Global Supply Chain Volatility Driving Need for Domestic Safety Stock
April 19, 2021
volume has surged over the past year as retailers and manufacturers rush to
replenish depleted inventories during the pandemic.
This has resulted in rising demand for warehouse space, as manufacturers look to
compensate for the shortcomings of just-in-time (JIT) production networks and
increase “safety stock” to offset supply chain disruptions, such as the recent
closure of the Suez Canal.
Figure 1: Total Business Inventories & Annual Change in U.S. Imports
*Year-over-change percent change in U.S. import value goods, not seasonally
Source: St. Louis FRED, CBRE Research, January 2021.
U.S. West Coast ports are experiencing historic shipping volume and congestion
in a rush to increase inventories on shore. Year-to-date, loaded imports
increased by 24.2% and 32.1% at the ports of Los Angeles and Long Beach,
respectively. East Coast ports also have seen a significant uptick in volume:
The ports of Savannah, Virginia and New York/New Jersey posted gains of 17.7%,
16.8% and 13.2%, respectively.
Figure 2: YTD U.S. Seaport Cargo Volumes
*Loaded Twenty-Foot Equivalent Unit (TEU) imports indicates inbound container
volumes with full containers.
Source: Various port authorities, CBRE Research, Q1 2020.
The recent blockage of the Suez Canal by the 220,000-ton Ever Given container
ship underscores the fragile nature of global supply chains. The six-day
blockage and resultant backup in container ship traffic traversing the canal
held up approximately $10 billion in trade each day, according to Lloyd’s List.
chain volatility further heightens the need for additional warehouse space to
stockpile goods and mitigate future disruptions. CBRE Econometric Advisors
estimates that a dollar increase in imports requires three times as much
warehouse space as a dollar increase in exports (holding industrial production
constant). Thus, a trend toward shorter, more resilient supply chains has
gathered pace over the past year.
Many companies would prefer to store additional inventory near ports of entry;
however, what little warehouse space is available in these markets is getting
expensive. Seaport markets finished 2020 with an average vacancy rate of just
3.6%—1 percentage point lower than the national average. Only 75 million sq. ft.
was under construction in these markets at the end of 2020, with more than a
third of it preleased. The low amount of available supply has led to record-high
Increased rents are leading to higher pricing of for-sale warehouse facilities,
making the investment market even more competitive. While occupiers must
overcome the “sticker shock” of higher rents in these markets, occupancy costs
remain a low portion of overall supply chain costs. This will give landlords
room to continue increasing rental rates for the foreseeable future.