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Tariffs and 3PL Dominance: Insights on U.S. Market Trends · Industrial Advisors

• 0:00
  There was an anticipation mm-hmm.
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  Right.
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  From these companies of tariffs happening.
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  Right.
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  Because they, they were thinking Trump was getting in cor Correct.
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  And they were, Trump was not hiding this.
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  No.
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  They were betting on that.
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  Yes.
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  And that he was gonna win.
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  And then, and then they wanted to import all that.
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  To get ahead of the cost increase.
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  Correct.
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  So they did that.
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  They bet.
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  And they bet.
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  And they were right.
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  Welcome to our Industrial Advisors podcast.
• 0:38
  You have Bill Condon and.
• 0:40
  Matt McGregor and we've been asked a lot from our clients about the activity
• 0:44
  with Chinese three PL companies because they have been a very, the
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  most active occupier in the market over the last six to nine months.
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  On the West Coast?
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  Yeah, on the West Coast for sure.
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  Maybe.
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  Maybe.
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  Period.
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  Yeah.
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  New Jersey.
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  Yeah.
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  And so we, we did some research on it to just really.
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  Have a good understanding of, of how active they actually have been and
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  why, and why they have been so active.
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  Yeah.
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  So, and certainly the most active market they have been has been the Inland Empire.
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  Mm-hmm.
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  Which is, you know, the most active industrial market in the, in the country.
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  Right.
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  So let's talk a little bit about that and dive into it.
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  Yeah.
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  Well, let's start off with what that activity is in the most
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  dynamic and largest market in the us, which is then Inland Empire
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  outside of LA and Long Beach.
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  62% of deals over 200,000 feet in the last 18 months have been Chinese.
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  Three pls.
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  Yeah.
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  Crazy.
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  Which is crazy.
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  I remember Steve Betti, who is as active as anyone.
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  Yes.
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  In that market.
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  We did a podcast where we had a market overview call.
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  I can't remember with him.
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  And he told us at the time I was with a, was with a client and he was doing an
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  update and he said 75% of the activity was Chinese, three PL related companies.
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  And I was blown away by that.
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  Yeah.
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  But the facts are there.
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  Yeah, I think at that time, this was months ago, but it was like something
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  like 34 of the last 37 deals above 200,000 feet were Chinese free pl. Right.
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  So now, okay, so we know, and then in the US at large, in 2024, I.
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  There were 78 deals tracked by one new source, and those were all over
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  a hundred thousand feet a piece.
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  Mm-hmm.
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  Right.
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  Yeah.
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  Mainly in port cities.
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  Right.
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  But we are mainly seeing that activity driven out of a little
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  bit New Jersey, mainly la, right?
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  Correct.
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  So I've asked a lot of people this why, and we've done some research
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  and, and why did that activity happen?
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  Why so where did that come from?
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  There was an anticipation mm-hmm.
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  Right?
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  From these companies.
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  Of tariffs happening.
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  Right?
• 2:37
  'cause they, they were thinking Trump was getting in cor Correct.
• 2:40
  And they were, Trump was not hiding this.
• 2:42
  No.
• 2:42
  They were betting on that.
• 2:43
  Yes.
• 2:43
  And that he was gonna win.
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  And then, and then they wanted to import all that to get
• 2:48
  ahead of the cost increase.
• 2:49
  Correct.
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  So they did that.
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  They bet.
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  And they bet.
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  And they were right.
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  Yes.
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  And so.
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  That activity over the last 12 to 18 months and maybe to buffer trade wars
• 2:58
  that might get in the way of supply chain.
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  Correct.
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  So just controlling the product and having it the inventory as well.
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  Yes.
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  Yeah.
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  So having the inventory Yeah.
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  Beating, beating the cost.
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  Right.
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  From an economic standpoint of getting it in here before, before
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  the terrorists were imposed, right?
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  Yes.
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  So, so that is what's really driving a lot of that activity.
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  Yes.
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  And now you're seeing with the tariffs imposed and way more than they thought.
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  Yes.
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  Right.
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  Yeah.
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  They were thinking 10 to 20% and now it's a trade war.
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  By the time this goes out, maybe it's 200%, but it was, I think 125%.
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  Yeah.
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  So now you're seeing these deals, the new deals die off, right?
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  Mm-hmm.
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  From that perspective.
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  But the one thing that, before we get into the, the kind of the dying off of the
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  demand potentially, 'cause obviously this is a fluid situation with the tariffs.
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  The question that I still have that I think is unresolved is.
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  Why did they suddenly go to a Chinese three PL model as opposed to just
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  using the traditional firms Maersk NFI use in, you know, whoever it is.
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  Right?
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  Uh, Holman Logistics, you know, all these three pls that normally did it.
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  Why the influx of Chinese-based three pls.
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  Yeah.
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  And they just may have been ahead of it, right?
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  Mm-hmm.
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  And looking into the future and being to, you know, a lot of these companies
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  were trying to get into the US.
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  Have been trying to come into the US as well, and this was an opportunity
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  for them to, to look at the future and say, okay, this is our time.
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  Right?
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  Yes.
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  So they may have been more focused on it.
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  Right.
