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

There was an anticipation mm-hmm. Right. From these companies of tariffs happening. Right. Because they, they were thinking Trump was getting in cor Correct. And they were, Trump was not hiding this. No. They were betting on that. Yes. And that he was gonna win. And then, and then they wanted to import all that. To get ahead of the cost increase. Correct. So they did that. They bet. And they bet. And they were right.

Welcome to our Industrial Advisors podcast. You have Bill Condon and. Matt McGregor and we've been asked a lot from our clients about the activity with Chinese three PL companies because they have been a very, the most active occupier in the market over the last six to nine months. On the West Coast? Yeah, on the West Coast for sure. Maybe. Maybe. Period. Yeah. New Jersey. Yeah. And so we, we did some research on it to just really.

Have a good understanding of, of how active they actually have been and why, and why they have been so active. Yeah.

So, and certainly the most active market they have been has been the Inland Empire. Mm-hmm. Which is, you know, the most active industrial market in the, in the country. Right. So let's talk a little bit about that and dive into it. Yeah. Well, let's start off with what that activity is in the most dynamic and largest market in the us, which is then Inland Empire outside of LA and Long Beach. 62% of deals over 200,000 feet in the last 18 months have been Chinese. Three pls. Yeah. Crazy.

Which is crazy. I remember Steve Betti, who is as active as anyone. Yes. In that market. We did a podcast where we had a market overview call. I can't remember with him. And he told us at the time I was with a, was with a client and he was doing an update and he said 75% of the activity was Chinese, three PL related companies. And I was blown away by that. Yeah. But the facts are there.

Yeah, I think at that time, this was months ago, but it was like something like 34 of the last 37 deals above 200,000 feet were Chinese free pl. Right. So now, okay, so we know, and then in the US at large, in 2024, I. There were 78 deals tracked by one new source, and those were all over a hundred thousand feet a piece. Mm-hmm. Right. Yeah. Mainly in port cities. Right. But we are mainly seeing that activity driven out of a little bit New Jersey, mainly la, right? Correct.

So I've asked a lot of people this why, and we've done some research and, and why did that activity happen? Why so where did that come from? There was an anticipation mm-hmm. Right? From these companies. Of tariffs happening. Right? 'cause they, they were thinking Trump was getting in cor Correct. And they were, Trump was not hiding this. No. They were betting on that. Yes. And that he was gonna win. And then, and then they wanted to import all that to get ahead of the cost increase. Correct.

So they did that. They bet. And they bet. And they were right. Yes. And so. That activity over the last 12 to 18 months and maybe to buffer trade wars that might get in the way of supply chain. Correct. So just controlling the product and having it the inventory as well. Yes. Yeah. So having the inventory Yeah. Beating, beating the cost. Right. From an economic standpoint of getting it in here before, before the terrorists were imposed, right?

Yes. So, so that is what's really driving a lot of that activity. Yes. And now you're seeing with the tariffs imposed and way more than they thought. Yes. Right. Yeah. They were thinking 10 to 20% and now it's a trade war. By the time this goes out, maybe it's 200%, but it was, I think 125%. Yeah. So now you're seeing these deals, the new deals die off, right? Mm-hmm. From that perspective.

But the one thing that, before we get into the, the kind of the dying off of the demand potentially, 'cause obviously this is a fluid situation with the tariffs.

The question that I still have that I think is unresolved is. Why did they suddenly go to a Chinese three PL model as opposed to just using the traditional firms Maersk NFI use in, you know, whoever it is. Right? Uh, Holman Logistics, you know, all these three pls that normally did it. Why the influx of Chinese-based three pls. Yeah. And they just may have been ahead of it, right? Mm-hmm. And looking into the future and being to, you know, a lot of these companies were trying to get into the US.

Have been trying to come into the US as well, and this was an opportunity for them to, to look at the future and say, okay, this is our time. Right? Yes. So they may have been more focused on it. Right. And the US three pls that are here, were probably heads down focusing on the business that was in front of them and their existing clients. Right? Yes. So that could be something to do with it. Yeah. We also read, I think you're right on that. In addition, I think they were ahead of the curve on.

