Market know-how: Warehouse Safety

Only in spring 2007 did rather ambitious plans for the building of warehouses become news. Raven Russia and Avalon Group have begun the construction of A-class Neva Logopark in St. Petersburg, which is expected to have a total area of 142,500 sq.m and cost about $130-$140 million. Germany's Henkel plans to invest nearly 80 million euros in the next three years in the development of an industrial and warehousing area in Russia and X5 Retail Group wants to construct logistic complexes in Russian cities where multiformat branches already exist. In 2007, the first of two buildings will be built in Nizhny Novgorod and Samara, each of which will have floor space of approximately 20,000 sq.m and will require almost $15 million in investments and Eurasia Logistics is starting an ambitious project to construct 16 logistical centers, costing more than $3 billion.

Thefts and lightning

Unfortunately, warehouses, which can be considered as strategic properties and oases of valuable goods, are constantly under potential threat of attacks, robberies, fires and strikes from lightning. For a wholesaler such unforeseen circumstances are even more trouble, especially if the goods are received on credit. In fact even if you have insurance, to prove it is a case for insurance is not simple, as insurance companies in Russia are accustomed to taking no risks in hypercritically considering all aspects of the matter, and will find the owners of the warehouses guilty if they have not properly taken care of the safety of a premises.

At the end of April, 2007, in Moscow there was a case which shook all Russian mobile telephone operators: from a warehouse of Mobisot Trading, a former sub dealer of Betalink, unknown persons stole mobile phones worth 23 million rubles. Thieves broke the lock of the entrance.

A month earlier a similar incident occurred in Minsk where a mobile phone warehouse was also burgled, and GSM and Dect handsets were stolen. In comparison with the theft of medical products or valuable metals it may seem that the theft of mobile phones is not so terrible. But for a small supplier cellular theft can mean bankruptcy.

Fires are a frequent accident that cause material damage. At the end of April in Liventsovka, a town outside Rostov-on-Don, a warehouse belonging to Millennium-Aqua, the exclusive distributor of the manufacturer of drinking water Aqua-Don, burned down. 1440 sq.m were affected by the fire and the construction of new premises will cost approximately 15 million rubles. The cause of the fire has not yet been established, or at least the official version has not been disclosed. According to the proprietors, the property was insured. 200 meters from the burned down building there is a warehouse that Coca-Cola ABC Eurasia rents from Millennium-Aqua, but this was not damaged in the blaze.

The largest and most dangerous fire occurred in 2001 in the Chita region, near to Nerchinsk. A warehouse storing aviation ammunition was struck by lightening causing shells and aerial bombs to detonate. Debris was scattered some kilometers. The shift duty and guards were missing.

To prevent similar extreme cases or even to minimize their consequences the developer, the tenant and the proprietor of a warehouse can protect goods and prevent unforeseen events, by observing security measures long accepted throughout the world - from the correct design of a building and organization of workplaces for employees to insurance of the property and its contents, the selection and special training of personnel and the installation of intelligent systems to help run the building.

$5 million for responsibility

Insuring a building and its contents is now obligatory practice on the high quality warehouse market in Russia, market participants say. According to Victor Afanasenko, director of marketing and tenancy of warehouse of the large investment company says, the following is the accepted approach to insurance: the proprietor insures the building, while the contents and civil responsibility for third parties lie with the tenant.

All safety details are stipulated in the contract between the proprietor and the tenant. The owner can insure a building for its full worth against fire or natural disasters. The cost of the insurance is defined by the insurance company and depends on the official sum spent on the project.

The owner of a warehouse has certain conditions for its tenants. First they must insure the property. To the owner it is important, that any company using its terminal is financially stable and that in the case of an unforeseen event it would be able to claim from Its insurance. For the same reason (to receive income from the leased premises) owners insist on the insurance of the tenant's civil responsibility for third parties (in case tenants damage each others property).

The proprietor and the tenant both agree on the sum of insurance for civil liability, and this may total $0.5 million, $1 million, or even $5 million. The insurance premium is not included in the base rental rate, the same as land and real estate tax and expenses on security, cleaning and maintenance services are not. This method of calculating rental rates is known as the triple net scheme. Insurance makes up approximately $1 per sq.m per year of the total rental cost ($120-$130 per sq.m per year and $25-$40 for operational costs) for the tenant.

As a rule, the tenant is needs approval of the choice of insurance company from the proprietor who is interested in decreasing risks. Tenants really have no choice because there is a lack of good quality warehouses.

