Supply Chain Issues and Industrial Impacts

The United States wasn’t so long ago in the grip of a huge supply chain disruption. Following the global shutdown caused by the COVID-19 pandemic, labor shortages, a mass shutdown of production in China, lower inventories, and a stalled logistics network meant getting goods to market was a significant challenge.

According to Newmark, we’re not yet out of the woods. Though the 2021 supply chain crisis did prompt logistics experts to take steps to lower disruptions, other challenges are looming on the horizon. Newmark’s recently released “When it Rains, It Ports: Supply Chain Disruptions to Influence Industrial Market Activity in H2 2024” listed three issues that could impact supply chains (specifically, U.S. ports) and industrial properties.

#1 – A Volatile Weather Environment

In May 2024, the National Oceanic and Atmospheric Administration (NOAA) anticipated an above-normal Atlantic hurricane season. Less than six weeks later, Hurricane Beryl made landfall three times: Grenada, Mexico’s Yucatan Peninsula and Texas. As of this writing, the storm’s remnants continue pounding areas from the Great Lakes to New England with heavy rain and tornadoes.

And Beryl is just the first storm of the season.

The Newmark report noted that a record Atlantic hurricane season could have a dire impact on East and Gulf ports. Though weather-related disruptions can be short, they exert an influence. Furthermore, they can impact the timeliness of freight transportation. Newmark analysts noted that “private trucking capacity diverted to disaster relief could impact regional freight operations.”

#1 – Dissatisfied Labor

A recent Connect CRE article explained that West Coast ports (specifically, Long Beach and Los Angeles) dealt with labor issues a few years ago. Shippers rerouted goods to Eastern and Gulf ports at that time to avoid delays.

But with signed contracts in place on the West, the concern now shifts east.  

The Newmark report indicated that the International Longshoremen’s Association, representing port workers from Main to Texas, suspended contract talks. The Newmark report pointed out that “year-to-date port data signals a seesaw effect as some cargo shifts back West,” with more to come if the talks drag past the ILA contract expiration date.

#3 – Geopolitical Angst

The Newmark analysts noted that China accounts for about 31% of manufacturing output and 13% of consumption, generating a higher U.S. import volume. The Biden Administration, in turn, has enacted new tariffs on Chinese goods. Still, there has been an increase in the number of Chinese third-party logistics providers and their industrial requirements, especially amid the Southern California ports. It’s also anticipated that more Chinese imports are expected before the tariffs go into effect. However, the Newmark report indicated that some industrial owners are cautious due to “new or countermanded policies,” especially with the upcoming presidential election.

The Industrial Impact

The report indicated that the challenges mentioned above might impact the industrial sector in the following ways:

• An increase in warehouse utilization and industrial demand in Southwest intermodal markets within a one-day drive of SoCal ports.

• An increase in warehouse utilization at air-cargo hubs, especially for time-sensitive deliveries.

• Diversification of industrial operations in strategic markets, leading to new space requirements nationwide.

• Higher demand for manufacturing and logistics buildings in light of nearshoring and domestic manufacturing expansion.