in Logistics Facility Planning
To realize an optimal ratio of land and facility costs and operational efficiency, it is recommended to proceed with planning in the following order.
- Step 1: Quantitative visualization of current costs and cargo flow data (ABC analysis, multiple regression analysis)
Accurately break down and analyze currently occurring logistics costs by "function," "hub," "SKU," and "delivery route" to calculate the current storage cost ratio and transportation cost ratio. - Step 2: Calculation of the optimal location area via Center of Gravity calculation
Based on the location information of demand from shipping destinations (customers/stores) and the shipping weight/frequency, calculate the geographical "center of gravity" where transportation costs are theoretically minimized. - Step 3: Hub consolidation/dispersion simulation
Conduct a sensitivity analysis on whether to concentrate the number of hubs into one location (storage cost and inventory reduction effect via inventory consolidation) or disperse them across multiple locations (transportation cost reduction effect via shortened delivery distances). - Step 4: Reduction of required tsubo area through material handling and layout optimization
Explore approaches to compress the required building area (tsubo) itself by utilizing vertical space (introducing high-rise racks and Automated Storage and Retrieval Systems/ASRS) and optimizing traffic line designs, thereby suppressing the total amount even if the unit rent per location is high.
Conclusion: For Strategic Hub Planning
Land and facility costs (storage costs) are not simply fixed costs (expenses) targeted for reduction. Investing in an appropriate location and an optimized facility structure is the source of generating competitiveness for the entire logistics strategy—compressing transportation costs, reducing truck driver detention times, shortening lead times, and securing a workforce.
Assess the characteristics of your company's handled products and customer needs, and promote facility planning aimed at minimizing the "Total Logistics Cost" rather than just storage costs alone.