John H. Boyd (jhb@theboydcompany.com) is founder and principal of The Boyd Co., Inc. Founded in 1975 in Princeton, New Jersey, and now based in Boca Raton, Florida, the firm provides independent site selection counsel to leading U.S. and overseas corporations. Organizations served by John over the years are many and varied and include The World Bank, The Council of Supply Chain Management Professionals (CSCMP), The Aerospace Industries Association (AIA), MIT’s groundbreaking Work of the Future Project, UPS, Canada's Privy Council and most recently, the President’s National Economic Council providing insights on policies to reduce supply chain bottlenecks.
Our site selection firm's first office was on Princeton, New Jersey’s Nassau St., overlooking the university and a few blocks from the former home of the father of the theory of relativity, Albert Einstein—who lived in Princeton from 1933 until his death in 1955. So, it seems fitting that in characterizing the current state of the warehousing sector, I lean heavily on the term “relative.”
First, the specter of an impending commercial real estate market crash is very much a reality. About $1.5 trillion in commercial mortgage debt is due by the end of 2025. With rising financing costs, along with stricter credit conditions and a fall in property values brought on by remote work, the risk of default has greatly increased. More than half of the $2.9 trillion in commercial mortgages will need to be renegotiated in the next 24 months when new lending rates are likely to be up by as many as 450 basis points.
Yet relative to other sectors of the commercial real estate industry, especially compared to the office sector, the warehousing market is doing quite well. The warehousing sector is doing an admirable job dodging the bullets of a slowed economy, rising interest rates, and the easing of pandemic restrictions that helped brick-and-mortar retail win back some of the business that it lost to e-commerce during the lockdowns.
In fact, fundamentals within the warehousing sector have remained fairly stable over the past year, and in many markets, they’re growing even stronger. That’s primarily due to sustained demand from online shopping, reshoring trends in manufacturing, and a shortage of prime, shovel-ready warehousing sites.
We are actually seeing double-digit rental rate hikes over the past year in the majority of U.S. distribution warehousing hubs, with all-time high rental rates being reached in many markets. Simply put, warehousing has not been turned upside down by the pandemic and rising interest rates like the office and retail markets have. Furthermore, these rising warehouse rents have not yet been reflected in many long-term leases. As a result, the next cycle of lease renewals will very likely increase the valuations of most warehousing assets.
Bellwether layoffs
Despite warehousing fighting the good fight amid 2023 upheavals in the overall commercial real estate market, the sector is not completely immune to the cooling economy. Real-estate analysis firm CoStar Group Inc. reported new warehouse construction fell by almost 25% in the most recent 2023 quarter, reaching the lowest level since the start of the pandemic.
Another sign is that warehousing employment has dropped significantly over the past year as companies slashed payrolls amid a downturn in the U.S. economy and talks of a recession. Warehousing companies have reduced employment by some 75,000 jobs over the past year, led by bellwether logistics giants Amazon, Walmart, UPS, and FedEx.
Recent companywide layoffs by Amazon total almost 30,000. Walmart, the world’s largest retailer, is also cutting back as it responds to falling consumer demand and concerns about a potential recession. The company plans to lay off more than 2,000 workers at distribution centers in Texas, Florida, and Pennsylvania as well as making additional cuts at other locations.
UPS plans to lay off some of its weekend drivers, and FedEx Freight announced it has gone through three rounds of layoffs since late 2022. FedEx is also consolidating its FedEx Express, FedEx Ground, FedEx Services, and other FedEx operating companies into what will be called the Federal Express Corporation. Combining these segments is part of an overall plan to trim its staff and expenses. All of these logistics giants are also automating operations greatly to speed up order processing and further trim headcounts.
Three trends to watch
Looking ahead we see three general trends that will affect the location of future warehouses: growing interest in logistics corridors, nearshoring, and continuing resistance to new warehouse construction from some local communities.
Logistics corridors. In spite of the big layoffs noted above, many oftoday’s site-seeking warehousing companies still want to access expanded labor markets as well as greater real estate options. As a result, site searches are increasingly focusing on prominent controlled-access highway corridors, especially in states offering attractive operating cost structures and low taxes. These corridors expand the geographic area that companies can draw upon for warehousing labor as well as shovel-ready sites for construction.
Some companies are shortlisting areas with smart highways that can monitor road conditions and communicate with vehicle navigation systems via smart infrastructure. Such technology can improve the speed of delivery and accommodate the future needs of electric trucks and emerging technologies like autonomous vehicles and hydrogen fuel cell-powered trucks. A good example is the SH 130 Corridor in Central Texas that utilizes futuristic technology, such as satellites, and links the high-growth areas of Austin and San Antonio. Figure 1 provides the location of these types of logistics corridors along with comparative warehouse operating cost data and state business climate information.
Nearshoring. Many industrial clients of Boyd continue to seek alternatives to manufacturing in and sourcing from China since the Trump tariffs in 2018 and the pandemic-induced global supply chain bottlenecks and geopolitical tensions. Today, the new federal incentives to manufacture and source in North America that were written into Biden’s Inflation Reduction Act (IRA) are fast-tracking the nearshoring movement even more.
