Mark Solomon joined DC VELOCITY as senior editor in August 2008, and was promoted to his current position on January 1, 2015. He has spent more than 30 years in the transportation, logistics and supply chain management fields as a journalist and public relations professional. From 1989 to 1994, he worked in Washington as a reporter for the Journal of Commerce, covering the aviation and trucking industries, the Department of Transportation, Congress and the U.S. Supreme Court. Prior to that, he worked for Traffic World for seven years in a similar role. From 1994 to 2008, Mr. Solomon ran Media-Based Solutions, a public relations firm based in Atlanta. He graduated in 1978 with a B.A. in journalism from The American University in Washington, D.C.
The industrial property sector is partying like it's...well...2005.
The market—which lumps together manufacturing, warehouse and distribution center, transportation, and logistics
facilities—is experiencing one of its strongest cycles in years. Warehouse rents are rising, with the average rental
rate up 4.4 percent from a year ago, according to JLL, a real estate and logistics company. CBRE Inc., a huge developer, pegs
the year-on-year gain at about 3.1 percent. In the southern California market, home to the country's largest seaport complex,
rents are up nearly three times that, driven by huge demand for port-centric property as well as the need for more cross-dock
space to handle the transloading of goods from 20- or 40-foot marine containers to 53-foot boxes moved inland via truck or rail
intermodal.
Vacancy rates nationwide in the third quarter dropped to 7.2 percent, the lowest level in six years, according to JLL data.
Vacancies in red-hot markets like the Lehigh Valley in central Pennsylvania have dipped below that, hitting levels not seen for a
decade or more, according to Jake Terkanian, vice president of the global industrial services group at CBRE. Nationwide
availability, which tracks current vacancies and space that will become available in the next six months, reached their lowest
levels in the quarter since the first quarter of 2008, according to CBRE.
Nationwide net absorption, broadly defined as the amount of occupied space less the amount of space vacated, hit 143.8 million
square feet through the first nine months, up 28.5 percent from a year ago, JLL said. Vacancy rates could fall to as low as 6.9
percent in the seasonally strong fourth quarter, when demand for space picks up before the holidays, JLL said. By year's end, net
absorption will reach, at minimum, 185 million square feet, up nearly 10 percent from a year ago, JLL said.
The anecdotes add fuel to the story. In the Lehigh Valley, there are no more 500,000-square-foot "big box" distribution centers
on the market, according to Terkanian, who oversees the region for CBRE. In Bethlehem, Pa., Zulily, a fast-growing e-tailer, leased
out all the space of an 800,000-square-foot distribution center, which was built as a speculative development, about six months
before construction was finished. Out west, Los Angeles has a 1.9-percent industrial vacancy rate, according to Newmark Grubb
Knight Frank, a real estate services firm. About 2.5 million square feet is under construction there.
California's "Inland Empire," where industrial rents are significantly cheaper than in and around the Los Angeles basin, has
been on a multiyear roll as the DC conduit between imports off-loaded at the Ports of Los Angeles and Long Beach and consumer
markets across the west. Ironically, third-quarter vacancy rates have ticked up to 5 percent from 4.8 percent in the prior quarter
and 4.6 percent in the year ago period, according to Newmark data. That could be because of a minor oversupply condition due to
the 12 million square feet under construction there.
Low interest rates, sharply declining oil prices, and a generally better economy have created a "potent cocktail" for industrial
demand, according to Jim Clewlow, chief investment officer of Centerpoint Properties, which specializes in developing transportation
and logistics projects. Should oil prices stabilize at current levels or fall further, that could trigger demand for more distribution
centers, Clewlow said. That's because higher oil prices generally encourage producers, distributors, and retailers to consolidate their
DC networks in an effort to reduce shipping costs and conserve fuel.
The industrial segment is demand-driven, and tenant demand is demonstrating consistent strength. Space needs were up by 23.9 million square
feet compared to the winter of 2013, and on par with summer 2014 levels, JLL said. In addition, 45 percent of the demand is for space under
500,000 square feet, a reflection of broad-based strength and the bullishness of smaller distributors, the firm said.
