L.A. warehouse crunch pushes freight into Northern California

The U.S. – China trade war continues to disrupt freight movements into the new year. The Los Angeles and Ontario, California warehouse markets are clogged with inventory pulled forward ahead of tariff deadlines, causing inbound freight to be dumped into secondary markets like Stockton, Modesto, and Phoenix.

Los Angeles outbound volumes (OTVI.LAX) continued to post strong gains today, nearly reaching their 2018 highs. Incredibly, tendered truckload shipments moving out of L.A. are up 78% year-over-year. However, we do not believe that these elevated truckload volumes are the result of surging port activity.

“There’s no capacity crunch on our side,” said Henry Byers, Director of Pricing and Partnerships at Steam Logistics, an international freight forwarder based in Chattanooga, referring to the Transpacific container trade. “Space is pretty open—there’s consistent freight movement, but no one is having any issues finding space on the West Coast [lane].”

There’s over a billion square feet of warehouse space in Southern California, but it’s almost completely full, to the point where container terminals at the Ports of Los Angeles and Long Beach have nowhere to discharge their boxes.

Most of the lanes outbound from L.A. experienced large volume increases this week, but the lane going north to Stockton and Modesto represented the majority of the growth. We believe that shippers, who still have a significant amount of freight coming off the port, have been forced to search for warehouse capacity and have apparently found it in these smaller northern Californian markets. Shippers can move a truckload from L.A. to Stockton for about $890 ($2.63/mile net of fuel on 338 miles), while moving it further into the country’s freight network, to a hub like Dallas, would cost approximately $2,550.

We don’t think it’s a coincidence that both BNSF and Union Pacific have intermodal facilities in those markets. With warehouse space also constrained in Chicago and Joliet, shippers are opting to stage their freight wherever they can on the West Coast, as long as they will eventually have a cheap way out of California.

Expect clogged warehouse and industrial facilities to continue to distort freight markets through Q1 as international shippers again ramp up ahead of March 1 tariff deadlines. If another wave of containerized freight hits the West Coast in February, there’s no telling where it will end up.