As imports rise, the supply chain has capacity to spare

Getting goods into and around this country could get a lot more expensive and complicated in the new year, for two reasons.

One: On Jan. 15, a temporary agreement between union dockworkers and port operators on the East Coast expires. And two, on Jan. 20, President-elect Donald Trump takes office. He has promised to put tariffs on imports from China, Mexico and Canada.

In anticipation of all this, the volume of imports has been rising, according to a report this week by the National Retail Federation. That means more pressure on the supply chain — shipping, trucking, rail, even warehouse space. Is the system ready?

One good result of the mess the pandemic made of the supply chain is that companies invested in more capacity. But it took a while, said Jason Miller at Michigan State University.

“To go from the idea of we would like to put a warehouse in this location to having a facility open that can now store goods, that is an extended process,” he said.

Now that extra warehouse capacity ordered a few years ago is available, said Joe Dunlap at Legacy Investing. “There’s been an ample amount of warehousing space for the past 12 months or so,” he said.

Which means all that stuff coming into the U.S. right now does have a place to be stored. And a lot of it is coming to the West Coast, said Ian Britton, manager of industrial real estate for CBRE in Southern California. 

“The companies that we’ve interviewed are taking in anywhere from 20% to 25% more finished goods and components in anticipation of tariffs,” he said.

Britton said companies have also shifted west because of the strike threats in the East. Normally, he said, all those extra imports would translate into an uptick in companies leasing out that available warehouse space.

“But it just hasn’t resulted in that direct correlation of leasing volume like we’ve typically seen in typical cycles,” he said. In other words, that ample warehouse space is verging on a glut.

One part of the supply chain that’s a bit tight, said Jason Miller at Michigan State, are railroads in the West. They’ve been busy transporting those record volumes of freight from western ports.

“And that type of prolonged strain does cause some kinks to emerge in the system,” he said.

For now, he said, if the railroads get too tied up, there’s plenty of capacity in the trucking sector, which can take the pressure off.