In the logistics and supply chain world, many moving pieces are in play as the second half of 2024 unfolds. Given a consequential election year that could alter world trade and ongoing turmoil disrupting shipping, retail orders are up as a hedge. Tightening freight capacity is already sending rates higher, and the same could soon be true of warehousing as a follow-on effect. Here are some recent highlights from the news.
Executives from major industrial space REIT Prologis said in their Q2 report that they see warehouse vacancy peaking in the second half of 2024, setting the stage for a recovery in demand next year.
“The bright spot continues to be the depletion of the supply pipeline and successive quarters of very low development starts,” Timothy Arndt, COO of Prologis, said during the earnings call. “We believe we are near peak vacancy, and this dearth of new supply is setting the stage for more favorable conditions in 2025.”
Warehouse capacity has been fairly plentiful for the past year or more, after a tight market caused by the explosion in eCommerce demand. Arndt said completed developments hit a peak at 140 a year ago, but Prologis is looking at a figure of close to 50 million square feet by the end of the year.
Due to sluggish demand and higher vacancy rates, Arndt said market rents were down 2% in Q2, with 75% of the decline attributed to the Southern California market.
Christopher Caton, Managing Director and Global Head of Strategy and Analytics for Prologis, said the Southeastern U.S., Europe and Latin America were offsetting demand falloff in other parts of the portfolio. Larger warehouses in excess of 250,000 square feet are seeing the most demand and have the greatest availability. Those of 100,000 square feet or under are seeing stable demand and the lowest vacancy rates.
In 2023, the vacancy rate for big-box industrial buildings was 6.6%, twice the figure of 3.3% in 2022, according to CBRE. The net absorption of new space was 27.3 million square feet in Q1, the lowest figure since 2010.
Import volume is up and continues to grow, as retailers underestimated demand and shippers front load both to stock up for Q4 and in anticipation of a potential huge hike in import tariffs should Donald Trump regain the White House.
A separate set of tariffs from the Biden administration impacting Chinese semiconductors, solar cells, and electric vehicles takes effect Aug. 1, contributing to the import urgency and capacity situation. Asian imports were up 7.8% in the second quarter year on year, reports PIERS, a unit of S&P Global. And that volume increased each month: up 4.8% in April, 6.9% in May, and 12.1% in June.
Uncertainty over the outcome of labor negotiations between East and Gulf Coast dockworkers and port operators, as well as the Suez Canal being held hostage by the Houthis, continues to drive some volume to the West Coast. Gene Seroka, executive director of the Port of Los Angeles, told the Journal of Commerce (subscription required) that the Suez Canal has lost 80%-90% of its volume since the terrorist attacks began last fall. Seroka added that the port is at 75%-80% capacity and in good shape for Q4.
In a related development, data from trucking analytics firm Motive shows healthy restocking by retailers, signaling a soon end to the two-year-plus freight recession. All that cargo coming across the water is surely a contributing factor to the positive freight outlook.
Department of Commerce figures showed retail orders up through June vs. last year, including home improvement (+24.4%), grocery and superstores (+22.1%), and discount retailers and wholesalers (+13%).
Retail demand, coupled with capacity exiting the market through trucking firm failures, will combine to end the freight recession, Hamish Woodrow, Head of Strategic Analytics at Motive, told CNBC. “I think the holiday season will be interesting in terms of freight prices because of the tighter truck capacity,” Woodrow said. “We are at relative historic lows from a freight rate perspective, so I anticipate pricing pressure in early 2025.”
The total haul of Amazon’s self-created Prime Day shopping holiday can never be known; each year, the company pronounces it the biggest one ever. Fortunately, the good folks at Adobe Analytics helped us out by tracking overall U.S. eCommerce spending during the two days.
Adobe found that figure to be $14.2 billion — $7.2 billion on Day 1 and $7 billion on Day 2 — up 11% from 2023; mobile drove nearly half the traffic. Inflation or not, people still love a good deal, and Amazon loves signing up new Prime members.
Meanwhile, Sen. Bernie Sanders of Vermont continued his campaign to highlight working conditions in Amazon facilities, with Prime Day as a backdrop. Based on interviews with 100 current and former employees, Sanders called the eCommerce extravaganza “a major cause of injuries” for those picking and packing millions of orders in a 48-hour window.
And over the water in the UK, a union there is challenging the result of an organizing vote that fell short by a whisker on July 17. The tally at an Amazon facility in Coventry, England, was 49.5% in favor of the union vs. 50.5% opposed. As have unions here, the GMB union accused the company of using tactics that ran afoul of labor laws ahead of the vote. This included asking workers if they were pro-union, and posting QR codes around the building that allowed them to cancel their union membership.
Walmart is turning the traditional argument against warehouse automation and robots on its head. While workers fear it will eliminate their jobs, Walmart’s CEO recently told investors that automation and robotics can actually extend their careers.
This is due to the obvious fact that automation reduces the lifting, carrying, and walking for miles that warehouse associates have to do every day, which increases the likelihood of repetitive motion injuries.
"That's something that we're very focused on – doing this automation in a very associate-friendly way that becomes a complement to what they're doing and actually enhances their overall job experience,” said Walmart CFO John David Rainey at a Bank of America investor conference in London.
The bottom line message: Warehouse workers can keep their jobs longer, and the company can quadruple its productivity with the same headcount.
It’s an encouraging sign to see imports on the rise, even if much of it results from hedging against the possibility of coming tariffs. But it’s the usual double-edged sword: increasing import activity feeds the economy but tightens capacity, raising freight costs. It also points to an end to the huge glut of warehouse space that has kept lease rates artificially dampened.
Given this news in totality, small-to-medium shippers should look to a reliable logistics partner that can provide the warehouse space they need, efficient nationwide fulfillment, and reduced shipping costs.
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