Fifty-five. That’s the record-breaking number of ships at anchor as of September 10, 2021, at the four major ports in Southern California. That’s up from forty-four ships at anchor, a record set on August 27, 2021. These ships are harmlessly awaiting their turn to dock, their crews potentially unaware of the records they keep smashing for the sheer number of ships in port.
For the Port of Los Angeles alone, this spells an average time at anchor of 8.5 days and a projected increase in import volumes for Week 37 (September 12 - September 18, 2021) of 28.18% year over year. Projected volumes for Week 38 (September 19 - September 25, 2021) are even more alarming, with a projected increase of 52.87% year over year. Just in those two weeks alone, the Port of Los Angeles is expecting to handle over 112,000 shipping containers.
Unsurprisingly, due to a lack of pretty much everything, this is turning into a huge mess.
Storage is a major bottleneck, but not the only one
Part of the boat problem, of course, is COVID-related: worker shortages and delays due to shutdowns at various ports are definitely having their effects. But another, more persistent issue is storage. Having all these goods at or near port is one thing, but it’s quite another to have anywhere to put them.
With more companies switching to eCommerce-heavy models, warehouses are the hot thing for retailers, and it’s showing in industrial vacancy rates. According to Jones Lang LaSalle, Inc. (JLL), vacancy rates for industrial real estate in Q2 2021 fell to a record low of 1.7% in the Inland Empire of Southern California. Nationwide, industrial real estate vacancies are at 4.8%, leaving almost nowhere to store so many goods when they come off the ships, even if they’re sent far away.
So, although shippers are trying to divert ships that would normally unload in California to other ports with less congestion, it may not really make a lot of difference. No matter which port, there’s limited space to unload massive ships that contain every sort of consumer good imaginable. Even trains aren’t a terribly great way to move those containers right now, with rail lines like Union Pacific and BNSF Railway Co. limiting container shipments to Chicago due to over-full freight-switching terminals.
Assuming there was space to be had in more landlocked locations in the Midwest, getting containers to them may still be difficult, since there have been massive trucker shortages for years that has only been made a lot worse by the pandemic. Oh, and to top all that off, a lot of containers have gone missing, trapped in cargo facilities, just waiting to get back to the ocean, so ships are going back to their home ports empty-handed and those "missing" containers are taking up space that’s needed for full containers.
It’s a perfect storm of really bad stuff when it comes to consumer goods. It’s also a huge opportunity for anyone willing to build warehouse space or trucking fleets quickly in the right neighborhoods.
The Millionacres bottom line
There’s a lot to unpack from this overstuffed group of ports, especially when you consider that this problem is expected to persist for some time. Every step is driving prices up and increasing the snarl of goods-ladened containers trying to find their way to appropriate warehouses. For investors, the shipping world is offering a whole lot of opportunities right now, though they may not be permanent ones.
For the warehouse investor or real estate developer, this is your shining moment. Depending on where your warehouses are located, you may have seen as much as a doubling in rents in the last several years. Certainly, near pretty much every port the potential for longer-term gains exist, as the supply chain continues to ebb and flow, seeking a balance that isn’t there yet.
Although construction projects are taking longer to complete in some places and materials are becoming more dear, adding some new warehouses to busy port areas or within easy rail reach (not routed through Chicago!) of major eCommerce facilities could be a very wise move. Industrial buildings aren’t as complicated to build as residential ones and require fewer resources, so there’s still a window to get the ground broken and the units rented before someone untangles this container mess.
However, with massive shortages of storage space (companies are still panic-buying to help avoid supply chain snafus-- oh, the irony) and a potentially permanent need for more warehouse space for eCommerce fulfillment, warehouse space may be a really solid long-term investment as well. If 2022 is going to present more and unique kinks in the supply chain, those storage facilities won’t likely be going to waste.