Brandon Donnelly

Daily insights for city builders, delivered every morning at 6 AM ET. I’m Brandon Donnelly — a Toronto-based real estate developer and founder of Globizen. I’ve been writing here since 2013.

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Tag: supply chain

  • The productization of housing is set to start in San Jose

    Nabr, which I wrote about last year over here, recently announced its first residential project in San Jose’s SoFA district. Named SoFA One, the project is expected to have 125 apartments that will be offered up on a hybrid lease, own, and lease-to-own model. In this latter scenario, the company is saying that people will be able to buy with as little as 1% down. Construction isn’t scheduled to start until later this year, but if you’d like to get early access, you can add yourself to their waitlist, here.

    As a reminder, Nabr is touting itself as a direct-to-consumer real estate company that aims to bring the same manufacturing and supply chain efficiencies that we have seen in virtually all other industries to the production of housing. This, of course, is not a new ambition. The flatlining of construction productivity is well documented, and lots of architects, builders, and entrepreneurs have tried to innovate in this space over the years. But it’s clearly a notoriously difficult problem to solve. So the obvious question here is: What is going to make Nabr any different?

    Nabr is trying to productize housing. To do this, they’re building a vertically integrated process, going deep into supply chains, and trying to standardize their product offering as much possible. In the case of SoFA One, the base building is expected to consist of a CLT loft-style frame that can then be fitted out with various interior offerings. The idea here is that 90% of the build will be a repeatable system but that the remaining 10% is something that their customers will be able to customize — similar to when you’re buying a new car. The car is the same, but would you like black leather or brown leather?

    Continuing with the car analogy, the company is also taking a move out of Tesla’s playbook for how they plan to roll out their products. The plan is to start at the top of the market (like what Tesla did with its expensive roadster) and then move downmarket as they drive efficiencies and cost savings in their delivery process. What they are trying to do is find the compounding innovation that has been present in most industries but that has been noticeably lacking from construction.

    This all sounds great, but we know that buildings have a myriad of unique challenges compared to other products like cars and smartphones. My iPhone is the same as your iPhone, except for maybe the color and the case I put on it. But each development site is unique. Some have a high water table below it and some don’t. Some have adjacencies that will impact how you need to build and some don’t.

    Each jurisdiction also has unique codes and regulations — everything from urban design guidelines to more or less stringent seismic requirements. Some cities have snow and some cities don’t. The list goes on. So what Nabr is going to have to do is create regionalized products with as much repetition as possible. And if they can generally lock the ~90% base building systems and just adjust the balance as needed, maybe that’s enough to do it.

    At the end of the day, our industry is not completely void of innovation. It’s just a bit slow to change. We never used to build skyscrapers, but now we do. So I’ve decided to cast my developer cynicism aside. Today, we don’t have truly productized housing, but maybe we will.

    As an aside, Nabr also recently shared their leaderboard of cities where people want to see a future Nabr building. Those cities are New York, London, Los Angeles, Toronto, and San Francisco.

    Image: Nabr

  • Container shipping rates are still scary

    The cost of container shipping continues to come to the forefront in this current environment. Today I was reviewing prices from a number of our suppliers and the rates for a FEU (forty-foot equivalent container) now seem to range anywhere from $8k to almost $18k (both CAD), depending on the origin.

    This is up from a few thousand at the beginning of the year, and from far less prior to that. To help illustrate this point, above is a chart I found over at Statista showing an aggregated global container freight rate index from July 2019 to November 2021. This chart, which is in USDs, suggests that container rates may have peaked and be now tapering off, but who knows really.

    This is a challenge for our suppliers and partners to manage through and it is a challenge for us to manage through. In some cases these additional costs will necessarily trickle down to the end consumers of the spaces that we and others are building. But in other cases that is not possible.

  • Amazon’s supply chain moat is turning out to be useful

    Today, Amazon ships approximately 72% of its own packages. This is up from about 47% in 2019. Ben Thompson of Stratechery recently published an excellent article talking about why this is important and how the company’s investments in logistics are, yet again, paying dividends.

    The foundation of Amazon’s “moat”, Ben argues, is aggregating customer demand. When most people buy something on Amazon from a third party merchant, they think and feel as if they’re buying directly from Amazon. Some people probably don’t even appreciate the difference and in most cases it probably doesn’t matter. It comes in a box with Amazon’s logo on it and that’s that.

    But it’s an important distinction because if you’re a third party merchant, Amazon pretty much “owns” your customers. They are the ones aggregating demand. They have the brand equity and loyalty. And if you left the platform, your customers would be unlikely to follow you.

    This is kind of the opposite of how Shopify’s ecommerce platform works. When you operate a Shopify store you are using their platform, but you are bringing your own brand, web domain, and other assets to it, such that you can now establish a more direct relationship with your customers. This doesn’t mean that Shopify doesn’t have a moat, it’s just something different.