A VIRTUOUS CYCLE
When the real estate market turned down sharply starting in 2007, industrial construction nationwide virtually ceased. It stayed frozen for about
18 months. From 2010 to 2013, deliveries of new projects plumbed a 50-year low, according to JLL data.
However, as e-commerce growth and low interest rates began fueling economic activity, developers got busy and once-dormant markets started
perking up. They've continued to gain momentum. Total construction in the third quarter of 2014 rose 16.5 percent from the prior quarter and
54.2 percent from a year ago, according to JLL. In Atlanta, construction reached 12.4 million square feet by quarter's end, up 104 percent from
the end of the prior quarter, the firm said.
Still, there is plenty of catching up to do. New completions at the end of 2014 will only match 2003 levels, says Dain Fedora, JLL's research
manager, Americas industrial. Projected new completions hitting the market next year will only return the sector to 2005 levels, he adds. The
supply that went online in the third quarter, while being the strongest quarter to date, is still at levels below the long-term average, adds
CBRE.
The market, being what it is, will eventually seek its level. Supply will continue to increase, eventually bringing it into equilibrium with
demand. But that may not happen until well into 2016. "We still need that product," Terkanian says. Landlords, meanwhile—who three or four years
ago were handing out incentives left and right to entice prospective tenants and keep existing ones—are now in the catbird's seat. "In 24 months,
the pendulum has completely swung," Terkanian says.
Bigger markets like Los Angeles, Dallas, Chicago, and New Jersey/central Pennsylvania may find themselves with a supply overhang, according to
Tim Feemster, managing principal of Foremost Quality Logistics, a consulting company. However, tenant demand should remain sufficiently strong to
keep net absorption levels growing, Feemster adds.
Activity in 2015 will be influenced by how the holiday season pans out, Feemster says. Busy cash registers combined with a continued uptick
in the overall economy will embolden developers to increase their capital investments, he reckons.
In this environment, it is hardly a surprise to see rental rates increase. And that is unlikely to faze producers, distributors, and retailers
willing to pay a premium to be near transportation nodes and dense population centers. According to JLL, logistics costs—transportation,
inventory, and labor—account for about 80 percent of a user's operating budget. Real estate, by contrast, comprises just about 5 percent. Higher
rents are "a drop in the bucket" for companies keen on being where their customers are, Fedora says.
Congestion on U.S. highways is costing the trucking industry big, according to research from the American Transportation Research Institute (ATRI), released today.
The group found that traffic congestion on U.S. highways added $108.8 billion in costs to the trucking industry in 2022, a record high. The information comes from ATRI’s Cost of Congestion study, which is part of the organization’s ongoing highway performance measurement research.
Total hours of congestion fell slightly compared to 2021 due to softening freight market conditions, but the cost of operating a truck increased at a much higher rate, according to the research. As a result, the overall cost of congestion increased by 15% year-over-year—a level equivalent to more than 430,000 commercial truck drivers sitting idle for one work year and an average cost of $7,588 for every registered combination truck.
The analysis also identified metropolitan delays and related impacts, showing that the top 10 most-congested states each experienced added costs of more than $8 billion. That list was led by Texas, at $9.17 billion in added costs; California, at $8.77 billion; and Florida, $8.44 billion. Rounding out the top 10 list were New York, Georgia, New Jersey, Illinois, Pennsylvania, Louisiana, and Tennessee. Combined, the top 10 states account for more than half of the trucking industry’s congestion costs nationwide—52%, according to the research.
The metro areas with the highest congestion costs include New York City, $6.68 billion; Miami, $3.2 billion; and Chicago, $3.14 billion.
ATRI’s analysis also found that the trucking industry wasted more than 6.4 billion gallons of diesel fuel in 2022 due to congestion, resulting in additional fuel costs of $32.1 billion.
ATRI used a combination of data sources, including its truck GPS database and Operational Costs study benchmarks, to calculate the impacts of trucking delays on major U.S. roadways.
