The Friday Report: February 22nd, 2019

What is Driving Warehouse Construction?

Industry experts recently reported that there is a direct connection between the boom in new warehouse construction and rail volume growth.  Some railroads are undergoing dramatic infrastructure and technology enhancements in order to gain efficiencies.  Also, since the trucking capacity challenges of 2017 and 2018, use of rail increased.  This forced more industrial real estate development in areas with hubs for intermodal rail.  Nonstop or expedited service has been executed between inland transit hubs and coastal ports. These key transportation services have become increasingly popular and this has played an instrumental role in warehouse rentals near these hubs.

Nonstop “hot trains” are desirable as containers are typically not handled more than two or three times before reaching the beneficial cargo owner’s (BCO) loading dock, meaning fewer delays.  Intermodal yards tend to function similarly to 3PL sorting centers to bridge transit between coastal ports and shipper pickups.  Supply chain businesses such as large retailers and manufacturers tend to be more reliant on imports and in need of intermodal yards.

The growth in rail freight is projected to continue, along with the increase in new warehouse construction as infrastructure and technology is improved and the supply chain is realigned.

Amazon Sails Ahead with Increased Ocean Shipping Services

Working “under the radar”, Amazon is forging ahead to gain greater control over its supply chain, according to USA Today.  Using the name Amazon Logistics or Beijing Century Joyo Courier Service, its subsidiary, over 5,300 containers have been shipped to either the Port of Seattle or the Port of Long Beach.

To improve brand control over the transportation and logistics of its goods, Amazon has also been hiring its own delivery drivers and installing lockers, enhancing control over the last mile of product delivery.  The efforts have been making steady progress.

Because trade flows from China to U.S. customers, Amazon registered Amazon China in 2016 with the Federal Maritime Commission (FMC).  This ensures that Amazon China can operate as an ocean freight forwarder so that Chinese manufacturers and sellers can send their goods to America via ship.  This is especially important as third party sellers in China dominate the apparel goods for sale on Amazon

Amazon opened the program to U.S. sellers late last year, an important distinction as major competitor Walmart does not have a comparable service.

How Retailers are Navigating the Choppy Waters of Tariffs

As the March deadline imposed by the Trump administration looms, U.S. retailers continue to frontload inventories, adjust forecasts and bring new focus to supply chains.  Added inventory means more need for warehouses and additional warehouse space, albeit temporarily.  Tariffs on $200 billion of Chinese imported goods are set to increase another 15 percent, to 25 percent by March 1st if the U.S.-Chinese trade dispute is not resolved.  Items identified to receive increased tariffs range from fish and seafood to electronics, auto parts and beauty products.

Suppliers and third parties have been holding inventory purchased in mid-2018 so as to keep as little inventory on company books as possible.  This has led to increased need by distributors and retailers for flexible warehouse space options such as “pop-up” distribution centers, non-traditional storage space and short term leases.

Frontloading inventory has resulted in challenges both upstream and downstream in the supply chain, including port congestion, extra costs for retailers and equipment availability.