If an unforeseen event occurs and it is not the fault of the tenant but his business suffers from the event, the owner usually pays the tenant compensation if penal sanctions are stipulated in the contract. In such cases the contract outlines the amount and method of payment.

Large developer of A-class warehouses Multinational Logistic Partnership (MLP), has among its most well known properties the Leningrad Terminal, MLP-Podolsk and MLP-Kiev measuring, all from 100,000 sq.m. The company insures each property against all risks and demands its tenants to take out insurance against civil liability and the property, says Anna Yakubov, director of marketing and tenant services at MLP. Contractors who work on the territory of MLP's complexes should also insure their responsibility.

There is currently no federal law on the obligatory insurance of the civil liability of owners of warehouses, temporary storage units and customs terminals. But the market is developing its own laws of survival. And insurance does not yet mean that a company will pay its victims money. The insurer can refuse to pay for a claim if it is the fault of the insurant or the person set to gain.

Against fire

Caring about the safety of the future building begins with the project, general director of UK Facilicom Edward Apsit says. During the early stages of a project fire-prevention systems and special routes for employee evacuation can already be put in place. This avoids later reconstruction of the space. It is important that the zones into which the premises is divided, are differentiated by the type of goods stored there. During the development of a project it is necessary to pay attention to Сonstruction regulation and law No. 31-04-2001 "Warehouse buildings." In section 6, "Prevention of the spreading of fire," certain requirements to the height, area and width of warehouse buildings, and also requirements to shelving systems are outlined.

The main causes of fires in warehouses, according to the Ministry of Emergency Situations of the Russian Federation, are not lightning, but carelessness with fire, smoking in forbidden places, malfunctioning electric installations and electric systems, static electricity and self-ignition of materials wrongly stored. However, according to the Ministry in the first quarter of 2007, the number of fires in industrial buildings decreased by 7.4% in comparison to the same period last year; in warehouses and bases of industrial enterprises fell by 2.9%; and in warehouses, bases and trading premises fell by 13.4%.

According Warehouse magazine the structure of warehouses are generally subdivided into open areas (land, platforms), half-closed (awnings) and closed (heated and not heated). Closed warehouses are the most common.

In accordance with the federal law No. 12.1.044-89 on technical regulating "Flammable substances and materials" and Regulation on the prevention of fires on premises No. 105-03 "Definition of categories of premises and buildings by explosive and fire danger," warehouses can be subdivided into five categories: A, B, C, D and E. The first two categories relate to warehouses with explosive and highly flammable materials - combustible gases, lithium, calcium carbonate, etc, buildings where cylinders of ammonia are stored and refrigerators run on ammonia, flour and powdered sugar. Category C includes warehouses with highly flammable materials such as natural and artificial rubber, cotton, wool, canvas, leather, wood, and nonflammable materials in combustible containers. Category D comprises stationary, specially equipped places that use welding and other work with fire in the production of incombustible materials, and boiler-houses. Category E includes warehouses that store nonflammable materials and substances in a cold condition. But in Russia it is more accepted to classify flammable substances by principles of similarity. Requirements of fire safety on the storage of substances and materials is regulated by Regulation on the prevention of fires on premises 12.1.004-91 "Fire safety. General requirements."

Fire prevention laws extend to the layout of buildings. If there are several terminals situated on a territory (more common among projects measuring 100,000 sq.m), then they should be divided into zones, which have identical fire prevention requirements. So buildings where materials with increased danger are stored, are separated from other premises. It is necessary that between buildings there should be gaps that meet the established regulations.

The approach to buildings should be convenient for fire engines: if the width of the facility is less than 18 meters then an access road on one side of the facility will suffice. If the width is more than 18 meters, two access roads, one on each side, are necessary. A regular preventive measure of the starting of a fire is regular checking of the premises by the proprietor: electric equipment, electric lighting, earthing and lightening defense. Electric networks and electric equipment established in warehouses, should correspond to the requirements of the law on electro installations, User Rules for Operating Electrical Equipment, User Safety Rules for Operating Electrical Equipment, and federal law on technical regulating No. 3.05.06-85 "Electro technical building."

Buildings and facilities are often struck by lightning because of an absence of special lightening defense devices, expenses on which, in comparison to the total expenditures on the construction of a property, as a rule, are rather insignificant - no more than 0.5% of the estimated charges.

