Logistics & Supply Chain Management in the US Southwest
The Southwest region is an important business center in the United States. Including Texas, New Mexico, Arizona, Nevada, and Southern California, the region is a hotspot for supply chain activity. Recent events have made the Southwest even more essential than ever.
The pandemic and the subsequent surge in e-commerce has created a spike in industrial demand nationwide. New capital is “flooding into the industrial market, lured by the phenomenal growth over the last year and the promise of more to come”. While the pandemic is by no means a good thing, it has spurred significant changes in U.S. supply chain logistics.
The number of warehouses in the U.S. has climbed each year since 2010, reaching a record of 19,190 in 2020. This is, in part, because of the growth in e-commerce, which requires a surplus warehousing space in lieu of retail storefronts. The Southwest has been a large beneficiary of this, increasingly utilizing its real estate for 3PL services.
A consequence of the COVID epidemic is that it “has created a new demand for infrastructure across the nation and expanded the need for new local warehousing in markets outside of the traditional core markets”. Business is becoming more dispersed among once-underutilized regions.
For example, Groups in New York City are “working hard to understand the industrial market in other parts of the country and many of them are heading south for industrial deals”. The same thing is happening in Texas: food companies such as Great Lakes Cheese and Leprino Foods are beginning to work with and invest in rural Texan cities Abilene and Lubbock.
The nationwide increase in e-commerce has put pressure on the industrial real estate market. Most major industrial hubs had been operating at record low vacancy rates, which have now compressed even further. As of July 2021, the industrial market reached 587 million square feet, a more than 50% increase from the year prior.
Adam Roth, director of NAI Global Logistics, identified this as a consequence of COVID-19:
“As the international supply chain becomes more expensive and unreliable, domestic manufacturing becomes more competitive. All of this bodes extremely well for industrial real estate and absorption…companies have expanded domestic warehouse space to reduce the frequency of long-distance shipping.”
The increased utilization of stateside warehousing and logistics is a great opportunity for the Southwest region. As the demand for warehousing space reaches an unprecedented demand, the region will continue to grow in its capacity and ability to serve. The Southwest will emerge from the pandemic strong and resilient, with new, progressive business strategies.
Texas epitomizes everything that a strong business hub entails. The Lone Star State is 5th fastest-growing state, its population increasing by over 1,000 people every day and currently housing 8.9% of the U.S., 29.3 million.
The 2022 Economic Outlook Report by the Dallas Business Journal demonstrates a bright business outlook for the region. Respondents were 75% confident in the success or their companies and 52% confident in the Texas economy, both a significant increase from 2021. By comparison, confidence in the U.S. economy had fallen 2% to 19% in 2022.
While COVID-19 complicated supply chain logistics, the region continues to show strength and resilience. 76% of respondents adapted their business strategies to the pandemic, with 78% expecting to recover to pre-pandemic levels by the end of this year.
Southern California is another logistics hotspot in the Southwest, and the nation. The largest port in the United States by cargo volume handled, about 35% of all intermodal containers utilize the Port of Los Angeles rail network and 74% of all west coast cargo flows through it.
Of course, the port has not been immune to the supply chain challenges brought on by COVID-19. Between October 2020 and October 2021, the number of cargo ships waiting to unload in the port increased tenfold. Worker shortages have hampered not only the unloading of cargo, but also distribution through truck and rail routes. Because of its immense size, backups and the port of LA have a domino effect on supply chain and manufacturing within the entire US network.
Recently, efforts to alleviate the backlog and increase throughput at the port have seen some success. February 2022 proved to be the best February on record in total throughput, up 7.3% year-on-year for the Port of LA. Likewise, Long Beach reported its best February ever, up 3.2% in total.
Likewise, the queue of waiting container ships seems to be subsiding. The last two months of 2021 saw an increase from 73 to 101 ships. As of early March, that number is down to 43. [Note: while this is a significant improvement over earlier pandemic times, remember it’s still ~42 idling ships more than was the case prior to the pandemic!] To keep bottlenecks from increasing, the ports have been threatening a Container Dwell Fee for months. So long as the situation continues to improve however, they have continued to delay its implementation, having done so three times so far.
It appears the situation is being helped by the decision by retailers to restock in the second quarter. According to Gene Seroka, Executive Director of the Port of Los Angeles, “Most retailers continue to tell me they’ll use quarter two to replenish inventory, get that safety stock at a more comfortable level. Then we’ll have a chance if we hit these two marks properly to pivot into an earlier-than-normal peak season in early June or July.”
The outlook for the southern California submarket is strong, with continued throughput capacity growth and newfound alignment of infrastructure and public policy to alleviate cargo backlogs. As the economy continues to recover, the port system in southern California is growing to meet the challenges.
If you are seeking a 3PL partner in the Southwestern US, check out the ‘best in market’ DCA member companies below.
Southwest Warehouses – Texas and California
Founded in 1958 by Richard and Jewel May as a warehousing and trucking company with two customers, States Logistics has grown to a fully integrated provider of third party logistics services serving hundreds of customers and operating nearly 8.5 million square feet of warehouse space in Southern California and the Southwestern US as a combination of public and contract warehouses, serving a wide range of industries. As an ESOP (Employee Stock Ownership Plan) organization States’ employees are the shared owners of the company, dedicated to delivering exceptional levels of service.
Palmer Logistics is a value-added solutions provider in warehousing and logistics services operating 13 facilities in Texas (Houston & Dallas) with a combined total of over 3 million square feet. Palmers’ philosophy is to provide flexible, value-added warehousing solutions designed to satisfy our customers’ specific requirements. Palmer differentiates itself in the market by establishing trust-based collaborative relationships that deliver exceptional value. We provide a wide array of services geared to customer-specific requirements.