Overflowing With Excess Inventory, US Companies Turn To Truck Trailers

December 30, 2018 in News by Slad

source: www.zerohedge.com
by Tyler Durden

While on the surface the latest Q3 GDP print of 3.4% was impressive, one quick look at its components revealed that the bulk of GDP growth came from inventories, which at 2.33% of the total number – the highest since Q4 2011, accounted for 69% of the annualized growth rate; in fact, stripping away the inventory contribution resulted in a concerningly low 1.1% GDP print, the lowest since Q4 2016.

As a result of this unprecedented buildup, the WSJ reports that U.S. companies are so flooded with excess inventory that some are renting truck trailers to use for storage space, parking them on warehouse lots or behind storefronts to hold goods until a surge in imports is cleared from crowded distribution hubs.

And in order to accommodate more customers seeking trailers to hold goods, many of them pulled in from China during 2018 to get ahead of impending tariffs, transportation equipment lessor Milestone Equipment Holdings has launched a “mobile warehousing and storage” business year, with companies such as Home Depot and several other major retailers and manufacturers reportedly using the service.

“It’s like a warehouse on wheels,” said Sarah Johnson, who heads the new mobile storage business at Milestone. “We now think about our trailers as more of a real-estate alternative than just a trailer.”

While the inventory surge in the last few months of the year is nothing new, as that’s when warehouse space is often eaten up as retailers stock up for the holiday season, the strains emerged this year as many companies boosted their reserves of imports to get ahead of a rise in tariffs, originally expected on Jan. 1 but later postponed to April.

Meanwhile, as virtually every US retailer is scrambling to compete with Amazon on delivery, warehouses have become a hot commodity, and across the U.S., warehouse vacancy currently stands at 4.3%, the lowest rate that real-estate firm CBRE has recorded since it started tracking the figure in 1980.

“Warehouses are running as full as they ever have,” said David Egan, head of industrial and logistics research for CBRE. Many companies build in flex space to their operations, in order to have room to expand during busier months, Mr. Egan said. “Now you’re seeing that excess space—and then some—is all being used,” he said.

Meanwhile, as noted above, while inventory accumulation was the biggest contributor to GDP growth in Q3, so far in the fourth quarter, intermodal rail-truck cargo has remained strong, with volumes surpassing 2017 levels, indicating a similar frenzied pace of inventory build-up. A large share of intermodal business is shipping containers moving inland from ports, and the continued strong growth in that business through the days before Christmas suggests companies were still clearing backlogs at seaports late in the year.

The warehousing shortage is so acute that a handful of Airbnb-like companies have sprung up to help major retailers get through busy periods. One of them, Flexe, offers warehouse tenants and owners the ability to sublease empty portions of their facilities to short-term tenants, which have included Walmart, Ace Hardware and others.