Industrial Real Estate Logistics - Challenges and Opportunities

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Another month, another SIOR (Society of Industrial and Office Realtors) dinner. This time thankfully indoors! We were treated to a presentation by Jon DeCesare, CMC, President and CEO of World Class Logistics Consulting. Jon can be reached at jondecesare@wclconsulting.com. Jon’s presentation focused upon the challenges and opportunites facing logistics providers in 2022. Logistics simply is receiving, warehousing, and shipping goods. Think those massive Amazon warehouses you drive by on I-15 en route to Las Vegas. An awful lot else happens before that box arrives on your porch.
 
But, as Jon discussed, logistics is only a small part of the supply chain. Woven in to the fabric of supply are factories - where the stuff is made, trucking companies, freight consolidators, marine terminals, ports, steamship lines, railroads, intermodal hubs, government agencies, custom house brokers, less than full load trucking companies, small parcel companies, and retail stores. Whew! That’s a long chain with many links - and crimping any one causes delay. Weakest link indeed.
 
Faced has been the largest disruption to supply chains since WWII. A brief timeline follows. March of 2020 - Covid lockdowns. April 2020 - a lot of empty ships expecting out capacity. June 2020 - demand returns as folks order with a vengeance. After all, retail outlets were largely shuttered leaving consumers few choices. August 2020 - imports boom leading to trade imbalances and equipment shortages. November 2020 - port congestion worsens. March 2021 - Panama Canal blockage. January 2022 - regional lockdown in China affects the largest Chinese ports. The disruption has caused equipment imbalances - ships, trucks, trains - port congestion, schedule reliability, and cost of transportation has increased nearly five fold. Doubt what I say? On a clear day, take a look at the line of ships dotting the western horizon waiting to dock. Last count there were over one hundred.
 
Locally, our ports of Long Beach and Los Angeles - where approximately 40% of our nations import arrive - have seen excessive driver marine terminal turn times, increased ocean carrier transit times - from 15 to approximately 65 days, railroads unable to haul intermodal containers, a serious shortage of truck chassis, 100,000+ empty containers, appointment time delays at the marine terminals, and high cost and poor service quality. These combined have delivered - sorry - a knockout blow to logistics providers.
 
Jon quoted Thorsten Meincke, a board member for ocean and air freight at DB
Schenker - “We don’t see the tide turn in 2022, infrastructure problems, labor constraints, high demand and reduced capacity will continue to trouble the market. Stakeholders in the industry don't see much relief coming for shippers anytime soon. It will not get better and 2023 will be worse.”
 
I should add at this point, Southern California’s dramatic shortage of available warehouse boxes has fueled the flame. Not only are there not enough spaces to fill the demand - but, the obsolescence of old stock has led to inefficiencies. By that, I mean - low ceiling heights and poor truck access.
 
This environment has caused companies to re-think how and where warehouse sites are chosen. Jon mentioned four opportunity areas in Southern California where the next building booms may occur and logistics providers could locate. Highlighted were the Victor Valley - including Apple Valley, Victorville, Hesperia, Adelanto, Barstow and Phelen. The Antelope Valley with communities of Palmdale, Lancaster, Antelope Valley and Littlerock. The Tejon Ranch just north of the Grapevine and finally the I-10 corridor east of Banning to Indio. Can you imaging the congestion coming back from the desert? 
 
Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at abuchanan@lee-associates.com or 714.564.7104. His website is allencbuchanan.blogspot.com.