GlobeCon Freight Blog

October 27 Container entering a port

Is Port Congestion Finally Easing?

Categories: Port Congestion, Port Drayage.

The pandemic brought with it a tidal wave of challenges, many of which are still impacting the supply chain.

Companies have adapted with perseverance in the face of huge ecommerce spikes, manufacturing slowdowns, high demand for warehousing space, driver shortages, and a massive backlog of shipping containers at ports waiting to be unloaded — not to mention high container freight rates, long turnaround times, and container shortages.

But there’s a bright spot emerging at the end of the tunnel: After nearly three years of port congestion and port delays, we’re finally seeing things ease. 

What’s causing port congestion to abate, and what can we expect to see moving forward?

Port congestion update: What has changed?

Inflation is on the rise. This means consumers are buying fewer goods, and retailers and shippers are seeing a buildup of dead stock. This is a huge shift from the early days of the pandemic, when businesses were scrambling to fill warehouses to avoid running out of inventory in case of future manufacturing slowdowns or shutdowns.

With lower demand for goods, current port congestion is beginning to ease, with 35% fewer container ships queued in North American ports. As vessel wait times lessen, ports operate at reduced capacity, and container turnaround decreases, freeing up capacity in the market.

Likewise, container freight rates have fallen — by up to 13% on routes like Shanghai-Rotterdam and Shanghai-New York — and container prices are 64% lower than this time last year. In fact, container shipments from Asia to the U.S. for all products except rubber products in September are down year on year. According to Nomura Bank analyst Masaharu Hirokane and data from Descartes Datamyne, this is likely because U.S. retailers are reducing inventories due to the risk of an economic slowdown

It should be noted that while port congestion is easing, it’s still above average for now. As of mid-October, there were fewer than 100 container ships waiting at North American ports, but 99 waiting offshore. Pre-COVID, these numbers were in the single digits.

What does the future look like for port congestion and port delays?

If these trends continue and retailers stock less product than usual, port congestion should continue to slacken through the end of the year. It’s quite a different scene from the past 2.5 years, when skyrocketing demand caused port delays, nonstop shipping container shortages, and high container rates.

And as imports continue to decrease — U.S. imports fell 12% in September versus August — space that was tied up is now available for cargo, which will help bring down ship backlogs throughout the rest of 2022. We’re also seeing sliding container demand and prices now that there are extra empty containers waiting to be filled.

How GlobeCon can help

The nature of ports is always complicated, pandemic or not. But no matter what’s going on, GlobeCon can help you get your shipments where they need to go on time. With industry-leading technology, superior warehousing and logistics flexibility, and customized solutions, we’ve been a trusted industry leader since 1988.

We treat each container as if it were our own and offer you complete transparency into every stage of handling your shipments, providing some certainty in uncertain times.

Need a reliable partner at the ports of Los Angeles and Long Beach? Contact us.

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October 15 Warehousing spaces maintain their high demand

The State of the Warehouse Market in Q4 2022 and Beyond

Categories: Supply Chain, Warehouse.

Warehousing has been at the center of many conversations this year, from shortages in both space and staffing to structural aging and automation. 

At the beginning of the pandemic, businesses couldn’t keep enough product in stock to satiate the spending sprees of consumers stuck in their homes. Now, warehouses are piled high with goods that won’t move.

Retailers are sitting on $732 billion of inventory as of this July — a record 21% year-over-year increase — and outbound orders from customers shipping to retailers is down 33% compared to last year.

So, as we approach the end of 2022 and move into 2023, what can we expect from the state of the warehouse market?

The impact of the supply chain on warehouse space

At the onset of the pandemic, many consumers looked to ecommerce and next-day delivery to meet their needs, creating an overwhelming demand on retailers. Big box stores upped order sizes and increased warehousing space, hoping to avoid future production lockdowns. Amazon, for one, doubled the size of its fulfillment network in just 24 months as its business surged. 

This spike in demand caused high prices on warehouse rental and limited availability, putting further stress on supply chains — which were already strained due to manufacturing slowdowns and port backlogs. Inventory was often stored on trailers or in shipping containers due to lack of warehousing space, causing the costs of containers to surge to exorbitant levels.

The warehouse market at the close of 2022

The spending boom is slowing down, largely due to inflation. Additionally, as pandemic restrictions lift, consumers are shifting their spending toward services like travel and dining rather than just physical goods.

This move away from retail spending means that product isn’t moving, leading to a lack of storage space for new inventory and cash flow issues. The inventory pileup dragged down total economic growth by 1.9% between April and June — a trend expected to continue in the next GDP report — and stock shares of major retailers like Target and Nike have fallen due to inventory concerns. Many businesses are trying to get rid of excess stock by starting holiday sales even earlier than usual and slashing prices on items that don’t typically go on sale.

Still, the average warehouse vacancy rate in the U.S. increased to 3.2% in Q3, up from 3% in Q2 — the first increase in two years. And companies signed new leases for 163.1 million square feet of warehouse space in Q3, which is more than the square footage leased during any quarter of 2019 (though slightly less than Q2 2022’s 207.4 million square feet). Space remains tight, certainly, but experts say they see signs of slowed activity and a more stable leasing market.

On the developer side, however, there is caution in taking on new projects as shipping volumes decrease and borrowing costs rise. Warehouse rates have risen significantly — rents increased 22% last year — and warehouse construction costs for new or rebuild facilities can be enormous due to ongoing labor and material shortages. 

What we expect from logistics warehouses in 2023

The market may be slightly cooling off, but demand for space will still remain high as we move into 2023. Businesses will continue to attempt to clear out their excess inventory to avoid taking up space as incoming orders roll in, while also canceling orders for new inventory as consumer spending returns to pre-pandemic patterns.

Additionally, leasing deals and agreements on new warehouses may take longer, as many companies will be hesitant to make big investments in such an uncertain economy.

And then there’s TikTok. The social media platform, which boasts more than 1 billion active monthly users, is looking to create its own ecommerce supply chain, including warehousing, delivery, and customer returns. Details haven’t been finalized, but the company’s move into warehousing and logistics — along with a live shopping platform — could prove big competition for Amazon and big-box retailers.

Overall, we anticipate a topsy-turvy ride as the new year rolls around. As remaining inventory lingers, new players enter the market, and older warehouses go out of commission, we expect to continue to see a crunch in availability.

Need some certainty in the face of a fluctuating landscape? Get in touch with GlobeCon.

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