For decades, international supply chains have been moving to a “just-in-time” model that reduced labor and inventory carrying costs. In hindsight, the industry now realizes that this way of operating relied too heavily on the smooth flow of goods, leaving no margin for error.
The disruptions seen the last five years — from sudden changes in trade policies as with Brexit to labor shortages and unpredictable events like the Suez Canal blockage — offer a preview of what’s to come. The increased frequency and severity of extreme weather events like wildfires and hurricanes will also introduce more volatility to supply chains, interrupting production, affecting worker productivity, and raising costs.
The COVID-19 pandemic has exposed the risks of this model like never before. Instead of only having minimal inventory on hand, businesses are now planning more resilient, “just-in-case” supply chains that can keep up with changing consumer demand in the face of disruption. The question is not whether inventory patterns will change but by how much.
With higher inventory-to-sales ratios seen as key to the future supply chains, Prologis anticipates those larger inventories will require upwards of 800 million square feet of new logistics real estate. This demand should disproportionately benefit “gateway” facilities, distribution buildings that offer access to major sea and intermodal ports and multiple markets within a one-day drive. These facilities offer the greatest optionality for the direction of goods, though additional inventory will be spread across a broad range of locations.
Barriers to new logistics development in gateway locations could push some growth into adjacent markets or increase demand for redevelopment or repositioning options. This scenario has already surfaced as companies aim to get control of inventory quickly. The average vacancy rate in the top global seaport-connected markets is less than 2 percent, about half that of other markets and down from a historical average of 4.7 percent.
The shift to more resilient supply chains will be permanent. Businesses must balance cost and operational efficiency while making smart investments to minimize costly disruptions before they occur. Tomorrow’s supply chains will be defined by those who act quickly and decisively.