At the same time, imports from Mexico are soaring, creating great demand for new cross-border logistics services. Foxconn, for example, which makes parts for Apple’s iPhones, now has major new production facilities in Ciudad Juarez, Mexico, and the automotive company Tesla just announced plans to open a new “gigafactory” in Monterrey, Mexico. Data from Uber Freightpoints to over 400 companies opening plants in Mexico in 2023, generating some $35 billion in new exports to the U.S. The magnitude of these exports is creating a new draw for supply chain investments in and near border states like Texas, Arizona, California, and New Mexico.
“Nimby-ism.” Our clients in the manufacturing sector have long faced anti-growth pressures from NIMBY (“not-in-my-backyard”) groups. Their objections are most often about noise, pollutants, and emissions. What is driving the NIMBY movement’s response to warehousing is different and has more to do with the sheer size and speed of the sector’s proliferation, especially in logistics hubs like New Jersey, Chicago, and California’s Inland Empire. This fast pace of change and the overpowering size of many of these new warehouses—one million square feet is becoming common—is unnerving to many.
In our firm’s home state of New Jersey, NIMBY-ites have long stressed traffic and stormwater runoff from warehouse roof tops and parking lots as major objections in places like the Millstone River Basin in Central New Jersey—home to millions of square feet of warehousing space in and around the popular Exit 8-A environs of the New Jersey Turnpike. The NIMBY movement here has recently upped the ante and is about to acquire a new arrow in its quiver. It is one that is likely to be adopted in other warehousing hubs around the country.
Local groups are now arguing that it would be appropriate to use American Rescue Plan Act (ARPA) funds to buy land where warehouses would otherwise be built on the premise that it was the pandemic that ignited the explosion in e-commerce and the subsequent sprawl of warehouses in New Jersey. They also say that protecting available land from warehouse use would underscore the value of open space, which was stressed during the pandemic.
Other warehouse NIMBY groups and like-minded lawmakers in other states are watching closely to how this all plays out in New Jersey. It would be quite the irony if federal monies that were designed to help businesses hurt by the pandemic were actually used to create new hurdles for their expansion and job creation. Irony, yes, but all things considered, a turn of events that would only be a minor speed bump in the ongoing growth and resiliency of the U.S. warehousing sector.
The surge of “nearshoring” supply chains from China to Mexico offers obvious benefits in cost, geography, and shipping time, as long as U.S. companies are realistic about smoothing out the challenges of the burgeoning trend, according to a panel today at the Council of Supply Chain Management Professionals (CSCMP)’s EDGE Conference in Nashville.
Those challenges span a list including: developing infrastructure, weak security, manual processes, and shifting regulations, speakers said in a session titled “Nearshoring: Transforming Surface Transportation in the U.S.”
For example, a recent Mexican government rail expansion added lines to tourist destinations in Cancun instead of freight capacity in the Southwest, said panelist Edward Habe, Vice President of Mexico Sales, for Averitt. Truckload cargo inspections may rely on a single person looking at paper filings on the border, instead of a 24/7 online system, said Bob McCloskey, Director for Logistics and Distribution at Clarios, LLC. And business partners inside Mexico often have undisclosed tier-two, tier-three, and tier-four relationships that are difficult to track from the U.S., said Beth Kussatz, Manager of Northern American Network Design & Implementation, Deere & Co.
Still, dedicated companies can work with Mexican authorities, regulators, and providers to overcome those bottlenecks with clever solutions, the panelists agreed. “Don’t be afraid,” Habe said. “It just makes sense in today’s world, the local regionalization of manufacturing. It’s in our interest that this works.”
A quick reaction in the first 24 hours is critical for keeping your business running after a cyberattack, according to Estes Express Lines, the less than truckload (LTL) carrier whose computer systems were struck by hackers in October, 2023.
Immediately after discovering the breach, the company cut off their internet, called in a third-party information technology (IT) support team, and then used their only remaining tools—employees’ personal email and phone contacts—to start reaching out to their shipper clients. The message on Day One: even though the company was reduced to running the business with paper and pencil instead of computers, they were still picking up loads on time with trucks.
“Customers never want to hear bad news, but they really don’t want to hear bad news from someone other than you,” the company’s president and COO, Webb Estes, said in a session today at the Council of Supply Chain Management Professionals (CSCMP)’s EDGE Conference in Nashville.
After five or six painful days, Estes transitioned from paper back to computers. But they continued sending clients daily video updates from their president, and putting their chief information officer on conference calls to answer specific questions.
Although lawyers had advised them not to be so open, the strategy worked. It took 19 days to get all computer systems running again, but at the end of the first month they had returned to 85% of their original client list, and now have 99% back, Estes said in the session called “Hackers are Always Probing: Cybersecurity Recovery and Prevention Lessons Learned.”
As the final hours tick away before a potential longshoreman’s strike begins at midnight on the U.S. East and Gulf coasts, experts say the ripples of that move could roll across the entire U.S. supply chains for weeks.
