Warehouse warning: Inflationary winds brewing

The warehouse supply chain pipe is a key forward-looking indicator on the health of inventories and U.S. sales. Looking at the metrics on how long items are sitting in warehouses gives insight into a company’s consumer.

Inventories have been going down, but with concerns over consumer spending and the python squeeze inflation has had on some wallets, the inventory battle is far from over.

In its fourth-quarter Warehouse Pricing Index Report released Tuesday, WarehouseQuote issued a warning on a line item that will be an inflationary driver in 2024: 33% of all U.S. industrial leases are expiring in the next 24 months.

“According to JLL, that’s approximately 10,000 transactions,” stressed Jordan Brunk, chief marketing officer of WarehouseQuote. “This segment of the warehouse market has seen tremendous rent growth over the last five years. This means the cost in third-party warehouses will only become more expensive.”

These costs will be passed over to the consumer. As with other prior costs passed on, the Federal Reserve has no control. Brunk told American Shipper that companies are proactively looking at their warehouse footprint, assessing consolidation and not ruling out relocation.

“For the first time we see companies deploying on the six inventory strategies we have been discussing for the last year,” Brunk said. “As inventories sit, businesses that utilize third-party warehouses rack up elevated inventory storage invoices. This line item has become an eyesore for businesses.”

Mike Adkins, vice president of sales at WarehouseQuote, told American Shipper that while the warehousing market seems to be relaxing, shippers cannot forget pricing for 3PL services is correlated with real estate prices.

“The price of the leases are benchmarked on newer construction,” Adkins said. “Many of our partners entered into long-term agreements and we expect the costs of 3PL services to remain elevated as a result of the dependency on three-to-10-year leases.”

In 2023, a considerable portion of WarehouseQuote’s SMB and midmarket client portfolio has continued to face inventory challenges due to the bullwhip effect and muted consumer demand.

“This has led to elevated storage levels and increased storage costs,” Brunk said. “WarehouseQuote has worked closely with these customers to provide consulting and advisory support, including SKU rationalization studies, and execute on disposal strategies to mitigate rising storage costs.”

Also influencing a shipper’s storage needs is the volume of shipments and possible bottlenecks that would delay shipments.

Chris Rogers, head of supply chain research for S&P Global, wrote that even though the pattern of shipments has appeared to return to pre-pandemic seasonality, that does not mean it’s guaranteed smooth sailing.

“Looking ahead, the source of disruptions in late 2023 and into 2024 are returning to the trade policy and operational uncertainties typically seen in the late 2010s. Physical infrastructure disruptions are ongoing, including water shortages in the Panama Canal and rivers ranging from the Mississippi to the Amazon. Crossborder transit and rail delays on the Mexico-US border look set to continue.”

The post Warehouse warning: Inflationary winds brewing appeared first on FreightWaves.

Source: freightwaves - Warehouse warning: Inflationary winds brewing
Editor: Lori Ann LaRocco