Coming Down the Pike: “Supply Chain as an Ecosystem”

LONG BEACH, May 6 – WAREHOUSE space is a key metric for truckers, and any fluctuation in capacity is likely to have repercussions one way or the other for carriers to and from California’s Inland Empire, the state’s warehousing capital. 

Demand for space in the Inland Empire remains high, but changes in consumer purchasing could impact the industry – a topic likely to be considered at the upcoming 2022 Southern California E-Commerce and Logistics Summit, presented by the Inland Empire Economic Partnership. 

To be held on Thursday, June 2 in Ontario, California, the summit will feature panels by industry leaders, including a keynote presentation by Weston LaBar, Head of Strategy for Cargomatic, who will speak on the “Supply Chain as an Ecosystem.”

Also speaking will be Melinda McLaughlin, Senior Vice President, Global Head of Research at Prologis, the international leader in logistics real estate with a focus on high-barrier, high-growth markets.

Additionally, there will be panelists representing other key stakeholders in the supply chain industry, among them ports, trucks, railroads, marine terminals and ocean carriers.

Amazon downsizing warehouse space

One topic that may arise involves recent reports that e-commerce behemoth is looking to offload at least 10 million square feet of its current warehouse space, while also looking to end or renegotiate leases with outside owners of warehouses. 

“The move follows the first quarterly loss in seven years for the company, which in April reported a decline in demand that has strained its warehouse operations after roughly two years of outsize growth,” the Wall Street Journal reported.

Does Amazon know something nobody else knows? Is the purchasing boom created by the coronavirus pandemic over? Are we now going to see an end to the outsized number of ships congregating outside of US ports? Will supply chains be drying up? Will truckers have nothing to haul?

In a statement, an Amazon spokesperson played down such concerns, saying that subleasing is a “common tactic” in real estate.

“It allows us to relieve the financial obligations associated with an existing building that no longer meets our needs,” the spokesperson said. “Subleasing is something many established corporations do to help manage their real estate portfolio.”

Inflation is hurting US consumers

Still, down-played or not, there are issues that could put a crimp in consumer spending that would have adverse effects for warehousing and the supply chain generally, one of them rising inflation currently afflicting the country, now greater than 8% year-over-year.

In its most recent report, the US Bureau of Labor Statistics said that the all items index increased 8.3% for the 12 months ending April, while the all items less food and energy index rose 6.2%. 

Most significantly, the Bureau said that the energy index rose a whopping 30.3% over the last year, and the food index increased 9.4%, calling it “the largest 12-month increase since the period ending April 1981.”

That translates into severe problems for consumers, a point underlined by the most recent PwC Employee Financial Wellness Survey of more than 3,000 workers across several industries.

Some 40% of full-time employees surveyed say their top financial pressure is that everything costs more these days with little optimism that help is on the way. Only 42% in the PWC survey say their compensation is keeping up with the rising cost of living expenses – down from 52% in last year’s survey.

Warehousing market remains tight 

While such figures could suggest that Amazon may have some reservations about trends in consumer spending, other players in the warehouse capacity market nonetheless remain upbeat. 

That is evident from BentallGreenOak’s $83.4 million purchase of the Alder Commerce Center, pictured above, a 175,000 square foot warehouse developed and managed by Stream Realty Partners in the Inland Empire.

According to Stream, the site is built for trucking: “Next to Interstate 10, Alder Commerce Center offers those in-demand features including 32-inch clear height, 21 dock-high loading doors, two drive-in doors, a 180-foot secured truck court, and both ground-floor and mezzanine office space.”

Stream also touts the Inland Empire as a whole, calling it one of the “strongest performing” industrial markets in the country which continues to see “record-low vacancy and record-level demand” for warehouse space.

“The region’s proximity to sea, truck, and air points of entry to major population centers has made it a hotspot for companies to build, buy, and lease industrial space with best-in-class amenities,” Stream says.

Hotspot is probably the right word to use in the current circumstances, since warehousing closer to the ports of Los Angeles and Long Beach is even harder to source, especially given the continued high volumes of cargo still coming across the Pacific.

Those volumes mean demand for warehouse space continues to outpace supply around the ports in the South Bay market, according to commercial real estate services and investment firm CBRE in its Q1 2022 Submarket Report, aptly titled “Record low supply cannot keep up with high demand.”

 A question to be considered in Ontario is how long that high demand is expected to last.