Clear Of Cargo Backlog, SoCal Ports Grapple With Diminished Shipping Volumes

Cargo volumes are down at the powerhouse ports of Los Angeles and Long Beach, and although some worry that the decline could stick, local CRE professionals are more worried about the impact of macroeconomic trends on the area’s industrial market.

Shipping backlogs and protracted labor negotiations led to an unlikely scenario at these ports: They’ve been unseated as the busiest in the nation in terms of container volume, with the longtime No. 3 Port of New York and New Jersey taking the top spot in August and September. Although port officials warned about a potential long-term decrease in shipping volumes, the distribution center-sustaining cargo is expected to come back, due in large part to the area’s proximity to Asia.

“The West Coast of our country is still a very attractive value proposition for two reasons: the cost and the speed,” Nick Vyas, executive director for the Center for Global Supply Chain Management at the University of Southern California’s Marshall School of Business, told Bisnow. “I would anticipate volumes to continue to come back to the West Coast, as long as the trade continues to maintain velocity from China and Asia into the U.S.”

Still, it’s a tenuous time at Southern California’s ports, and although a supply chain-snarling backup of cargo has been processed, they aren’t free of potential pitfalls. Ongoing labor negotiations between port workers and the operators of the shipping terminals are one of the main reasons that shippers are sending their cargo containers to the East Coast. The International Warehouse and Longshoremen Union’s contract expired in July, and although the employees continue to work, many remember the last time that talks went into the new year — 2014 to 2015’s discussions — and the cargo disruptions that followed, according to The Wall Street Journal.

“The fact that the Port of New York and New Jersey have outpaced Los Angeles for not one, but two consecutive months is big news,” Project44 Vice President of Supply Chain Insights Josh Brazil told NBC News. “It demonstrates the degree to which we see a serious longer-term shift among shippers to diversify their supply chain routes to mitigate risk.”

In September, the Port of New York and New Jersey moved 842,219 TEUs, or 20-foot equivalent units, a unit of measurement that refers to the 20-foot-long metal containers that are carried on cargo ships. In contrast, the ports of Los Angeles and Long Beach moved 709,873 and 741,823 TEUs, respectively, the Long Beach Business Journal reported. October’s numbers aren’t available yet for all three ports, but Port of Los Angeles Executive Director Gene Seroka did tell the Los Angeles Harbor Commissioners at an Oct. 3 meeting that he was worried that, once lost, cargo volumes would not come back. “As of yesterday, there were eight container vessels at berth being worked,” Seroka said, according to the Daily Breeze. “That’s 20% below the average of 10 vessels prior to Covid.”

While CRE is, of course, keeping an eye on labor negotiations and cargo volumes, there are other issues affecting industrial real estate, including high and potentially rising interest rates, inflation and a general sense of uncertainty about the economy.  “Most people expect that traffic will shift back to SoCal once the negotiations are finalized,” KBC Advisors Director Tina Arambulo told Bisnow in an email. But the other factors that are weighing on CRE are another issue.  “Tenants are being cautious,” and those who are able to wait to make decisions are doing so, Arambulo said. Arambulo said that the pace of business has slowed noticeably compared to six months ago or less. Tenants are hoping that rental rates will go down, but with such a tight supply, that hasn’t happened yet.

A Q3 2022 report from NAI Capital found that LA County’s overall availability rate for industrial space rose to 3.5%, a 1% rise from the same time the previous year. But that incremental rise came as more than 5M SF were added in the market.

Source: https://www.bisnow.com/los-angeles/news/industrial/ports-labor-negotiations-industrial-real-estate-116375

By |2022-11-16T19:23:11+00:00November 16th, 2022|.|Comments Off on Clear Of Cargo Backlog, SoCal Ports Grapple With Diminished Shipping Volumes