A Closer Look at Onshoring’s Impact on the Industrial Sector

Onshoring is the new buzzword for international trade following the disruptions caused by the Covid pandemic. But is onshoring going to be the dynamic stimulus for warehouse demand that some industrial developers dream of?

As U.S. and foreign companies move more manufacturing from Asia to America, a healthy dose of caution is required, especially in port areas, a new study by CBRE Econometric Advisors suggests. It is, says CBRE, “a narrative far more nuanced and time-dependent than commonly believed…The benefits of onshoring could be overstated, or at least misplaced in charting the complexities of trade flows and their effects on warehouse demand.”

Using a sophisticated statistical method, CBRE analyzed how sudden changes or shocks in gross exports and imports influence the demand for warehouse space. The results revealed “a somewhat counterintuitive cyclical pattern.”

Initially, warehouse absorption rises in response to increased imports, and falls in response to increased exports. 

Rising demand for industrial space following rising imports makes sense as storage space and distribution facilities are needed for goods entering the market. 

The short-term drop-off in demand for space when exports grow is more surprising. CBRE attributes it to several factors. Manufacturers move finished goods swiftly to ports for shipment instead of storing them. Just-in-time production also encourages the rapid movement of goods. And bulk exports of homogeneous goods can quickly be loaded and shipped without warehousing.

However, the picture changes over time. In the long run, the model predicts, both exports and imports will create a need for more warehouse space. “There appears to be a cycle to the ramping up or down of absorption in response to imports or exports.”

Indeed, over time – after six quarters — absorption of warehouse space for increased exports may overtake absorption for increased imports. CBRE identifies four causes for this. Companies may choose to stockpile some goods to prevent disruptions, or where their production capacity is limited. An increased variety of goods for export may require more storage space and complex logistics. Seasonal variations may affect demand.

After about 25 months, however, the model predicts there is likely to be another switch. At that point, “the long supply line of imports provides more absorption while the longer-term impact of exports wanes.”

For a more detailed look at the picture, CBRE analyzed the case of Los Angeles. The region, with its extensive port and transport infrastructure, saw a surge in import volumes following the pandemic that led to a surge in demand for warehouse space. 

However, the sharp drop in loaded inbound containers that began in late 2022 and continued this year “tracks closely with the regional drop in net absorption.” Labor disputes and infrastructure limitations may also have played a part. Furthermore, a port like Los Angeles, with outbound logistics to move export cargo efficiently, could keep demand for warehouse space flat, CBRE notes. 

The report points out, however, that not all ports are created equal. Demand will depend on a port’s efficiency, customs environment, regulatory burden and service infrastructure, among other factors.

Even though the analysis shows that onshoring and domestic production will not directly result in a consistent demand for warehouse space, CBRE says there could be a surge once logistics processes are fine-tuned and capabilities scaled up. It calls for “strategic adaptability.”

 “Stakeholders’ approach should aim for equilibrium. Their strategies need to balance the continual demand brought about by imports with the longer-term absorption generated by export activities,” the report states.