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  • TSTOPVRPM.LAXDAL
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  • WAIT.USA
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    13,683.230
    2,931.500
    27.3%
  • OTLT.USA
    2.949
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  • OTRI.USA
    19.680
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  • OTVI.USA
    13,646.340
    2,945.470
    27.5%
  • TSTOPVRPM.ATLPHL
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  • TSTOPVRPM.CHIATL
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NewsTop StoriesWarehouse

US inventories to rise 10-15% in coming years: Prologis CEO

Forecast is higher than 5-10% estimate made at start of pandemic

In April 2020, at the start of the COVID-19 pandemic, logistics warehouse giant Prologis Inc. estimated U.S. inventories would increase by 5% to 10% in coming years as businesses built up buffer stock near their end markets to avoid potential supply chain disruptions.

That estimate has been raised. Speaking Wednesday at a Prologis (NYSE: PLD) global supply chain event in San Francisco, CEO Hamid R. Moghadam said U.S. inventory levels will increase by 10% to 15%. Prologis, which is the world’s largest developer and operator of logistics real estate, will need that same percentage of additional buildings to keep up with inventory repositioning needs and the secular surge in e-commerce fulfillment demand, Moghadam said.

Prologis’ revised estimate may have been influenced by the extraordinary duration of the spike in U.S. consumer spending, which would have been hard to anticipate 18 months ago. In addition, the bicoastal supply chain bottlenecks could be a catalyst for U.S. importers to beef up domestic inventories to ensure goods are available and can be delivered soon after ordering.

UPS Inc. (NYSE: UPS) CEO Carol B. Tomé, who appeared along with Moghadam, said that “working capital models will change dramatically” in the wake of the developments over the last year-and-a-half. Tomé, who spent 18 years as Home Depot Inc.’s CFO (NYSE: HD) before becoming UPS’ CEO in June 2020, said businesses will allocate more spending to inventories and less into supporting just-in-time (J-I-T) models which eschew inventory in favor of fast-cycle transportation that whisks goods to market without the need to store them. 

J-I-T has dominated international transport and distribution for the past 40 years, and has generally worked effectively over that span. However, it has fallen out of favor since the pandemic disrupted intercontinental supply chains and caught importers already with historically low inventory levels.

Prologis’ goal to add warehouse capacity is compounded by the lack of space in high-density markets such as Atlanta, Chicago, Dallas, Southern California and the New York/New Jersey metro region to build on. The company said last week when it released its third-quarter results that capacity in its markets, which include those so-called primary locations, is “effectively sold out.” 

The current supply-demand imbalance plaguing supply networks will likely not be resolved until 2023 and could worsen in the interim as demand continues to compromise fluidity, Moghadam said. Prologis will “do everything we can” to generate warehouse supply, Moghadam said. Possible options, he said, include more multistory vertical structures and conversions of retail locations to industrial facilities. The company’s own research arm said in June, however, that retail-to-industrial conversions are not a solution. In a report, Prologis Research expected only 50 million to 100 million square feet of space will be converted from retail to logistics over the next decade. That’s less than 3% of logistics space added in a normal year, according to the researchers. 

Buyers of retail properties may want to convert the land to apartments and other residential uses because they can command better pricing per square foot. Retail-to-industrial conversions face zoning challenges, community opposition and the difficulty of reconverting shopping malls and other structures to accommodate high freight throughput and the accompanying truck traffic.

One option already being strongly explored is expanding into secondary and even tertiary markets. Demand in secondary markets like Louisville, Kentucky, Columbus, Ohio, Las Vegas and Phoenix is “on fire,” said Jack Rosenberg, Chicago-based national director, logistics and transportation for the Industrial Advisory Group of real estate company Colliers International Group Inc. (NYSE: CIGI).

Mark Solomon

Formerly the Executive Editor at DC Velocity, Mark Solomon joined FreightWaves as Managing Editor of Freight Markets. Solomon began his journalistic career in 1982 at Traffic World magazine, ran his own public relations firm (Media Based Solutions) from 1994 to 2008, and has been at DC Velocity since then. Over the course of his career, Solomon has covered nearly the whole gamut of the transportation and logistics industry, including trucking, railroads, maritime, 3PLs, and regulatory issues. Solomon witnessed and narrated the rise of Amazon and XPO Logistics and the shift of the U.S. Postal Service from a mail-focused service to parcel, as well as the exponential, e-commerce-driven growth of warehouse square footage and omnichannel fulfillment.

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