A way to get around that tariff from, they call it a di minimus acquisition point, and it was like something where, so when things are under eight, a certain amount, $800, yeah. They could get away with the tariffs now. I'm sure Trump picked up on that and that's gonna change too. Right. But they got around it. Mm-hmm. So they were getting around the tariffs and I think they had knowledge of it. Right. Or studied it.

Yeah. And maybe some of the US based three pls, you know, not having the expertise on the Chinese tariff situation weren't in front of it. I'm just, I'm just throwing that in. Maybe as that, that's a combination of that piece. At least one of the articles we read indicated that that was, that that was a, that was part of the reason. Yeah. Yeah. Yeah.

Now forecasting, I have to say if, if this trade war stays right. Here's the big thing. The three pls that went in the IE didn't have credit. These were firms with no credit, and so instead of getting credit, obviously vacancy was down. So landlords were dropping their Yeah. Threshold for credit. And a lot of these three pls. We're giving two or three months of security deposit rather than one for the lack of credit. Yeah. Right.

So now the question is, is if the trade wars the, none of these three pls anticipated 125% and a massive trade war like this. Does the demand for Chinese goods drop because of the expense of them? And does that mean we're getting back all this inventory of warehouses? Yeah, it will definitely be an interesting thing to keep an eye on. Yeah. Right. Um, and I think another thing to keep an eye on is, you know, all these firms mainly sign five year deals, right? Mm-hmm. Give or take, right? Mm-hmm.

So, so in five years from, I mean, they've certainly helped that market improve for sure, because of all the activity, right? For sure. So rents. As a result of all of that activity have probably creeped up to when, when they signed the lease and now like when, five years from now when there was leases roll, who's gonna be left? Right? And then what do those renewals look like? Right. And do they stay? Yes. I think it's just a really fascinating thing to kinda look at over these next few years.

And are they gonna be main players in the market five years from now? You know, like they have been over the last 18 months. Yes. Somebody's going to win that. Correct. Right. And the other reason why they went in, I guess, was reverse logistics because on returns they don't want that going all the way back, you know? Right. They, they want it here. Yes. So it was, it was changing that not only did for the terrorists, but it benefited that.

We also heard in calls in preparation for this podcast, a major rumor. Let me say that again. This is a rumor, but from a good source that Amazon is sending a lot of people over to China to try to pick up on this trend to say, don't just have these, you know, fly by night, three pls doing this. We're already set up. Yeah, we can handle your logistics, we can handle your return things all. We already have this stable network and so they're trying to go in and pick up.

Where these three pls maybe lack Yeah. The depth of coverage. And so I could see Amazon coming in and being a, a more foundational resolve for this. Well, yeah. And there's been, you know, stuff that has been published about Amazon getting back into growth mode. Mm-hmm. Right on, on the distribution side. Yeah. And suddenly they're out there with some pretty big requirements. Big requirements right across. So yeah.

So I think that certainly that would be, I logical for them to go after some of that in their expansion. Plans as as they're planning them out right now. That's right.

Yeah. And to wrap this up, we'll just say we are from Seattle. Uh, we've only seen about 400,000 feet land. Yeah. Two deals in two deals, yeah. Of Chinese three pls. There was a couple more requirements touring, but I'll bet they die. Yeah, it doesn't seem like that. I mean, we see it, we have a bunch of product that, and stay active on the market and just what's going on. And there's not a lot of those requirements out there right now.

No. No. You look at 75% of the Inland Empire, it's less than 1% here. Yeah. And we called in preparation for this podcast. No deals done in Vegas, no deals done in Phoenix of any size that, that, that are. You know, partners down there that could recall. Right? Yeah. I mean, so the activity is in the ie. That's right. And then some in New Jersey. That's right. There's been some deals done there, but, uh, but it'll be interesting to keep an eye on.

It's certainly something that is very relevant in the market right now, so we will keep an eye on it and, and see how things go. Happy Friday.