Outstanding in its field

Rising out of the fields surrounding the fast-growing town of Milton, Ontario, is a massive structure that you can see from kilometres away. Still only partially walled-in when we visited in June – its exoskeleton still rising from the ground – it is the shell of DSV’s new distribution centre.

At 1.1 million square feet, the new DC will be the largest in DSV’s global network of over 80 countries. It will be home to a multi-client warehouse as part of the company’s Solutions division, and will house operations for the Air & Sea and Road divisions, as well as a three-story, 35,000 square foot office annex.

The seed

DSV has been busy making large acquisitions. With UTI joining the fold in 2016 DSV became the fifth largest freight forwarder in the world, and more recently its agreement to merge with Panalpina bumps it even higher. The new company will have about $23 billion in revenue and a workforce of more than 60,000 employees operating in 90 countries.

Accommodating growth like this takes foresight, and the decision to build the giant new facility began shortly after the UTI acquisition in the company’s HQ in Denmark, where the global footprint is under constant analysis. DSV’s Group Property division reached out to the Canadian managing directors, Rob Chanona from Solutions and Martin Roos of Air & Sea to determine what their divisions would need in terms of space and location, and if they could work together in one building.

The company’s objective is to gain synergies by eliminating disparate facilities and grouping the businesses together into one location where assets can be shared. “We had five, six buildings in the Greater Toronto area that will move into this Milton site,” Chanona said.

Part of the discussion with HQ was also to anticipate growth, “to build it with strategic space to sell into,” Chanona added. “In hindsight, that vision was 20/20 because now we’re realizing that in the GTA the vacancy rate is getting to historical lows, and we’re sitting on a 1.1 million square foot facility.”

Finding a suitable location was left to the local staff, Roos said. “I think that’s very unique but also defining of DSV. There’s a lot of autonomy in the countries. The decisions are ultimately left with the businesses from the philosophy that the local business knows and understands the local market the best.”

Unlike many of DSV’s Air & Sea operations, Roos’s business already had a cross-dock operation, which will be incorporated into the new building. “We all knew there would only be benefits from being open, transparent, and working together as opposed to working against each other. It’s the same company, and we need to see the bigger picture, even though that sometimes can be a little bit difficult when there are many chefs involved,” he said.

Site selection

The Solutions division drove the site selection – it will be the largest tenant and needs the most labour, making it important to locate near transit and highways so that people could get to work there. Air & Sea wanted to be near the airport, but the plan required a 50-acre parcel, and that’s just not doable close to Pearson International Airport.

Chanona recounts a search far and wide, looking at infill, greenfield possibilities and even a foray to the north. “We even had a meeting with two farmers where we were looking out the window at a hundred cows as we were discussing whether they wanted to sell the land or not,” he said. “So we looked at everything and then settled on Milton based on all the constraints in the GTA.”

The town of Milton was very welcoming, Roos noted. “I don’t think permits had ever been approved this fast as they were with this particular site. It was quite evident that they were going to be an extremely supportive community to establish ourselves in. It’s important for us to establish a partnership with the city and become an active community member.”

Getting the right mix

Building a DSV DC is based on a formula that’s being refined with every new facility. “Each building is the next version of the previous,” Roos said. “So we take all the good experiences and integrate that into what we’re building here.”

The design is coordinated between the principal Danish architect and a local architect, and takes into account local requirements like managing for snow, the number of bicycle parking spots that might be required – fewer in Canada – and the size of parking stalls – larger in Canada, thanks to the SUVs and pickup trucks we love.

Chanona describes design and planning as falling into three buckets. The first is the cultural and climate planning as well as how the traffic would flow around the site, how access would be controlled and the major design features of the interior, such as where power supply would enter the building and so on.

The second piece is communicating to clients and partners about the move. “We have to make sure that they’re aligned,” Chanona said. “That’s a significant element of the project itself because you have an existing supply chain that’s running out of a building in Brampton, how do you relocate that seamlessly and move that to Milton?”

The third bucket is looking at the future, once the dust has settled and everybody is moved in. “One of the directives that came from the local management team is that whatever happened in Milton could not be simply a copy and paste of existing operations,” Chanona added.

“We wanted the future state to be improved, maximizing efficiency. That took thinking outside the box. How do you create that synergy from a large building that you never had before?”

Technology assist

The groups sharing the new building have very different operational needs. Roos pointed out that Road and Air & Sea want to move cargo as fast as possible, while Solutions wants to hang onto it and add value. The DC will be 90 percent dedicated to the Solutions business, while 90 percent of the office space will be used by the freight forwarding side.

Chanona is looking at software to help with scheduling and planning across multiple clients. Some are pallet-in, pallet-out, some are case-in, case-out, and there is a significant group of clients that are either pallet- or case-in, but eaches out – e-commerce operators. “And in Milton, having all three of these profiles in one building, we had to come up with labour scheduling, we needed software,” he said.

With more than 800 staff, labour management will be an important part of that technology buy. The company is looking at solutions that will allow staff to schedule their work easily using mobile devices.

Not only will it smooth scheduling, it will allow for better pricing accuracy and transparency for the clients. “If the volume of work that the client gives us requires 5.6 forklift operators, traditionally you might have to price it at six because you literally can’t do 5.6,” Chanona said.

“What we’re building is the ability to give the client exactly 5.6 work effort in terms of resources, and that drives costs and value.”

The building will be 40 feet clear, and not a narrow-aisle set-up, which Chanona said is too limiting in a multi-client facility. They are looking at an AGV forklift solution, and are working with a manufacturer to develop a machine that can manage heights of 40 feet.

“The automated guided forklifts are a better long-term alternative to provide us with flexibility that we see the market requires,” he said.

The 40-foot roof height will give the facility a 25 percent better space utilization than the average 30-foot clear building, Chanona said. And with 1.1 million square feet, that adds up to a lot of extra cube.

Timelines

With just over a year for the build, the contractor, Leeswood Construction, has been hitting deadlines without fail. And they’ve had to contend with poor weather and a challenging site that was so far below grade that it has required thousands of truckloads of fill to level, sometimes at a rate of 200 to 500 a day. The initial work on the building’s footprint was essentially on an island in the middle of a lake, as they built that area up first, said construction manager Chris Prior.

The first to move in will be the freight forwarding divisions, with Solutions transitioning clients over through the course of 2020. “We’ve taken a very conservative, safe relocation plan where we’re going to be moving buildings, existing buildings, over a period of nine months,” Chanona said. “Some people might say that’s a luxury. But to us, that’s the only safe way to move clients in.”

Future

DSV’s decision to go big looks set to pay off from a real estate perspective, but as the managing directors both acknowledge, the future is unknown.

Chanona talked about the risks of committing to technologies. “It’s sometimes hard to predict the future. What I think we’re trying to do – and to me this is very conceptual, but we’re partnering with certain technology companies and we want to work with them closely because we could influence how they react to the market,” he said.

“Is there something that’s going to be radically different in the future? I’m sure there will be. It’s just hard to put your finger on what that is.”

The new Panalpina deal forced the team to “take another deeper look at how do we make all of these pieces fit into the model we’re building, but the pieces are at this point by and large still unknown. So it becomes to an extent guesswork or a guesstimate of how you intend to run it, with best case and worst case scenarios,” Roos said.

“There are still a lot of moving parts, but we of course hope that we can benefit from this increased footprint and size and continue with the DSV model which is to build long lasting partnerships and continue to develop the existing partnerships.”