The State of U.S. Warehousing: Space Rates and Market Trends

Introduction

The U.S. warehousing sector has been facing unprecedented challenges in recent years, with elevated demand and limited supply putting significant pressure on logistics networks. As a crucial link between shipping and consumers, warehousing plays a vital role in the supply chain. In this article, we'll explore the current state of U.S. warehousing, focusing on space rates, market trends, and their implications for businesses.

Key facts from recent data:

• Warehouse employment has increased by 49.3% since April 2019
• Vacancy rates for major warehouse owners were just 2.7% in Q1 2022
• Retail sales in April 2022 were 35.8% higher than in January 2019
• The share of online sales in total retail sales is currently at 20.5%
• Storage rates rose by 25% year-over-year in May 2022

Supply: Space, Not Labor, as the Main Constraint

While the warehousing sector has successfully expanded its workforce, the availability of physical space remains a significant challenge. Let's examine these two factors in more detail:

Workforce Expansion

The warehousing sector has shown remarkable growth in employment. According to the Bureau of Labor Statistics, employment in warehousing increased by 49.3% between April 2019 and April 2022. This growth outpaces other related sectors, with courier employment rising by 40.5% and trucking increasing by just 2.1% during the same period.

Warehouse Space Availability

Despite the growth in workforce, warehouse space remains scarce. Data from eight major warehouse and industrial property owners shows that vacancies were just 2.7% of capacity in Q1 2022, excluding cold-chain capacity. While this is a slight increase from the 2.5% seen in Q4 2021, it's still well below the 4.2% level of Q1 2021 and the 3.8% of 2019.

This scarcity of space is not a new phenomenon. The availability of spare warehousing capacity has been in steady decline for several years, according to Savills. This long-term downtrend may reflect improved efficiency among warehouse owners in building only what is needed and reducing speculative spending.

Demand: Risks from Retail

While supply remains tight, there are potential risks on the demand side, particularly from the retail sector. Let's explore the key factors influencing demand for warehouse space:

Retail Sales Growth

U.S. retail sales continue to show growth, with a 3.6% increase in real terms year-to-date in 2022 as of April, when adjusting for PCE inflation. Sales in April 2022 were 35.8% higher than in January 2019, and in real terms, they were 24.4% higher. This sustained growth has contributed to the increased demand for warehouse space.

E-commerce Impact

The shift to eCommerce has placed a higher burden on warehouses per dollar of sales. The share of online sales in total retail sales reached a peak of 22.9% in April 2020 and has since fallen to 20.5%. However, this is still well above the long-term trend, which would have put the ratio at 18.4% if pre-pandemic trends had continued.

Changing Consumer Behavior

Flexport's Post-Covid Indicator shows that the balance of consumer spending on goods versus services is starting to reverse, especially for nondurable goods. While the ratio is still far from pre-pandemic levels, this shift could potentially reduce demand for eCommerce warehousing.

Inventory Strategies

Inventory levels for both retailers and wholesalers have increased from their pandemic-era lows. The retail inventory/sales ratio (excluding autos) reached 1.13x in Q1 2022, up from a trough of 1.05x in Q2 2021. Similarly, for wholesalers, the ratio reached 1.47x in Q1 2022, compared to a trough of 1.41x. However, these levels are still below pre-pandemic norms.

The future of inventory strategies remains uncertain. Some businesses may return to just-in-time strategies, while others may adopt just-in-case approaches, potentially leading to inventory levels well above pre-pandemic levels. The choice between these strategies will significantly impact warehouse demand.

Warehouse Rates: Heading Higher

Given the tight supply and evolving demand dynamics, what's happening with warehouse rates? WarehouseQuote's Warehouse Pricing Index (WPI) provides valuable insights:

Storage Rates

Storage rates, which represent the price paid to secure ongoing space in an ambient-conditions warehouse, have shown a clear upward trend. On a national basis, storage rates rose by 17% sequentially in May and by 25% year-over-year. On a smoothed basis, rates rose by 20% in the three months to May 31 versus the same period a year earlier.

Pallet Handling Charges

Pallet-In and Pallet-Out rates, which reflect the frequency of turnover in warehouse space, are also elevated but not as dramatically as storage rates. This could be due to reduced wage growth in the sector.

Regional Variations

There are significant regional differences in storage rate increases. While the West region saw a 15% year-over-year increase in May, the Southwest and Northeast experienced more dramatic rises of 53% and 45%, respectively. This disparity may be partly due to diversions from California's congested ports to other locations.

Implications for Businesses

The current state of U.S. warehousing presents several challenges and opportunities for businesses:

1. Increased Costs

Rising warehouse rates will likely lead to increased costs for businesses, potentially impacting profit margins or necessitating price increases for end consumers.

2. Supply Chain Reconfiguration

The regional variations in warehouse rates may prompt businesses to reconsider their supply chain configurations, potentially shifting distribution centers to areas with more favorable rates.

3. Inventory Strategy Reassessment

With warehouse space at a premium, businesses may need to reassess their inventory strategies, balancing the need for resilience against the costs of holding excess inventory.

4. Technology Adoption

The tight market conditions may accelerate the adoption of warehouse automation and management technologies to maximize efficiency and space utilization.

5. Alternative Solutions

Some businesses may explore alternative solutions, such as on-demand warehousing or shared warehouse spaces, to manage costs and maintain flexibility.

How FreightAmigo Can Help

In these challenging times for the warehousing sector, FreightAmigo's Digital Logistics Platform offers valuable solutions to help businesses navigate the complexities:

1. Comprehensive Quote Comparison

Our platform allows you to compare door-to-door freight quotes for various transportation modes, including international courier, airfreight, sea freight, rail freight, and trucking solutions. This comprehensive view can help you optimize your logistics strategy in light of warehousing constraints.

2. Real-Time Shipment Tracking

With connections to over 1000 reputable airlines and shipping lines, we provide real-time shipment tracking. This visibility can help you better manage your inventory and warehouse space, reducing the need for excessive safety stock.

3. Streamlined Customs Clearance and Insurance

Our one-stop solution for arranging customs clearance and cargo insurance can help expedite the movement of goods, potentially reducing warehouse dwell times and associated costs.

4. Automated Documentation

By automating shipment documents, we help reduce errors and speed up processes, which can lead to more efficient use of warehouse space and resources.

5. Expert Support

Our 24/7 logistics expert support can provide guidance on optimizing your supply chain in the face of warehousing challenges, helping you make informed decisions about inventory management and distribution strategies.

Conclusion

The U.S. warehousing sector remains under pressure, with high demand and limited supply driving up rates. While there are some signs that demand may be waning, warehouse rates remain elevated, presenting challenges for businesses across various industries.

As the situation continues to evolve, businesses must stay informed and adaptable. Leveraging Digital Logistics Solutions like FreightAmigo can provide the tools and insights needed to navigate these challenges effectively, optimizing supply chains and maintaining competitiveness in a demanding market.

By understanding the current state of U.S. warehousing and utilizing advanced digital tools, businesses can turn these challenges into opportunities for growth and improved efficiency. As we move forward, the ability to adapt to these market conditions will be crucial for success in the ever-changing landscape of global logistics.