Flexe Institute Market Watch: Vessel Rerouting and Inland Logistics Implications

August 9, 2022

Demand for supply chain services strains some parts of the supply chain, while others aren't affected.

August 22 Market Watch Collage

Brands and retailers reroute ocean freight to East and Gulf Coast ports, which spreads congestion throughout the country.

Key Takeaways

  • 37% of all imports go through the Los Angeles/Long Beach port complex
  • 62% of the vessels waiting to berth are at East and Gulf Coast ports
  • 10% of all freight transportation relies on rail networks
  • 2.9%—the average industrial vacancy rate
  • .6% vacancy rate for port adjacent warehouse markets
  • $9.40 per square foot for asking rent rates—a new record

As peak season begins, brands and retailers find familiar supply chain snarls. Ports continue to be a bottleneck.

Labor negotiations and extended dwell times plague Los Angeles and Long Beach ports. The negotiation stall stems from port technology upgrade proposals.

LA/LB handles 37% of all domestic imports but rank last in efficiency due to obsolescent machinery, which slows processing times.

East and Gulf Coast ports increased inflow affects inland markets #

Because of the potential work stoppage threat and continued West Coast slowdowns, companies rerouted freight to East Coast ports.

June import volumes hit record numbers, and locations like New York/New Jersey received 10% more YoY volume. Charleston and Houston saw 20% increases.

Instead of easing maritime congestion, rerouting caused it to spread to both coasts. Ship-position data from MarineTraffic and queue lists for California ports shows 43 container ships waiting to berth; Savannah has 26 while Houston has 18 and NY/NJ have 17.

This logjam increases processing times at every major port and causes unpredictable lead times, making peak season planning more difficult, especially as freight hits truckload and warehousing markets.

Capacity shortages drove up average asking rates to $9.40 per square foot—a new record.
-CBRE, 2022

More imports stress rail transport #

More imports also pressure inland rail markets. While rail networks on the East Coast become congested, their West Coast counterparts have been for months.

Currently, West Coast rail dwell times are over seven days for containers. And as East and Gulf Coast ports handle more volume, their regional rail networks experience similar delays.

Officials estimate that trains move 10% of all imported freight. But as rail transportation becomes more difficult, companies rely on over-the-road freight services, potentially tightening truckload capacity, slowing transit times and increasing rates during peak season.

Warehousing market impact #

Retailers and brands have more inventory than ever before. Surging import volumes and uneven demand further squeezed industrial space. Capacity shortages drove up average asking rates to $9.40 per square foot—a new record.

The situation particularly challenges port adjacent warehousing markets like the Inland Empire. It is one of the U.S.’s tightest, running at a record 0.6% vacancy rate compared to the 2.9% average.

Other close-to-port markets also ran short on space, prompting construction at secondary locations. Inland South Carolina continues to be a substantial investment and construction site. According to a report from Colliers, 21.5 million square feet of industrial buildings are under construction in the state, with another 25 million square feet in proposed developments.

Expect retailers and brands to look to similar markets this peak season. Leading businesses utilize secondary and tertiary warehouse markets like inland South Carolina and Central California, where lease rates are 40-50% lower than the coasts and vacancy rates are higher.

Trucking performance #

Despite record imports, freight volume falls below last year’s level. The sluggish volumes keep regional and the larger domestic market from being overwhelmed.

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Even though shippers rerouted freight from the West Coast to other seaports, freight operations continue running smoothly throughout the country. Port adjacent truckload markets didn’t see a substantial volume spike in the past week. However, rates remain high due to diesel prices and other input inflation.

Currently, capacity is more plentiful than previous years. But as peak season commences and rail networks become further congested, that will change. Capacity will tighten and rates will increase as a result. To counteract these peak season trends, leading brands and retailers will optimize their networks balancing middle- and final-mile transportation costs with efficiency.

Implications of logistics challenges #

Supply chain disruption once again threatens retailers and brands this peak season. Demand for supply chain services continues straining nodes and increasing rates.

When lead times and market rates are volatile, shippers optimize for landed costs. As shippers optimize their inbound supply chains, they look for consistency—reducing port performance variability and risk, inland storage costs and outbound transportation lanes.

As businesses prepare for peak season, leading enterprises identify their biggest failure points within networks and remove variability where possible.

Market watch: The logistics industry month-over-month #

Logistics Managers’ Index (LMI) #

This index compiles the responses from more than 100 supply chain professionals on the movement and direction of eight key logistics metrics, aggregated into a single index. The LMI provides a monthly supply-side snapshot. Last month, the index fell again, suggesting easing conditions.

Graph 4402x

Disposable Income vs. Durable Goods Spend #

Durable goods consumption and disposable income are intertwined. Their intersection tells the demand narrative during a given period, predicting the need for logistics services. This month’s data shows that personal consumption rose even as disposable income dropped.


Industrial Real Estate Vacancy Rate #

This composite vacancy rate effectively indicates warehousing capacity in the country at a given time. It acts as a barometer for facility rates and availability. The lower the rate, the more difficult it is to find space for warehousing, distribution and fulfillment. The market currently operates at an all-time low of 2.9%.

Flexe Market Watch April Charts Graph 4402x 2022 04 12 192157 djxs

U.S. Manufacturing Purchasing Managers’ Index #

The index captures industrial output in the country during a given period. Like durable goods consumption, it provides context for demand forces: The higher the manufacturing index, the more volume will spill into the logistics market. This month, the index fell.

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