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Is the Supply Chain Disruption a Real Estate Problem?

There has been a lot of press recently about the bottlenecks happening in the global supply chain. There are a number of reasons for this slowdown, including strikes and labor shortages. But lost in most of the reporting is the simple fact that shopping and therefore shipping is at an all-time high, crushing global supply chains under the weight of consumerism. Ports, truckers, and railways are moving more products than ever before, but the logistics industry is running out of places to put stuff. That makes supply chain issues a real estate problem. Truck yards, rail yards, storage facilities, warehouse, and container terminals are full to the brim, each waiting on available space at the next. There simply isn’t enough space to accommodate the ceaseless flow of goods. Fixing the supply chain requires a reorganization of the real estate making it happen. 

Containment efforts

Containers are the fundamental problem. Forgot about what’s inside them. Think instead about the dimensions of your typical twenty-foot equivalent unit (TEU), the standard size of shipping containers. TEUs are 20 feet by 9, occupying 180 square feet. There are roughly 200,000 containers waiting to be unloaded at ports in Southern California. They can’t be unloaded until what’s already been unloaded is picked up and taken away by an empty truck. The problem is finding empty truck chassis on which to place containers. Normally trucks bring back empty containers and take away full ones, but when the storage yard is full of full containers, they don’t have a place to put the empty ones. Trucks can’t move the full containers if they can’t put down the empty ones already on their chassis. Experts agree truckyards are the primary bottleneck. To move 500,000 full containers, you need to find a place to put 500,000 empty ones. In practical real estate terms, the supply chain needs to find a place to put 90 million square feet of containers in Southern California alone. 

In the shipping world, you measure how long a container sits waiting to be moved as its ‘dwell time.’ Gene Seroka, the executive director of the Port of Los Angeles, said dwell times are at record highs, topping six days for truck and nearly 12 days for rail. Data from DirectChassisLink Inc., which jointly manages the ports’ chassis pool, show trucks are waiting on the street for space to open at warehouses to offload empty containers for 8.5 days. 

“The biggest thing we’re seeing is just the amount of time that customers are holding on to chassis,” Mike O’Malley, SVP government and public relations at DCLI, told FreightWaves. “In LA for example, it’s up probably 70 percent over norm.”

Experts have proposed a two-fold solution: find new places to put containers and relax density limits at existing facilities. There’s no legal limit to container stack size but right now, at least in Los Angeles, they are limited to stacking containers two high. Stacking empty containers that are lighter and safer to stack higher would increase the size of Southern California container yards dramatically, fixing a huge part of the problem immediately. Nine-high stacks cut the amount of space needed from 90 million down to just 10 million if the right stacking machinery and lift equipment are available. At most, that’s roughly 230 acres needed to work through the backlog. Add on a few dozen acres for weather-resistant stacking patterns and pathways to reach them. Now it’s starting to sound like a solvable problem. If the supply chain can find or create even a fraction of that, it can alleviate the logjam by getting trucks moving again and the rest of the existing facilities can take care of the rest doing what they do best. 

Get trucked

The global supply chain isn’t just a storage problem. Another part of the solution is relaxing transportation requirements. Regular flatbeds, step decks, and double drop trailers can load containers, but those types of trucks are not permitted to move containers out of ports in Southern California. Allowing other types of trucks to temporarily move containers means needing less space to store empty containers so that the chassis can pick up a full one.  U.S. Ports are switching to 24/7 hours to work through the backlog, and supply chain experts say Biden’s order to work around the clock is a positive sign but unlikely to move the needle. Many ports around the country went 24/7 weeks ago and are still behind due to a lack of trucks and truckers. Drayage trucking, taking containers short distances from a port to a warehouse, is grueling work. With no real pipeline to recruit and train drayage truckers, problems will likely persist.

“It’s not just a shortage of drivers plaguing drayage carriers. Lately, they’ve been hampered by a shortage of tires, containers, and parts—which only creates further delays and headaches for drivers and exacerbates the turnover issues,” Nimesh Modi, CEO of BookYourCargo, drayage service provider, wrote in an OpEd for Transport Dive. 

California Governor Gavin Nesom is directing state agencies to address the trucking and storage issues, giving them 30 days to identify priority freight routes where weight exemptions will be considered. Most notably, Newsom’s Department of General Services is seeking potential sites for short-term storage needs, looking at which state-owned land could be rapidly converted to container yards. 

“We commend the Newsom Administration for focusing on freeing up state land to store empty containers and encourage the equipment providers and local governments to work with the governor to get empty containers off of chassis,” Shawn Yadon, chief executive officer of the California Trucking Association, said in a statement

Industry insiders say the problem will not be solved anytime soon. Global supply chains are complex endeavors, a mix of local, state, national, and even international politics. Pushing one part of the supply chain past its breaking point has ripple effects on other parts, creating cascading problems across borders. Meeting the voracious demand of consumers will likely be a challenge for months to come. Each individual can help by limiting discretionary spending. Just a few less frivolous purchases each month will give breathing room to a system struggling for air. It’s not that our supply chain is faulty, it’s moving more product than it ever has, it’s that the system was never designed to handle this much throughput. By limiting consumer demand even marginally we can all do a small part in solving a big problem. 

Sometimes the most difficult real estate problems are the most basic. Finding enough space to stack boxes doesn’t sound challenging, but at the scale required to ease the pinch on the global supply chain, it’s proving to be a major issue. Technology has yet to come up with a solution for the limitations of temporal space. Until it does, the real estate world will be dealing with figuring out where to put stuff.

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