    All things being equal, most businesses would rather “own” their customers than not. The problem right now is that shipping and supply chains are no joke, and so there are real advantages to being on Amazon and having them handle your fulfillment. It could mean the difference between getting your products out for Christmas, or not.

    So all things are not equal.

  • A universal language for global trade

    This article by Ryan Petersen is a good history lesson on how shipping containers came to be. Here is an excerpt:

    The idea for containerization came from a trucker, not a shipper. Malcolm McLean started out hauling empty tobacco barrels with his family in North Carolina in 1935. At that time, entire trucks would drive onto ships, wasting both a ton of potential cargo space, plus a chassis that could be on the road moving goods. McLean developed plans to use the so-called trailerships for travel from North Carolina to New York, but U.S. regulations didn’t allow one person to own both a trucking and a shipping company at the same time. So McLean did what any innovation-minded entrepreneur would do: He dumped the trucking company, took out a $22 million loan, and, in January 1956, bought two World War II T-2 tankers. 

    The magic of shipping containers is that they created a standard. Now all of a sudden you had standardized boxes that were intermodal. They could fit on ships, rail, and trucks. Ryan refers to containers as the “unsung hero of logistics.”

    He also likens them to the HTTP standard that helped give us the internet that we know today. Before HTTP, computers could only communicate with each other if they were on the same local network. Now we are, of course, connected globally.

    But while containers standardized a part of our physical infrastructure, there’s a lot that remains fragmented and manual:

    The same way data passes between devices via the internet, goods pass between ocean ports, airports, warehouses, and other entities to reach their final destination. Without a logistics standard to act as a request-response protocol, all the players — suppliers, drayage, ports, warehouses, buyers — have to stitch their networks together manually. 

    Information gets lost; layers of redundancy, designed as backups given low visibility, slow the exchange: connections end up being very brittle. Let’s say there’s a shipment scheduled to arrive in Long Beach on Tuesday. But which terminal exactly and what pier number? What time is pickup? How long before late charges are incurred? Finding these answers is labor-intensive and imprecise. Logistics managers end up consulting different sources on websites, via email, or in person. 

    The dirty secret of the industry is that no one really knows where their stuff is.

    I’ll be honest in that I was expecting the article to transition into talk of blockchains. But that’s okay. The underlying message remains the same. Better software and more standardization is needed to improve our physical world.

    For some added context: Ryan Petersen is the founder of a company called Flexport.

  • 79 container ships are waiting to berth in Los Angeles

    Most of us have felt the effects of supply chain disruption during this pandemic. When we were building Mackay Laneway House this past winter, it was right when lumber prices were peaking. We had no choice but to just absorb the cost premiums and move forward with the job. On bigger projects with longer construction schedules, I know that a lot of us are trying to time what they can with the expectation that things will eventually sort themselves out.

    When things are working as they should, this is the sort of thing that you can take for granted. But now you really need to consider lead times and cost premiums. I was reading this morning that the average number of wait days from anchorage to berth in a port in Los Angeles is now 13 days. What that means is that vessels are sitting out in the water, on average, for almost 2 weeks waiting a spot. This costs money.

    As of last week, this translated into 79 container ships sitting in front of Los Angeles and Long Beach waiting to berth (see above chart). If you do the math, which Freight Waves tried to do over here, you get to a value of somewhere around $26 billion worth of stuff sitting out in the water. As I understand it, a big part of the problem is a lack of trucks and drivers to pick up the cargo once these ships have berthed. So you can run the ports 24/7, but you still have a bottleneck.

    Logistics clearly matter.

    Chart: American Shipper with data from Marine Exchange of Southern California, via Freight Waves

  • The new mobility landscape

    McKinsey published a report last month on the future of electric vehicles and what that will mean for the industry. Many countries, cities, and companies have set some sort of electrification target for 2030. The US is targeting 50% EVs by 2030. Several countries have announced a flat-out end to ICE sales by 2030. And a number of OEMs have committed to the same.

    But there are already cities, such as Oslo, which have reached EV majority. In July of this year, its passenger EV adoption figure was 66%, making Norway a global leader. What is clear is that the electrification of personal transport is well underway. Anecdotally, we are seeing that play out with the number of people now inquiring about electric charging infrastructure in our buildings (here in Toronto).

    This move to electric will have many repercussions, including a major shift in the entire supply chain (which McKinsey outlines in their report). While ICE vehicles and EVs still both have things like tires, EVs require a whole slew of new and now growing components:

    It is also going to force new public infrastructure:

    But in parallel to the electrification of personal vehicles, we are also seeing a number of other trends and shifts. The electrification of public transport (Shenzhen has already electrified its entire bus and taxi fleets). The rise of micro-mobility (things like e-scooters). The ongoing push to discourage driving in urban centers. And the continuing goal of autonomous vehicles.

    What all of this suggests to me is that the electrification of personal vehicles is only part of the story. The entire mobility landscape in our cities is changing and it will probably look a lot different by 2030.