Driven by the expectation of higher domestic consumption, an actual decline in import prices, and a stronger US Dollar, imported goods are reaching the Port of Long Beach at record-breaking levels.
In July and August of 2015, Port of Long Beach activity reached nearly 104 million TEU’s (Twenty Foot Equivalent Units), representing the highest back-to-back months in the port’s 104 year history. Year-over-year, TEU traffic is up 22.8% through August according to a recent press release. Port of Long Beach CEO, Jon Slangerup, sees it as a clear sign of stronger consumer demand.
While the volume of imported goods and raw materials is on the rise, prices are heading the other direction.
According to latest report from the US Bureau of Labor Statistics, import prices fell by 1.8% in August alone and in the past year, the price of imports has fallen by 11.4%. While the drop in energy prices is certainly a major contributor to the decline, prices for finished goods are also moving down, which may be reflective of the strengthening US Dollar, which has risen by as much as 20% in the past year against significant foreign currencies.
China’s Yuan was devalued twice in the past several months to boost exports. China has definitely hit a rough patch economically, and until the world’s second largest economy gets its domestic house in order, prices are likely to move even lower.
Of course, the stronger dollar makes US goods more expensive overseas, but despite that pressure, the Port of Long Beach also reported an increase in exports of 9.4% in the past year. Local economists will be keeping a close eye on that metric going forward, as market forces are bound to boost the cost of exported goods.
So, what does this all mean to the Southern California industrial property market? In the short run, it will further boost demand for space at all levels, and that will run the seriously limited supply of quality industrial space to even lower levels, pushing rents even higher.
In many submarkets, lease rates and sales prices have already surpassed the previous peak back in 2007. So, if you may be in need of space in the next two to three years, we recommend that you allow much more time to secure a new home for your business, and be flexible enough in your timing to move early, even if it means increasing your occupancy cost in the short run.
Give us a call. We are here to help.