John H. Boyd is Founder and Principal of The Boyd Co., Inc. Founded in 1975 in Princeton, NJ, the firm provides independent site selection counsel to leading U.S. and overseas corporations. Organizations served by John over the years are many and varied and include The World Bank, The Council of Supply Chain Management Professionals (CSCMP), The Aerospace Industries Association (AIA), MIT’s groundbreaking Work of the Future Project, UPS, Canada's Privy Council and most recently, the President’s National Economic Council providing insights on policies to reduce supply chain bottlenecks.
Our site selection firm's first office was on Princeton, New Jersey’s Nassau St., overlooking the university and a few blocks from the former home of the father of the theory of relativity, Albert Einstein—who lived in Princeton from 1933 until his death in 1955. So, it seems fitting that in characterizing the current state of the warehousing sector, I lean heavily on the term “relative.”
First, the specter of an impending commercial real estate market crash is very much a reality. About $1.5 trillion in commercial mortgage debt is due by the end of 2025. With rising financing costs, along with stricter credit conditions and a fall in property values brought on by remote work, the risk of default has greatly increased. More than half of the $2.9 trillion in commercial mortgages will need to be renegotiated in the next 24 months when new lending rates are likely to be up by as many as 450 basis points.
Yet relative to other sectors of the commercial real estate industry, especially compared to the office sector, the warehousing market is doing quite well. The warehousing sector is doing an admirable job dodging the bullets of a slowed economy, rising interest rates, and the easing of pandemic restrictions that helped brick-and-mortar retail win back some of the business that it lost to e-commerce during the lockdowns.
In fact, fundamentals within the warehousing sector have remained fairly stable over the past year, and in many markets, they’re growing even stronger. That’s primarily due to sustained demand from online shopping, reshoring trends in manufacturing, and a shortage of prime, shovel-ready warehousing sites.
We are actually seeing double-digit rental rate hikes over the past year in the majority of U.S. distribution warehousing hubs, with all-time high rental rates being reached in many markets. Simply put, warehousing has not been turned upside down by the pandemic and rising interest rates like the office and retail markets have. Furthermore, these rising warehouse rents have not yet been reflected in many long-term leases. As a result, the next cycle of lease renewals will very likely increase the valuations of most warehousing assets.
Bellwether layoffs
Despite warehousing fighting the good fight amid 2023 upheavals in the overall commercial real estate market, the sector is not completely immune to the cooling economy. Real-estate analysis firm CoStar Group Inc. reported new warehouse construction fell by almost 25% in the most recent 2023 quarter, reaching the lowest level since the start of the pandemic.
Another sign is that warehousing employment has dropped significantly over the past year as companies slashed payrolls amid a downturn in the U.S. economy and talks of a recession. Warehousing companies have reduced employment by some 75,000 jobs over the past year, led by bellwether logistics giants Amazon, Walmart, UPS, and FedEx.
Recent companywide layoffs by Amazon total almost 30,000. Walmart, the world’s largest retailer, is also cutting back as it responds to falling consumer demand and concerns about a potential recession. The company plans to lay off more than 2,000 workers at distribution centers in Texas, Florida, and Pennsylvania as well as making additional cuts at other locations.
UPS plans to lay off some of its weekend drivers, and FedEx Freight announced it has gone through three rounds of layoffs since late 2022. FedEx is also consolidating its FedEx Express, FedEx Ground, FedEx Services, and other FedEx operating companies into what will be called the Federal Express Corporation. Combining these segments is part of an overall plan to trim its staff and expenses. All of these logistics giants are also automating operations greatly to speed up order processing and further trim headcounts.
Three trends to watch
Looking ahead we see three general trends that will affect the location of future warehouses: growing interest in logistics corridors, nearshoring, and continuing resistance to new warehouse construction from some local communities.
Logistics corridors. In spite of the big layoffs noted above, many oftoday’s site-seeking warehousing companies still want to access expanded labor markets as well as greater real estate options. As a result, site searches are increasingly focusing on prominent controlled-access highway corridors, especially in states offering attractive operating cost structures and low taxes. These corridors expand the geographic area that companies can draw upon for warehousing labor as well as shovel-ready sites for construction.
