Equilibrium and Optimal Location of Warehouses in Urban Areas: A Theoretical Analysis with Implications for Urban Logistics

Abstract

This paper presents a structural microeconomic model of the choice of warehouse location in urban logistics. The model is theoretical and analytical. It brings the focus on operational constraints, their diversity, and their influence on costs. The location decision is modeled as a trade-off between land rents (making it costly to locate close to the center of the urban area) and transport costs (which increase non-linearly when the warehouse moves away from the city center). The influence of various parameters on the optimal warehouse location is analyzed. The following conclusions are drawn. First, increased demand contributes to the explanation of logistic sprawl: when the density of operations (pick-ups and deliveries) increases in a given area, transport is more efficient, making it less necessary for warehouses to be close to the city center. Second, urban logistics is a heterogenous sector and, depending on the operational constraints, will not react homogenously to changes in economic parameters or the implementation of public policies. Third, economies of scale are identified: some implications are discussed. Fourth, the paper briefly discusses how land-use planning regarding, in particular, warehouses, can help internalize some of the externalities of urban logistics.