The Port Complexes of Los Angeles and Long Beach, which together comprise the largest port complex in the country for containerized cargo, experienced a months-long period of severe congestion that started in the fall of 2018 and didn’t begin to ease until late February of 2019.
The congestion seems to have been driven in part by the announcement in the fall of 2018 of a scheduled tariff increase — from 10% to 25% — on Chinese imports. Experts believe that this helped spur a large spike in Twenty-Foot Equivalent Unit (“TEU”) volume that arrived from Asia over the next few months, as importers rushed to get as many goods to the U.S. as possible before the tariffs took effect.
The tariff increase was originally scheduled to go into effect on January 1, 2019 but was later pushed back to March 1, which may have contributed to extending the port backup as importers continued to pull more and more imports ahead of the rate hike. A tariff increase was eventually put into effect on May 10, leading to retaliatory tariffs from China on American goods. There is currently no consensus on how long the tariffs may persist on either side.
The severity of this recent container backup highlights certain enduring market trends and conditions specific to the industrial and logistics real estate industry that continue to create a need for industrial real estate in the U.S. Historically low vacancy rates for industrial warehouse space in and around Los Angeles played a major role in the severity of the backups experienced at the ports. With nowhere to store the incoming goods, some containers sat in the ports for extended periods of time (in some cases for months), incurring hefty fines for shippers. .
In addition, the combination of a strong U.S. economy and the rise of e-commerce have helped to keep warehouse space at a premium, especially in densely populated areas like Los Angeles where infill/last-mile properties are critical infrastructure for the successful movement of goods to consumers. We expect this trend in vacancy rates and absorption to continue, supported by e-commerce growth and positive projections for the U.S. economy in general.
Xebec is very active in the Southern California industrial and logistics real estate market, and is currently developing an infill/last-mile property in Santa Fe Springs, just southeast of Los Angeles. This 234,330 square foot Class-A warehouse property is set to begin construction in the second quarter of 2019. Visit the Sorensen property page for more information about this property.