|As major retailers Walmart and Target deal with waning demand from the consumer in some categories, warehouse capacity remains tight across the U.S. and inventories continue to pile up. As the supply chain appears to me struggling, how is warehouse capacity helping or hearting?|
Who would have dreamed? In 2020, there were roughly 19,900 warehouse jobs in a region of California
called the “Inland Empire.” In the first half of 2022 that figure was roughly 135,400 warehouse jobs.
Industrial space continued to boom throughout the pandemic, causing businesses to vie for quality
industrial space. The industrial vacancy rates hit a historic low of 3.6% in Q3 of 2021 nationwide.
At that rate, warehouses are operating beyond available capacity to even function properly, according to Craig Fuller,
CEO of FreightWaves.
According to NPR, over 90% of warehouse space was already full pre-pandemic. Items began to pile up
further when factories, ports, and stores were instructed to close down shop as a result of the COVID-19
pandemic. When the world began to turn again, items previously pent-up flooded warehouses.
In the early 1990’s, there were about 650 warehouses in the Inland Empire. By last year, there were nearly 4,000.
The Inland Empire, where the population has quadrupled to 4.6 million in the last 50 years, is a critical storage-and-sorting point because of its proximity to rail lines that are a short jaunt from the ports in Los Angeles and Long Beach CA.
Amazon is a major presence, with more than a dozen warehouses in this area. It is constructing a 5-story 4 million square foot facility in the city of Ontario, CA. (located in the Inland Empire.)
The warehouse business is totally demand-driven, and demand is high.
E-commerce has only boomed as a result of the COVID-19 pandemic. According to NPR, “shoppers have been spending at record levels…in an average year, online spending might grow 10% or 15%. In 2020, it jumped to over 40% and has only kept growing through 2021 and into 2022.”
Warehouses play an essential role in the United States supply chain. Think…every item that you purchase touches a warehouse at some point. Add to increased demand, the supply chain is also facing a labor shortage to get things where they are going as quickly as possible.
As a result, warehouses have run out of space, industrial rent is rising like never before.
When will this be resolved?
In 2021, the U.S. used over 1 billion square feet of storage space compared to 800 million in 2020.
There is already an additional 500 million square feet of storage in development. Which is already spoken for.
Experts predict it may be sometime in Q1 or Q2 of 2023. In short, there is no way to know for sure when this will end.
It’s not just the West Coast.
In Michigan, labor shortages resulted in an average of 5% unfilled open positions per month over the time period of Q1 2021 – Q2 2022.
The port of New York and New Jersey added fees for ocean carriers as shipping containers piled up. The Port of New York and New Jersey is the nation’s third-largest port and the largest port complex on the East Coast.
The busiest U.S. seaport complex at Los Angeles/Long Beach handled about 550,000 more 40-foot containers than before the pandemic started.
It’s not uncommon for the shipping industry to ebb and flow. External factors including policy changes, economic cycles, capacity, pricing fluctuations, labor strikes, weather, and even war, and terrorism are all influential factors when it comes to timely delivery.
There has been a sudden and massive surge in demand that far outweighs the market’s capacity. Consumers and businesses spent money when stimulus checks were distributed. But global production was shut down at the time. Now, production has come back online, and manufacturers are racing to fulfill this high demand and backlog of orders.
The infrastructure necessary to keep production and distribution on track is not in place. “A lack of labor, trucks, warehouse capacity, and rail infrastructure all create significant supply chain challenges in handling the surge of cargo.” writes FreightWaves.
The global shipping crisis is a lot to unpack (no pun intended!) And with increased shipping and consumer demands, these issues will likely continue throughout the end of the year and beyond.