While some of the nation’s largest retailers were able to pull their imports forward in recent weeks to soften the blow, “the average supply chain is ill-prepared for this,” Tom Nightingale, the former CEO of AFS Logistics, said in a panel discussion today at the Council of Supply Chain Management Professionals (CSCMP)’s EDGE Conference in Nashville.
Despite that grim prognosis, a strike seems virtually unavoidable, CSCMP President & CEO Mark Baxa said from the stage. At latest report, the White House had declined to force the feuding parties back into arbitration through its executive power, and a voluntary last-minute session had failed to unite the International Longshoremen’s Association (ILA)’s 45,000 union members with the United States Maritime Alliance that manages the 36 ports covered under their expiring contract.
The ultimate impact of a resulting strike will depend largely on how long it lasts, the panelists said. With a massive flow of 140,000 twenty foot equivalent units (TEUs) of shipping containers moving through the two coasts each week, each day of a strike will require 7 to 10 days of recovery for most types of goods, Nightingale said.
Shippers are desperately seeking coping mechanisms, but at this point the damage will add up fast, whether a strike lasts for an optimistic “option A” of just 48 to 72 hours, a pessimistic “Option B” of 7 to 10 days, or even longer, agreed Jon Monroe, president of Jon Monroe Consulting.
The first full day of CSCMP’s EDGE 2024 conference ended with the telling of a great American story.
Author and entrepreneur Fawn Weaver explained how she stumbled across the little-known story of Nathan “Nearest” Green and, in deciding to tell that story, launched the fastest-growing and most award-winning whiskey brand of the past five years—and how she also became the first African American woman to lead a major spirits company.
Weaver is CEO of Uncle Nearest Premium Whiskey, a company she founded in 2016 and that is part of her larger private investment business, Grant Sidney, Inc. Weaver told the story of Uncle Nearest—as Nathan Green was known in his hometown of Lynchburg, Tenn.—to Agile Business Media & Events Chairman Mitch MacDonald, in a keynote interview Monday afternoon.
As it turns out, Green—who was born into slavery and freed after the Civil War—was the first master distiller for the Jack Daniel’s Whiskey brand. His story was well-known among the local descendants of both Daniel and Green, but a mystery in the larger world of bourbon and a missing piece of American history and culture. Through extensive research and interviews with descendants of the Daniel and Green families, Weaver discovered what she describes as a positive American story.
“I believed it was a story of love, honor, and respect,” she told MacDonald during the interview. “I believed it was a great American story.”
Weaver told the story in her best-selling book, Love & Whiskey: The Remarkable True Story of Jack Daniel, His Master Distiller Nearest Green, and the Improbable Rise of Uncle Nearest, and has channeled it into an even larger story with the founding of the brand. Today, Uncle Nearest Premium Whiskey is made at a 323-acre distillery in Shelbyville, Tenn.—the first distillery in U.S. history to commemorate an African American and the only major distillery in the world owned and operated by a Black person.
Weaver and MacDonald's wide-ranging discussion covered the barriers Weaver encountered in bringing the brand to life, her vision for where it’s headed, and her take on the supply chain—which she said she views as both a necessary cost of doing business and an opportunity.
“[It’s] an opportunity if you can move quickly,” she said, emphasizing a recent project to fast-track a new Uncle Nearest product in which collaborating with the company’s supply chain partners was vital.
Uncle Nearest Premium Whiskey has earned more than 600 awards, including “World’s Best” by Whisky Magazine two years in a row, the “Double Gold” by San Francisco World Spirits Competition, and Wine Enthusiast’s “Spirit Brand of the Year.”
CSCMP’s EDGE 2024 runs through Wednesday, October 2, at the Gaylord Opryland Hotel & Convention Center in Nashville.
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Miquel Serracanta of EAE Business School, Mark Baxa of CSCMP, and Sebastian Jarzebowski of Kozminski University sign an agreement making Kozminski University the newest CSCMP Academic Enterprise Member.
The Council of Supply Chain Management Professionals (CSCMP) and Kozminski University, a business school based in Warsaw, Poland, inked a deal on Sunday night, making Kozminski CSCMP’s newest Academic Enterprise Member.
This three-year collaborative membership will involve Kozminski using CSCMP educational content in its undergraduate supply chain program. As a result, Kozminski’s graduates will leave the program not only with a bachelor’s degree from the school but also certified through CSCMP’s SCPro certification program.
“This partnership emphasizes the global reach of CSCMP’s certification program and its applicability worldwide,” said Mark Baxa, CSCMP’s president and CEO.
Kozminski University’s Academic Director of Logistics and Supply Chain Management Sebastian Jarzebowki was on hand to sign the agreement at the CSCMP EDGE Conference in Nashville, Tennessee. Jarzebowski said that his students will benefit not only from receiving a globally recognized certification but also from joining a network of supply chain professionals.
Kozminski University joins the EAE Business School in Barcelona and the Rome Business School in the CSCMP Academic Enterprise Program. Baxa sees the membership program as a growth platform for the industry association not only in Europe but also worldwide.