Some companies are shortlisting areas with smart highways that can monitor road conditions and communicate with vehicle navigation systems via smart infrastructure. Such technology can improve the speed of delivery and accommodate the future needs of electric trucks and emerging technologies like autonomous vehicles and hydrogen fuel cell-powered trucks. A good example is the SH 130 Corridor in Central Texas that utilizes futuristic technology, such as satellites, and links the high-growth areas of Austin and San Antonio. Figure 1 provides the location of these types of logistics corridors along with comparative warehouse operating cost data and state business climate information.
Nearshoring. Many industrial clients of Boyd continue to seek alternatives to manufacturing in and sourcing from China since the Trump tariffs in 2018 and the pandemic-induced global supply chain bottlenecks and geopolitical tensions. Today, the new federal incentives to manufacture and source in North America that were written into Biden’s Inflation Reduction Act (IRA) are fast-tracking the nearshoring movement even more.
At the same time, imports from Mexico are soaring, creating great demand for new cross-border logistics services. Foxconn, for example, which makes parts for Apple’s iPhones, now has major new production facilities in Ciudad Juarez, Mexico, and the automotive company Tesla just announced plans to open a new “gigafactory” in Monterrey, Mexico. Data from Uber Freightpoints to over 400 companies opening plants in Mexico in 2023, generating some $35 billion in new exports to the U.S. The magnitude of these exports is creating a new draw for supply chain investments in and near border states like Texas, Arizona, California, and New Mexico.
“Nimby-ism.” Our clients in the manufacturing sector have long faced anti-growth pressures from NIMBY (“not-in-my-backyard”) groups. Their objections are most often about noise, pollutants, and emissions. What is driving the NIMBY movement’s response to warehousing is different and has more to do with the sheer size and speed of the sector’s proliferation, especially in logistics hubs like New Jersey, Chicago, and California’s Inland Empire. This fast pace of change and the overpowering size of many of these new warehouses—one million square feet is becoming common—is unnerving to many.
In our firm’s home state of New Jersey, NIMBY-ites have long stressed traffic and stormwater runoff from warehouse roof tops and parking lots as major objections in places like the Millstone River Basin in Central New Jersey—home to millions of square feet of warehousing space in and around the popular Exit 8-A environs of the New Jersey Turnpike. The NIMBY movement here has recently upped the ante and is about to acquire a new arrow in its quiver. It is one that is likely to be adopted in other warehousing hubs around the country.
Local groups are now arguing that it would be appropriate to use American Rescue Plan Act (ARPA) funds to buy land where warehouses would otherwise be built on the premise that it was the pandemic that ignited the explosion in e-commerce and the subsequent sprawl of warehouses in New Jersey. They also say that protecting available land from warehouse use would underscore the value of open space, which was stressed during the pandemic.
Other warehouse NIMBY groups and like-minded lawmakers in other states are watching closely to how this all plays out in New Jersey. It would be quite the irony if federal monies that were designed to help businesses hurt by the pandemic were actually used to create new hurdles for their expansion and job creation. Irony, yes, but all things considered, a turn of events that would only be a minor speed bump in the ongoing growth and resiliency of the U.S. warehousing sector.
The New Hampshire-based cargo terminal orchestration technology vendor Lynxis LLC today said it has acquired Tedivo LLC, a provider of software to visualize and streamline vessel operations at marine terminals.
According to Lynxis, the deal strengthens its digitalization offerings for the global maritime industry, empowering shipping lines and terminal operators to drastically reduce vessel departure delays, mis-stowed containers and unsafe stowage conditions aboard cargo ships.
Terms of the deal were not disclosed.
More specifically, the move will enable key stakeholders to simplify stowage planning, improve data visualization, and optimize vessel operations to reduce costly delays, Lynxis CEO Larry Cuddy Jr. said in a release.
The Dutch ship building company Concordia Damen has worked with four partner firms to build two specialized vessels that will serve the offshore wind industry by transporting large, and ever growing, wind turbine components, the company said today.
The first ship, Rotra Horizon, launched yesterday at Jiangsu Zhenjiang Shipyard, and its sister ship, Rotra Futura, is expected to be delivered to client Amasus in 2025. The project involved a five-way collaboration between Concordia Damen and Amasus, deugro Danmark, Siemens Gamesa, and DEKC Maritime.
