Tuesday, August 20, 2019
On August 1st, President Trump announced that $300B worth of Chinese goods, previously untouched by the trade war, would be subject to an additional 10% tariff. It often takes at least four weeks to import goods from China, so importers didn’t have much time to implement any mitigation strategies. Then, over concerns of stock market volatility and the impact on the upcoming holiday season, the tariff was delayed for $156B of those goods until December 15th. But importers’ preparation options are still limited, as the ongoing U.S.-China trade war continues to shrink warehouse capacity.
Importers have been stockpiling inventory at the Ports of Los Angeles and Long Beach to prepare for new tariffs since the beginning of the trade war. Shippers frontloaded goods ahead of tariffs in 2018 to avoid higher customs costs, saving millions in some cases, and stored surplus inventory until it was needed. But now warehouse availability around the Ports of Los Angeles and Long Beach are at an unprecedented low of 1-2%, making it difficult for importers to repeat last year’s frontloading approach.
And storage isn’t just limited around West Coast ports – warehouse availability has been shrinking across the U.S. for 35 straight quarters. Last year’s frontloading coincided with the e-commerce boom, according to Bloomberg, generating a “largely unprecedented demand for warehousing space.” Seller inventory continues to grow, rising at a 7.9% annual pace in June, the fastest in six years.
According to Blake Shumate of American Global Logistics, retailers had been attempting to drive efficiency, boost margins and reduce reliance on industrial real estate by implementing a “just-in-time model” that doesn’t hold any more inventory than what’s necessary. Rising delivery expectations caused by e-commerce had forced retailers to stray from that model, but Shumate told Supply Chain Dive that shippers may need to return to it in response to continued tariffs.
New construction is underway to meet rising demand for warehousing space, but Shumate says that the state of the market, regardless of tariffs, is pushing his clients to book space for 2020 now. And as demand for space continues to spike, so will prices.
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