There’s a photo from 1971 that John Kent, professor of supply chain management at the University of Arkansas, likes to show. It’s of a shaggy-haired 18-year-old named Glenn Cowan grinning at three-time world table tennis champion Zhuang Zedong, while holding a silk tapestry Zhuang had just given him. Cowan was a member of the U.S. table tennis team who participated in the 1971 World Table Tennis Championships in Nagoya, Japan. Story has it that one morning, he overslept and missed his bus to the tournament and had to hitch a ride with the Chinese national team and met and connected with Zhuang.
Cowan and Zhuang’s interaction led to an invitation for the U.S. team to visit China. At the time, the two countries were just beginning to emerge from a 20-year period of decidedly frosty relations, strict travel bans, and trade restrictions. The highly publicized trip signaled a willingness on both sides to renew relations and launched the term “pingpong diplomacy.”
Kent, who is a senior fellow at the George H. W. Bush Foundation for U.S.-China Relations, believes the photograph is a good reminder that some 50-odd years ago, the economies of the United States and China were not as tightly interwoven as they are today. At the time, the Nixon administration was looking to form closer political and economic ties between the two countries in hopes of reducing chances of future conflict (and to weaken alliances among Communist countries).
The signals coming out of Washington and Beijing are now, of course, much different than they were in the early 1970s. Instead of advocating for better relations, political rhetoric focuses on the need for the U.S. to “decouple” from China. Both Republicans and Democrats have warned that the U.S. economy is too dependent on goods manufactured in China. They see this dependency as a threat to economic strength, American jobs, supply chain resiliency, and national security.
Supply chain professionals, however, know that extricating ourselves from our reliance on Chinese manufacturing is easier said than done. Many pundits push for a “China + 1” strategy, where companies diversify their manufacturing and sourcing options beyond China. But in reality, that “plus one” is often a Chinese company operating in a different country or a non-Chinese manufacturer that is still heavily dependent on material or subcomponents made in China.
This is the problem when supply chain decisions are made on a global scale without input from supply chain professionals. In an article in the Arkansas Democrat-Gazette, Kent argues that, “The discussions on supply chains mainly take place between government officials who typically bring many other competing issues and agendas to the table. Corporate entities—the individuals and companies directly impacted by supply chains—tend to be under-represented in the conversation.”
Kent is a proponent of what he calls “supply chain diplomacy,” where experts from academia and industry from the U.S. and China work collaboratively to create better, more efficient global supply chains. Take, for example, the “Peace Beans” project that Kent is involved with. This project, jointly formed by Zhejiang University and the Bush China Foundation, proposes balancing supply chains by exporting soybeans from Arkansas to tofu producers in China’s Yunnan province, and, in return, importing coffee beans grown in Yunnan to coffee roasters in Arkansas. Kent believes the operation could even use the same transportation equipment.
The benefits of working collaboratively—instead of continuing to build friction in the supply chain through tariffs and adversarial relationships—are numerous, according to Kent and his colleagues. They believe it would be much better if the two major world economies worked together on issues like global inflation, climate change, and artificial intelligence.
And such relations could play a significant role in strengthening world peace, particularly in light of ongoing tensions over Taiwan. Because, as Kent writes, “The 19th-century idea that ‘When goods don’t cross borders, soldiers will’ is as true today as ever. Perhaps more so.”
Hyster-Yale Materials Handling today announced its plans to fulfill the domestic manufacturing requirements of the Build America, Buy America (BABA) Act for certain portions of its lineup of forklift trucks and container handling equipment.
That means the Greenville, North Carolina-based company now plans to expand its existing American manufacturing with a targeted set of high-capacity models, including electric options, that align with the needs of infrastructure projects subject to BABA requirements. The company’s plans include determining the optimal production location in the United States, strategically expanding sourcing agreements to meet local material requirements, and further developing electric power options for high-capacity equipment.
As a part of the 2021 Infrastructure Investment and Jobs Act, the BABA Act aims to increase the use of American-made materials in federally funded infrastructure projects across the U.S., Hyster-Yale says. It was enacted as part of a broader effort to boost domestic manufacturing and economic growth, and mandates that federal dollars allocated to infrastructure – such as roads, bridges, ports and public transit systems – must prioritize materials produced in the USA, including critical items like steel, iron and various construction materials.
