Record-Breaking Volume Taking Toll on The Port of Los Angeles

Volume at The Port of Los Angeles in July established its fifth all-time high in seven months, as production helped boost the US economy, but added worry to the area’s infrastructure, warehouse demand and rates.

It processed an estimated 935,345 Twenty-Foot Equivalent Units (TEUs) in July, outpacing the previous record set in 2019 by 2.5%.

Port of Los Angeles executive director Gene Seroka said during a news briefing on Wednesday, “Remarkably, we continue to move record amounts of cargo while working down the backlog of ships by almost 90%, a huge accomplishment by all of our partners.

“Even with the current rail challenges, our marine terminals are more fluid than last year. That’s due in part to our data portal that allows our stakeholders to see around corners and tackle problems before they arise.”

Seroka said that the Southern California supply chain landscape has improved, noting ships are now waiting for space at many other ports around the country.

“Our terminals have capacity,” Seroka added about the world’s largest port. “For cargo owners looking to re-chart their course, come to Los Angeles. We’re ready to help.”

Goods Ordering Won’t Slow ‘Anytime Soon’

Brad Yates, Senior Vice President at Stream Realty Partners tells GlobeSt.com that as e-commerce continues to increase, so does the need for more warehouse space, which highly impacts Southern California’s ports and roads.

“With so much demand for warehouse space here, we will continue to see an increase in port activity,” Yates said. “As COVID-19 fueled this demand in early 2020, and now more people are ordering goods online, it will not slow anytime soon.

“We are also seeing many third-party logistics (3PLs) and warehouse users over-order their supply, as it has been hard to get goods from overseas since the pandemic started.

“The record volume has caused rental rates for industrial to rise dramatically. There is not enough warehousing supply to meet the influx of containers and product flooding the Southern California industrial market. With a sub 1% vacancy rate and a scarcity of industrial land, tenants are having a difficult time securing the space needed to store these goods.”

Yates said that the problem will only increase with the demand for warehouse space as roads in Los Angeles are not expanding at the same pace as the demand for warehouse space.

“It is also harder for trucking companies to hire and retain workers,” he said. “If the imbalance between supply and demand continues, the lease rates will continue to rise. That imbalance coupled with many cities implementing moratoriums on new industrial development, especially in the Inland Empire, it is hard to forecast the supply of warehousing easing over the near future.

“We predict that tenants will be forced to be searching for warehousing in more peripheral markets where there is more supply of industrial land.”

Highest Rent Gains in Inland Empire, Boston, New Jersey

Yardi CommercialEdge’s Doug Ressler tells GlobeSt.com that supply-chain challenges are emphasizing the need to be well located and pay a premium for space in port markets, which are seeing the largest gains for in-place rents in 12 months.

Rent increases are most prominent in the Inland Empire (8.7%), Boston (8%), New Jersey (7.8%), Los Angeles (7%) and Orange County (6.8%), Ressler reported. Vacancy rates are likewise the lowest in port markets. Southern California is the tightest region—the Inland Empire sits at 0.8%, Los Angeles 1.9% and Orange County 3.1%.

“The United States is a consumption-driven economy, and most goods come into the country from elsewhere,” Ressler said. “Estimates peg transportation as accounting for at least half of companies’ supply-chain costs. Although energy prices have fallen of late, those costs are still elevated compared to historical averages.

“Recent supply-chain stresses have illuminated exactly how dependent the U.S. is on other countries for both raw materials and finished products. As a result, firms are now exploring reshoring and nearshoring of manufacturing, which would reshape supply chains but also lead to new challenges.”

He said that port markets could find some relief from more goods being made at home, but that would increase exports.

“U.S. rail and highway infrastructure will need to be upgraded to handle the increased domestic and cross-border movement of goods,” Ressler said. “In the near and medium term, current issues will be here to stay, as supply chains are massive, complex systems that take a long time to fundamentally change.”