October Update: Insights for Executive Action
This quarter has seen significant developments shaping the industrial landscape. From major regulatory changes in California to supply chain disruptions caused by the USEC port strike, these events present both challenges and opportunities for your business. Additionally, we’ve recorded three new podcast episodes to provide you with actionable insights.
Prologis 2025 Supply Chain Outlook: Navigating the Future
Prologis’ latest report , based on a survey of over 1,000 global business executives, highlights key strategic shifts that CEOs like you are already prioritizing to stay competitive in an uncertain world. As we approach 2025, the importance of resilience, sustainability, and technology adoption cannot be overstated. * Economic and Supply Chain Challenges: Executives are facing a "polycrisis" with economic instability, declining demand, and climate change. As a leader, adapting your supply chain strategy to ensure resilience and flexibility is critical. * Sustainability and Green Real Estate: 87% of executives recognize the importance of green real estate for sustainable supply chains. However, challenges like unclear ROI and complex implementation continue to hinder progress, with 80% of executives struggling to justify investments in sustainability. * Automation and AI Adoption: Automation is critical for addressing labor shortages, with 87% of executives believing it will reduce workforce strain. Additionally, 80% of executives feel external pressures to adopt AI, seeing it as essential for staying competitive and improving decision-making accuracy.
* Supply Chain 3.0: Executives anticipate a new era of supply chain management that integrates AI, automation, intelligent data, and sustainability by 2030. Investments in cloud technologies, Transportation Management Systems (TMS), and IoT-enabled monitoring will be crucial for achieving these goals and enhancing operational efficiency.
AB98: California's New Logistics Regulations
Governor Gavin Newsom recently signed Assembly Bill 98 into law, introducing stringent restrictions on logistics facility development across the state. These changes will directly affect industrial property development and operational logistics for companies operating in California.
Key Provisions of AB 98:
Requirements Applicable to All New or Expanded Logistics Uses * Where a logistics use development contemplates demolishing any housing unit that was occupied within the previous 10 years, the jurisdiction is required to impose a 2-to-1 replacement requirement as a condition of approval. The developer will also be required to pay any evicted tenants the equivalent of 12 months’ rent at their current rate. * Entry gates to the loading truck court must be positioned to allow a minimum of 50 feet of available stacking depth inside the property line. The stacking depth would increase by 70 feet for every 20 loading bays and beyond 50 loading bays, to the extent feasible. * New logistic uses may only be located on roads designated as arterial roads, collector roads, major thoroughfare, or local roads that predominantly serve commercial uses. * Facility operators must prepare and submit a truck routing plan to and from the state highway system based on the jurisdiction’s latest truck map before receiving a certificate of occupancy. The plan must include information about the facility’s operations as well as enumerated measures to prevent trucks from queuing, circling, stopping, and parking on public streets.
Requirements For a New or Expanded Logistics Uses Within 900 Feet of a Sensitive Receptor * Sensitive receptors include residences, preschool through high schools, daycares, publicly owned parks, nursing homes and hospitals. AB 98 prescribes different standards depending on the size of the proposed project and the project’s current zoning. The following standards will apply to projects where a sensitive receptor is located within 900 feet of a loading bay: * Developments of 250,000 square feet or more, must orient loading bays on the opposite side of the building from sensitive receptors, have a separate entrance for heavy-duty trucks, and locate the truck entrances/exits and internal circulation away from sensitive receptors. Truck loading bays must be setback 300 feet from any property line abutting a sensitive receptor and must also include at least 50 feet of landscaping buffering adjacent to sensitive receptors. * Developments of less than 250,000 square feet on a site zoned industrial must comply with the most current building energy efficiency standards, provide conduits at every loading bay serving cold storage, prohibit the use of auxiliary truck engine power to power refrigeration, use high-efficiency HVAC systems, orient loading bays on the opposite side of the building from sensitive receptors, have a separate entrance for heavy-duty trucks, locate the truck entrances/exits and internal circulation away from sensitive receptors, and use at least 50 feet of landscape buffering along sensitive receptors. * Full link to article
Port Strike: What's Next for Supply Chains
The USEC strike has officially ended after three days, with a tentative agreement in place. The agreement includes a 61% salary increase over six years, but other issues, such as automation, remain unresolved with a new negotiation deadline set for January 15, 2025. The strike has caused considerable operational disruption, and recovery is expected to take 2-3 weeks based on a pre-strike estimate of 5-6 days to clear each day of backlog. Most senior supply chain executives saw this coming a year ago, and had front-loaded inventory in order to create a buffer.
Key Updates for Shippers: * Force majeure declarations by carriers prior to the agreement may result in additional charges for shippers in the coming days. * The strike forced the discharge of containers at non-US ports, creating further delays and rerouting complications.
Rate Fluctuations and Market Impact: * Disruption surcharges were announced by carriers, though many may not take effect. * Export capacity, particularly out of Europe, is expected to drop temporarily, potentially causing rate increases. * Despite 11 weeks of declining spot rates, prices remain above April levels, indicating that current rates cannot be considered "low," especially on Asia-to-US and Asia-to-Europe routes. * With ports now reopened, detention and demurrage fees may resume, and congestion challenges will continue over the coming weeks. * Link to Lars Jensen post on the matter.
New Podcast Episodes: Insights for Strategic Decision-Making
We’ve recorded three new podcast episodes that dive into key market trends and strategies for success: 1. Interview with Chelsea Tamuk Levane, Cabot Properties – Gain insights into industrial real estate operations, acquisition management, and market dynamics. + Podcast Episode link + YouTube Video link 2. Janet Ydavoy of 910 Advisors – Explore the growing trend of businesses transitioning to 3PL providers and the complexities of this decision. + Podcast Episode link + YouTube Video link 3. Rob Quarton of Walker & Dunlop – Discover the latest financing strategies and capital market trends that are driving positive momentum in commercial real estate. + Podcast Episode link + YouTube Video link
Call to Action
We are seeing increasing levels of activity as people refine their 2025 budgets and try to get their 2024 projects across the finish line. Reach out to Grant, Chris, or me to discuss how we can start adding value for you today.
Best Regards,
Justin Smith, SIOR MBA, MRED, MCR, MSCM Candidate Senior Vice President | Principal Lee & Associates | Irvine
D 949.790.3151 C 949.400.4786 O 949.727.1200 jbsmith@lee-associates.com (mailto:jbsmith@lee-associates.com) ____________________________________
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