Hyster-Yale’s footprint in the U.S. is spread across 10 locations, including three manufacturing facilities.
“Our leadership is fully invested in meeting the needs of businesses that require BABA-compliant material handling solutions,” Tony Salgado, Hyster-Yale’s chief operating officer, said in a release. “We are working to partner with our key domestic suppliers, as well as identifying how best to leverage our own American manufacturing footprint to deliver a competitive solution for our customers and stakeholders. But beyond mere compliance, and in line with the many areas of our business where we are evolving to better support our customers, our commitment remains steadfast. We are dedicated to delivering industry-leading standards in design, durability and performance — qualities that have become synonymous with our brands worldwide and that our customers have come to rely on and expect.”
In a separate move, the U.S. Environmental Protection Agency (EPA) also gave its approval for the state to advance its Heavy-Duty Omnibus Rule, which is crafted to significantly reduce smog-forming nitrogen oxide (NOx) emissions from new heavy-duty, diesel-powered trucks.
Both rules are intended to deliver health benefits to California citizens affected by vehicle pollution, according to the environmental group Earthjustice. If the state gets federal approval for the final steps to become law, the rules mean that cars on the road in California will largely be zero-emissions a generation from now in the 2050s, accounting for the average vehicle lifespan of vehicles with internal combustion engine (ICE) power sold before that 2035 date.
“This might read like checking a bureaucratic box, but EPA’s approval is a critical step forward in protecting our lungs from pollution and our wallets from the expenses of combustion fuels,” Paul Cort, director of Earthjustice’s Right To Zero campaign, said in a release. “The gradual shift in car sales to zero-emissions models will cut smog and household costs while growing California’s clean energy workforce. Cutting truck pollution will help clear our skies of smog. EPA should now approve the remaining authorization requests from California to allow the state to clean its air and protect its residents.”
However, the truck drivers' industry group Owner-Operator Independent Drivers Association (OOIDA) pushed back against the federal decision allowing the Omnibus Low-NOx rule to advance. "The Omnibus Low-NOx waiver for California calls into question the policymaking process under the Biden administration's EPA. Purposefully injecting uncertainty into a $588 billion American industry is bad for our economy and makes no meaningful progress towards purported environmental goals," (OOIDA) President Todd Spencer said in a release. "EPA's credibility outside of radical environmental circles would have been better served by working with regulated industries rather than ramming through last-minute special interest favors. We look forward to working with the Trump administration's EPA in good faith towards achievable environmental outcomes.”
Editor's note:This article was revised on December 18 to add reaction from OOIDA.
A Canadian startup that provides AI-powered logistics solutions has gained $5.5 million in seed funding to support its concept of creating a digital platform for global trade, according to Toronto-based Starboard.
The round was led by Eclipse, with participation from previous backers Garuda Ventures and Everywhere Ventures. The firm says it will use its new backing to expand its engineering team in Toronto and accelerate its AI-driven product development to simplify supply chain complexities.
According to Starboard, the logistics industry is under immense pressure to adapt to the growing complexity of global trade, which has hit recent hurdles such as the strike at U.S. east and gulf coast ports. That situation calls for innovative solutions to streamline operations and reduce costs for operators.
As a potential solution, Starboard offers its flagship product, which it defines as an AI-based transportation management system (TMS) and rate management system that helps mid-sized freight forwarders operate more efficiently and win more business. More broadly, Starboard says it is building the virtual infrastructure for global trade, allowing freight companies to leverage AI and machine learning to optimize operations such as processing shipments in real time, reconciling invoices, and following up on payments.
"This investment is a pivotal step in our mission to unlock the power of AI for our customers," said Sumeet Trehan, Co-Founder and CEO of Starboard. "Global trade has long been plagued by inefficiencies that drive up costs and reduce competitiveness. Our platform is designed to empower SMB freight forwarders—the backbone of more than $20 trillion in global trade and $1 trillion in logistics spend—with the tools they need to thrive in this complex ecosystem."