Checking the system

On the one hand, various intelligent safety systems can seem a luxury, but on the other hand - as is the case for the Millennium-Aqua building, rented from Coca-Cola near Rostov-on-Don - they prevent fires.

Intelligent systems should watch over all functions of a warehouse with maximum accuracy. BMS and BAS systems manage all the engineering of a building. They control the fire signal system. The work of a sprinkler system is important in putting out a fire. Such systems are installed in different parts of the premise. In terminals a water veil is used. With its help it is possible to block a fire from accessing an evacuation zone, for example a corridor.

In Russia automated systems that have been checked and used for more than 10 years are widely used. According to Facilicom, the basic components of an automated control system are life-support systems: management of lighting, electric currents, climate-control, management of lifts, resource consumption counter and power supply systems.

Direct safety systems include a fire alarm system, access control, video monitoring, the control of engineering networks, protection of information, monitoring of emergencies, and the control of interaction of engineering systems over fire automatics. So, in the occurrence of a fire not only will water supplies be automatically switched on but so will ventilation systems.

Developers say that the purchase and installation of automated and intelligent control systems by a warehouse complex makes up 5-10% of the cost of a project. And although modern management systems are more expensive, their presence is an obligatory requirement in meeting the international requirements of warehousing and logistics. In developers' experience this kind of terminal can be later offered to foreign funds and investment companies as a quality product.. For example, all of MLP's terminals are equipped with video monitoring systems, a security signal system which automatically interacts with a telemonitoring system, and a notification system, Anna Yakubov said.

In developed countries completely automated warehouses where all intelligent systems work as a single unit have greater success. These so-called integrated intelligent systems are connected to a general dispatching board. They allow to maximize the effectiveness of the management of the whole complex, which would need, say, not 200, but 20 qualified employees.

Edward Apsit thinks that the cost of such intelligent software does not yet allow its mass application in Russia. Partner at Knight Frank, Roman Burtsev thinks the problem is more global: the transition to intellectual warehouse buildings means the construction of a new level of higher quality premises as the program equipment which is used in them, assumes other projects and the lay-out of buildings, other building materials and other levels of investments. Because of this logistic operators - tenants and developers of warehouses - need to form demand for such a level of project. This is akin to a revolution and new ideology. Aspit names IKEA's warehouses as the "cleverest" in Moscow.

It is probable that such premises will soon be under built-to-suit construction. Intelligent equipment will inevitably affect the cost, which could now be $,1300-$1,400 per sq.m (the average price of quality Russian warehousing with standard accepted automation is nearly $800 per sq.m). But investments will make returns, as it is not necessary to have an army of employees in an "intelligent" warehouse, for the input-output of goods, their storage: control over all life-support systems and safety will be automated and with saved energy. The costs of insuring such a premises should also decrease, as all possible risks have also decreased, Burtsev thinks.

Stock keepers change to scanners

The image of the manager of a warehouse is in the past already, and now there is a new image of specialist logists and operators managing with a warehouse has remained in the remote past, and on change to it send images of experts of a new formation - logistics and operators. However in Russia the management of a warehouse and its safety still depends on the qualifications of people. Only technologies will change in time.

But catalogs that have many systems and equipment for warehouses that can increase the management efficiency of a premises and reduce the risks connected with human error have appeared on the market. Such systems are based on automated technology, the goods stored in a premises and the remote management of personnel.

For example, the remote management of personnel can occur by means of radio terminals - mobile computers which workers at a warehouse are equipped with. The employee receives by the radio terminal stage-by-stage individual tasks automatically generated by the system or set by the manager of a warehouse. The performance of the task by the worker is confirmed with scanning the barcode from labels on goods, which the worker has dealt with. Automation of a warehouse is united with the control systems of a warehouse, the technology of scanning barcodes, radio terminals, scanners, warehouse and transport loading equipment, industrial procedures and personnel in a uniformed logistic cycle.

Bar code technology is the use of a barcode that can be read by a scanner to identify and provide information on the product on which the barcode is placed. In Russia modern radio terminals for reading the barcodes of US companies LXE and PSC have begun to appear. In Russia Invakorp Farma was among the first to use such system. MLP's tenants, Itella and Cargo Care also this technology. Itella, has its own control system, which considerably reduces the number of employees required. Cargo Care has a control system based on a software product Manhattan Associates ILS 2006. Relogix also uses this software. Similar are used in the warehouse complexes of Wells, Stroh'Brevery, PolyGram and Cole Palmer.