As the U.S-China trade war continues, there has been a 3% decline in Chinese imports to the United States over the past 12 months; it now accounts for 66% of all Asia-North America imports to the U.S. It is crucial to understand how even seemingly small changes like this one in global economies should play into the way we look at industrial real estate and logistics over the coming years.
Taking a global logistics and trends perspective, the expert panelists in a session at CRE.Converge 2019 in Los Angeles made some notable points:
- “Although we have seen a drop in Chinese goods movement here, stats show that deficit has been picked up by Vietnam and South Korea. We will see if this a sustainable trend or not depending on what happens with the tariffs,” said Cary Hutchings, director, economic development for BNSF Railway.
He added that the Suez Canal is also something logistics providers are watching very closely, now more than ever, as this often overlooked waterway is well positioned for the East Coast ports.
- Moderator Rick Myers, president of Thomas & Mack Development Group, noted that China has a different regulatory environment than the U.S. and is able to move much faster in the development of infrastructure.
- Panelist Micah Mallace, director regional sales, South Carolina Ports Authority, observed that China will likely bolster its manufacturing presence in other countries to transship goods to the U.S. through other non-tariff countries. “Malaysia has been producing lower-end electronics, and Indonesia [has been producing] furniture, as examples. Over the last 12 months we have seen a major upturn in these countries, among others.”
All agreed – the common theme remains – shifts in manufacturing and export growth in foreign countries is a slow process. Although there are many new markets working to increase their manufacturing capabilities, many of them are in various stages of infrastructure development. India is one such county. While it has a large labor force, roads and ports will need to be improved and expanded in order to meet its full capabilities. As India expands its imports, the East Coast will likely be its goods destination.
Gregg Healy, executive managing director, supply chain and logistics, Colliers International, noted that half of Asian-Pacific trade comes out of the West Coast. But as third-party logistics companies navigate through labor and regulatory issues here, they seek to find the most efficient and economical ways to meet their client’s requirements. They are constantly looking to strategically spread out risk in other parts of the country.
But, spreading out risk to other markets isn’t without its challenges. There is a general lack of appetite from cities and counties for speed to market with new facilities, and a major hurdle to overcome. Maximizing efficiency in the development process is crucial. It is also critical that there are adequate land use permits to support the industrial sector in an environment when there is a push to de-industrialize land. It’s a challenge, but it is important to support smart infrastructure.
Some markets will soon reach their limits from an infrastructure standpoint, or have already done so. Myers noted that the Alameda Corridor – the 20-mile freight rail expressway that connects the national rail system near downtown Los Angeles to the ports of Los Angeles and Long Beach – can’t run a new rail line to increase cargo output. “We need to think as an industry to stay on top of the infrastructure part,” he said.
To conclude the session, the panelists discussed emerging logistics technologies, which may create new opportunities for developers. Through AI and other innovations, the high demand in infill markets in particular will help reduce the demands on new inventory. The goal is to create a higher level of streamlined service to the customer so that delivery is faster, cheaper and better.
“Developers, you should feel confident today to push the regional distribution model to sell overnight products,” Mallace said. “Smaller warehouses are important as there is a new layer of predictive analytics where products come into the ports and are quickly delivered to customer. Amazon and Walmart are working to enhance this type of technology.”
Darcie Giacchetto has more than 20 years of experience in public relations and marketing including extensive work in media relations, branding, advertising, writing, marketing collateral and website development. Darcie specializes in all aspects of the commercial real estate industry and has worked with major real estate brokers, developers, investors, government entities, financing companies, property managers and construction clients.