China Ranks Third in U.S. Trade Behind Mexico and Canada

Supply chains are constantly adapting to disruptions, changes in consumer demand, and shifting capacity.

Flexe provides an executive summary the future of the supply chain space.

Key takeaways:

·       August data shows the same stubbornness stagflation is known for, and it’s no longer confined to warehousing. Flexe sees that pattern continuing in August’s warehousing data, and it now appears to be spreading into inventory and transportation economics as well: the same drivers behind warehousing stagflation are creating similar pressure throughout the supply chain. Though demand has stayed roughly flat across many indicators this year, rising input and energy costs are squeezing supply chains from both directions.

·       The costs to procure or produce, ship, and store those goods potentially for longer has climbed, some of it into record territory.

• Industrial vacancy for fixed space crept up again to 7.59% in August, driven by gross deliveries of new industrial warehousing pacing toward 67 million square feet in Q3, up +22%, after two consecutive quarters delivering at just about 55 million square feet. There are two separate stories developing on the supply and demand sides.
• Supply: Available direct lease inventory is slightly up on the strength of those newly available sites, but sublease inventory is down by 9 million net square feet since Q2. If this holds, it will mark four consecutive quarters of decline in this category since its all-time peak
• Demand: Industrial investment sales have suddenly picked up, with 491 transactions reported quarter-to-date by CoStar, which, if holds, would be the most transactions in a quarter in at least the preceding 10 years.
• Lease prices themselves present a far less interesting picture: asking rents saw virtually no month-over-month change in base lease rates nationally.
• In light of new tariff headlines, Canadian industrial markets have a secularly lower vacancy rate. Across Flexe’s Top 21 tracked markets, Vancouver, BC and Toronto, Ontario, have the lowest vacancy rates. These markets simply didn’t see the same speculative growth in warehouse construction boom post-COVID that many U.S. markets did, but the current tariffs may make them tighter still.
• Pricing pressures continue to dominate logistics professionals’ responses to the monthly LMI survey. Transportation cost was at a reading of 90 or higher for the fourth month in five, with any prior optimism evaporating in the face of higher fuel prices and renewed hostilities in the Middle East.
• Inventory level expansion (52.8) represents one of the lowest readings on the index, consistent with the previously reported inventory pull-forward strategy amid uncertain trade conditions.
• Respondents’ predictions for future pricing were unanimously inflationary, led by transportation prices at (86.1) but closely followed by inventory (79.6) and warehousing (79.2) costs.
• China actually ranks a distant third behind Mexico and Canada in U.S. trade.
• For readers and consumers conditioned to waves of tariff threats and bluster followed by complex legislation that later reciprocated, enjoined or invalidated, there is a real sense of tariff news fatigue.
• For businesses trading across the Canadian border, “wait-and-see” may be a sound strategic stance, but still leaves near-term production, sourcing, allocation, and routing problems needing a tactical response.
• 18 months of cross-border trade disruptions should mean most shippers and producers are already well versed and connected to specialized providers who can offer advice and expertise.
• Logistics strategies that optimize for tax and tariff costs generally tend to increase cost of inventory, regardless of those savings.
• With high uncertainty that current tariff regimes will hold and with costs already elevated, short-term strategies may win out. Spot rates in both transportation and warehousing carry a premium to contract rates, but paying that short-term premium to avoid long-term sunk costs in cross-border Canada lanes looks worthwhile, and that’s exactly what shippers did in August.
• North American companies ordered nearly 18,000 robots valued at $1.2 billion in the first half of this year, a 7% increase in value year over year, as businesses look to cut costs out of their supply chains.
• Transportation capacity continues to tighten as the freight market begins to recover. Q3 truckload rates are pointing to a meaningful shift in the market, with spot rates remaining above contract rates for a second consecutive quarter and forecasts calling for truckload rates to reach a four-year high. As of mid-August, spot rates were up roughly 35% year over year, as carrier exits and limited capacity continue to put upward pressure on transportation costs.