The design of the 550-foot Rotra Futura and Rotra Horizon builds on the previous vessels Rotra Mare and Rotra Vente, which were also developed by Concordia Damen, and have been operating since 2016. However, the new vessels are equipped for the latest generation of wind turbine components, which are becoming larger and heavier. They can handle that increased load with a Roll-On/Roll-Off (RO/RO) design, specialized ramps, and three Liebherr cranes, allowing turbine blades to be stowed in three tiers, providing greater flexibility in loading methods and cargo configurations.
“For the Rotra Futura and Rotra Horizon, we, along with our partners, have focused extensively on energy savings and an environmentally friendly design,” Concordia Damen Managing Director Chris Kornet said in a release. “The aerodynamic and hydro-optimized hull design, combined with a special low-resistance coating, contributes to lower fuel consumption. Furthermore, the vessels are equipped with an advanced Wärtsilä main engine, which consumes 15 percent less fuel and has a smaller CO₂ emission footprint than current standards.”
Specifically, loaded import volume rose 11.2% in October 2024, compared to October 2023, as port operators processed 81,498 TEUs (twenty-foot containers), versus 73,281 TEUs in 2023, the port said today.
“Overall, the Port’s loaded import cargo is trending towards its pre-pandemic level,” Port of Oakland Maritime Director Bryan Brandes said in a release. “This steady increase in import volume in 2024 is an encouraging trend. We are also seeing a rise in US agricultural exports through Oakland. Thanks to refrigerated warehousing on Port property near the maritime terminals and convenient truck and rail access, we are well-positioned to continue to grow ag export cargo volume through the Oakland Seaport.”
Looking deeper into its October statistics, loaded exports declined 3.4%, registering 66,649 TEUs in October 2024, compared to 68,974 TEUs in October 2023. Despite that slight decline, the category has grown 6.7% between January and October 2024 compared to the same period last year.
In fact, Oakland’s exports have been declining over the past decade, a long-term trend that is largely due to the reduction in demand for recycled paper exports. However, agricultural exports have made up for some of the export losses from paper, the port said.
For the fourth quarter, empty exports bumped up 30.6%. Port operators processed 29,750 TEUs in October 2024, compared to 22,775 TEUs in October 2023. And empty imports increased 15.3%, with 15,682 TEUs transiting Port facilities in October 2024, in contrast to 13,597 TEUs in October 2023.
A growing number of organizations are identifying ways to use GenAI to streamline their operations and accelerate innovation, using that new automation and efficiency to cut costs, carry out tasks faster and more accurately, and foster the creation of new products and services for additional revenue streams. That was the conclusion from ISG’s “2024 ISG Provider Lens global Generative AI Services” report.
The most rapid development of enterprise GenAI projects today is happening on text-based applications, primarily due to relatively simple interfaces, rapid ROI, and broad usefulness. Companies have been especially aggressive in implementing chatbots powered by large language models (LLMs), which can provide personalized assistance, customer support, and automated communication on a massive scale, ISG said.
However, most organizations have yet to tap GenAI’s potential for applications based on images, audio, video and data, the report says. Multimodal GenAI is still evolving toward mainstream adoption, but use cases are rapidly emerging, and with ongoing advances in neural networks and deep learning, they are expected to become highly integrated and sophisticated soon.
Future GenAI projects will also be more customized, as the sector sees a major shift from fine-tuning of LLMs to smaller models that serve specific industries, such as healthcare, finance, and manufacturing, ISG says. Enterprises and service providers increasingly recognize that customized, domain-specific AI models offer significant advantages in terms of cost, scalability, and performance. Customized GenAI can also deliver on demands like the need for privacy and security, specialization of tasks, and integration of AI into existing operations.
The Port of Oakland has been awarded $50 million from the U.S. Department of Transportation’s Maritime Administration (MARAD) to modernize wharves and terminal infrastructure at its Outer Harbor facility, the port said today.
Those upgrades would enable the Outer Harbor to accommodate Ultra Large Container Vessels (ULCVs), which are now a regular part of the shipping fleet calling on West Coast ports. Each of these ships has a handling capacity of up to 24,000 TEUs (20-foot containers) but are currently restricted at portions of Oakland’s Outer Harbor by aging wharves which were originally designed for smaller ships.
According to the port, those changes will let it handle newer, larger vessels, which are more efficient, cost effective, and environmentally cleaner to operate than older ships. Specific investments for the project will include: wharf strengthening, structural repairs, replacing container crane rails, adding support piles, strengthening support beams, and replacing electrical bus bar system to accommodate larger ship-to-shore cranes.