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  And the US three pls that are here, were probably heads down focusing
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  on the business that was in front of them and their existing clients.
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  Right?
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  Yes.
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  So that could be something to do with it.
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  Yeah.
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  We also read, I think you're right on that.
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  In addition, I think they were ahead of the curve on.
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  A way to get around that tariff from, they call it a di minimus acquisition
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  point, and it was like something where, so when things are under
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  eight, a certain amount, $800, yeah.
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  They could get away with the tariffs now.
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  I'm sure Trump picked up on that and that's gonna change too.
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  Right.
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  But they got around it.
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  Mm-hmm.
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  So they were getting around the tariffs and I think they had knowledge of it.
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  Right.
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  Or studied it.
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  Yeah.
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  And maybe some of the US based three pls, you know, not having
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  the expertise on the Chinese tariff situation weren't in front of it.
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  I'm just, I'm just throwing that in.
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  Maybe as that, that's a combination of that piece.
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  At least one of the articles we read indicated that that was, that that
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  was a, that was part of the reason.
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  Yeah.
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  Yeah.
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  Yeah.
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  Now forecasting, I have to say if, if this trade war stays right.
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  Here's the big thing.
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  The three pls that went in the IE didn't have credit.
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  These were firms with no credit, and so instead of getting credit,
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  obviously vacancy was down.
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  So landlords were dropping their Yeah.
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  Threshold for credit.
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  And a lot of these three pls.
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  We're giving two or three months of security deposit rather than
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  one for the lack of credit.
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  Yeah.
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  Right.
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  So now the question is, is if the trade wars the, none of these
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  three pls anticipated 125% and a massive trade war like this.
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  Does the demand for Chinese goods drop because of the expense of them?
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  And does that mean we're getting back all this inventory of warehouses?
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  Yeah, it will definitely be an interesting thing to keep an eye on.
• 6:16
  Yeah.
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  Right.
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  Um, and I think another thing to keep an eye on is, you know, all these firms
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  mainly sign five year deals, right?
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  Mm-hmm.
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  Give or take, right?
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  Mm-hmm.
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  So, so in five years from, I mean, they've certainly helped that market improve for
• 6:28
  sure, because of all the activity, right?
• 6:29
  For sure.
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  So rents.
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  As a result of all of that activity have probably creeped up to when, when
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  they signed the lease and now like when, five years from now when there
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  was leases roll, who's gonna be left?
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  Right?
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  And then what do those renewals look like?
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  Right.
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  And do they stay?
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  Yes.
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  I think it's just a really fascinating thing to kinda look
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  at over these next few years.
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  And are they gonna be main players in the market five years from now?
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  You know, like they have been over the last 18 months.
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  Yes.
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  Somebody's going to win that.
• 6:56
  Correct.
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  Right.
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  And the other reason why they went in, I guess, was reverse logistics
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  because on returns they don't want that going all the way back, you know?
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  Right.
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  They, they want it here.
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  Yes.
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  So it was, it was changing that not only did for the
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  terrorists, but it benefited that.
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  We also heard in calls in preparation for this podcast, a major rumor.
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  Let me say that again.
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  This is a rumor, but from a good source that Amazon is sending a lot of people
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  over to China to try to pick up on this trend to say, don't just have these, you
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  know, fly by night, three pls doing this.
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  We're already set up.
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  Yeah, we can handle your logistics, we can handle your return things all.
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  We already have this stable network and so they're trying to go in and pick up.
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  Where these three pls maybe lack Yeah.
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  The depth of coverage.
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  And so I could see Amazon coming in and being a, a more
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  foundational resolve for this.
• 7:49
  Well, yeah.
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  And there's been, you know, stuff that has been published about Amazon
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  getting back into growth mode.
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  Mm-hmm.
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  Right on, on the distribution side.
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  Yeah.
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  And suddenly they're out there with some pretty big requirements.
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  Big requirements right across.
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  So yeah.
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  So I think that certainly that would be, I logical for them to go after
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  some of that in their expansion.
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  Plans as as they're planning them out right now.
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  That's right.
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  Yeah.
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  And to wrap this up, we'll just say we are from Seattle.
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  Uh, we've only seen about 400,000 feet land.
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  Yeah.
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  Two deals in two deals, yeah.
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  Of Chinese three pls.
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  There was a couple more requirements touring, but I'll bet they die.
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  Yeah, it doesn't seem like that.
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  I mean, we see it, we have a bunch of product that, and stay active on
• 8:28
  the market and just what's going on.
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  And there's not a lot of those requirements out there right now.
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  No.
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  No.
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  You look at 75% of the Inland Empire, it's less than 1% here.
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  Yeah.
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  And we called in preparation for this podcast.
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  No deals done in Vegas, no deals done in Phoenix of any size that, that, that are.
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  You know, partners down there that could recall.
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  Right?
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  Yeah.
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  I mean, so the activity is in the ie. That's right.
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  And then some in New Jersey.
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  That's right.
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  There's been some deals done there, but, uh, but it'll be
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  interesting to keep an eye on.
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  It's certainly something that is very relevant in the market right
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  now, so we will keep an eye on it and, and see how things go.
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  Happy Friday.