COVID-19

As imports boom, warehouses fill up, and businesses face a storage shortage

Justin Ho Oct 1, 2020
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Warehouse rents in Southern California are up roughly 10% compared to a year ago. Virginie Goubier/AFP via Getty Images
COVID-19

As imports boom, warehouses fill up, and businesses face a storage shortage

Justin Ho Oct 1, 2020
Heard on:
Warehouse rents in Southern California are up roughly 10% compared to a year ago. Virginie Goubier/AFP via Getty Images
HTML EMBED:
COPY

Online shopping has been booming in this COVID-19 economy. And ever since international shipping restarted, that has caused imports to skyrocket.

The ports of Los Angeles and Long Beach — the busiest port complex in the U.S. — have handled record volumes of imports over the past few months, as businesses work to meet pent-up demand and build up their inventories for the holidays. The surge has been so acute that importers are running out of room in warehouses to store all of those goods.

When products arrive at the ports of Los Angeles and Long Beach, port workers unload them onto trucks or rail cars and those are shipped across the country to distribution centers.

“Let’s say, in the Midwest somewhere, it could be Chicago, Ohio Valley,” said William Villalon, the president of APL Logistics. He said the problem is things haven’t been moving very quickly.

“They’re just being parked because they can’t be taken into the warehouses fast enough,” Villalon said.

Social distancing is slowing down the unloading process. Truck chassis and rail car capacity are in short supply. Warehouses are packed to the rafters.

Available capacity is at its lowest since 2018, said Zac Rogers at Colorado State University. He runs the Logistics Managers’ Index, which tracks supply and demand in the shipping industry.

“COVID-19 has supercharged the warehouse sector because of the increased reliance on e-commerce,” Rogers said.

And with the holidays approaching, Rogers said retailers are competing for whatever storage space they can find.

“That’s really driving up the cost of warehousing, because we don’t have very many warehouses available,” he said.

Warehouse rents in Southern California are up roughly 10% compared to a year ago, according to Jason Tolliver, regional vice president of research at the commercial real estate services firm Cushman & Wakefield.

Retailers are paying that premium and not passing it along to consumers as they head into the holiday season.

“Trying to avoid the worst word that they could possibly hear, which is ‘stock out,'” Tolliver said.

The boom in e-commerce is prompting developers to build more warehouses, especially in urban areas.

“The market appears very healthy, with sufficient levels of demand to really eat up a lot of that space that I think is going to be delivered over the course of this year and next year,” Tolliver said.

The ports themselves are scaling up, too.

Mario Cordero is the executive director of the Port of Long Beach, which has spent roughly $4 billion on infrastructure improvements over the last decade.

“And for the next decade, approximately $2 billion, primarily in rail infrastructure” will be spent, he said.

The idea, Cordero said, is to cut trucks out of the equation, which will move goods faster and be good for the environment.

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