The escalating trade war with China is leading U.S. retailers to speed up the import of goods from Asia's largest economy to avoid new tariffs and ensure they have adequate supplies for the winter holidays.
Executives say nervous importers pushed forward shipments into the Port of Los Angeles that would normally arrive later in the year into July due to uncertainty surrounding the U.S.-China trade fight and looming tariffs proposed on a variety of imported consumer products. As a result, the surge in goods coming in has exacerbated the already tight availability of warehouse space close to the LA/Long Beach port complex.
"What we've seen in real time is that many inventories are starting to be pulled forward," said Gene Seroka, executive director of the Port of Los Angeles, the busiest container port in North America. "Our July numbers were off the charts. The cargo is flying at us now."
On Wednesday, the Port of LA reported container volumes for the month of July rose 4.6 percent compared with a year ago. July loaded imports rose by 5 percent and exports increased by 8.4 percent. The port hailed the total monthly volumes as the "busiest July in its history."
The adjacent Port of Long Beach, meantime, said last week it is on track to have "its busiest year ever" but indicated July volumes were down 4 percent due to "container shipping alliances' decision to shift vessel deployment and port calls."
Together, the twin Los Angeles/Long Beach port complex handles about 40 percent of the nation's containerized import trade with China. Seroka estimates at least 1 in 5 containers flowing through the complex could be affected by tariffs.
According to Seroka, importers are bringing in goods from China at a "much, much quicker" pace to get ahead of any potential trade impacts. He said that trend applies to goods for the back-to-school, fall fashion and year-end holiday seasons.
Industry executives say the products coming in quicker include everything from apparel and footwear to toys, electronics and furniture. There's also been movement of consumer goods earlier than normal for the spring fashion season.
"We've heard from some members that are moving up shipments to try and avoid getting hit with tariffs," said Jonathan Gold, vice president of supply chain and customs policy at the National Retail Federation, which represents big-box retailers and smaller merchants. "There's a lot of uncertainty exactly when the next round of tariffs ... will take effect."
Gold added that the expectation is that the U.S.-China trade spat could escalate. Retailers "are trying to get a little bit ahead of the game and trying to make sure they have product here that doesn't get hit with the tariff," he said.
Retailers are spending "a lot of money to push up the delivery dates for the products and find space on vessels to get here in time or to find air space or to find the warehouse space," said Gold. "Those are all added costs that folks are going through right now."
Last week, the Trump administration announced tariffs on $16 billion in Chinese imports to the U.S., part of an escalating trade war with Beijing that followed an earlier round of tariffs effective July 6 to $36 billion in imports. The new tariffs are set to start getting collected Aug. 23. President Donald Trump also has threatened 10 percent tariffs on an additional $200 billion worth of Chinese merchandise, including consumer goods.
"The president has threatened to put tariffs on pretty much everything coming out of China," said Gold. Retailers "are looking at their supply chains and trying to plan appropriately. It's a mix of consumer products as well as inputs to production that are also affected by the tariffs."
However, bringing goods in sooner at the LA port complex has added to demand for warehouse space in Southern California to store some of those consumer products.
"Warehouse space is starting to dry up," said Gold. "So that's obviously causing concerns about when you bring it in early, where do you put it and how you store it."
Kurt Strasmann, executive managing director of CBRE's Orange County and Inland Empire operations, said Southern California for many years has been "one of the most sought-after industrial markets, not only in the nation but in the world. It's really big, it's really deep and it's really diverse and never was overbuilt."
Strasmann said even during the Great Recession, the vacancy rate in the Southern California warehouse industrial market never reached above 5 percent.
"It's always been a fairly tight market," the real estate executive said. "You've seen double-digit rent growth over the last couple of years."
High land costs and some restrictions on building also have made it difficult to build new space closer to the ports in most sought-after industrial warehouse markets such as LA and Orange County.
"The deeply embedded and worsening supply-demand imbalance combined with an inability to increase supply continues to be the key driver of historically low vacancy within the 'infill' [urban] Southern California industrial markets," said Michael Frankel, co-CEO of Rexford Industrial Realty, a REIT focused on owning and operating industrial properties in Southern California.
Yet there's still land available at lower costs further east in the Inland Empire area of Riverside and San Bernardino counties. Some of the e-commerce companies that located several years ago to the Inland Empire are now looking more to the infill locations in Los Angeles to be closer to their population base and thus creating more demand in what is already a tight market.
"We in Southern California today [have] less than 1 percent of our warehousing space available," said Seroka. "And we've got about 1.8 billion square feet of warehousing, which is the largest in the world in any one geographic region."
Within the Southern California region, CBRE puts the vacancy rate in the Los Angeles County at 1.1 percent and Orange County at about 1.5 percent. The Inland Empire vacancy rate stands at about 3.5 percent to 4 percent, reflecting the addition of more warehouse space.
The vacancy rate in the South Bay — a location closest to the LA/Long Beach port complex — is below 1 percent, according to Strasmann. "As the economy continues to grow, it's exacerbating the problem of low vacancy because there's room for these companies to grow," he said.
"Space in those spots closest to the ports is incredibly tight," said Chris Burns, senior vice president of California operations for Duke Realty. "It's getting a lot more difficult to find space.