Amid all the controversy and turmoil surrounding this year’s national election, it’s not surprising that those parts of the Trump and Biden campaign agendas regarding logistics have gone little noticed in the mainstream media, despite heightened national awareness of the vital role played by supply chain management that arose at the very outset of the Coronavirus pandemic.
When they are fighting for re-election, sitting presidents campaign on their records, while their challengers tend to develop detailed platforms in hopes of reeling in the votes of as wide a range of voters as possible.
This election year is no different, and Tray Anderson, Industrial & Logistics (I&L) leader, Americas, for the Cushman & Wakefield, the global commercial real estate services firm, has offered a general overview of the Biden campaign’s plan.
“Should the Biden plan be realized, it will have far reaching impact on industrial real estate, both manufacturing and warehouse-distribution,” Anderson asserts.
He admits some pieces of Biden’s plan already have been enacted by the Trump Administration – for example, mandating that energy and power generation parts be sourced domestically.
Anderson says Biden intends to continue and possibly expand use of the Defense Production Act
(DPA) and the Procurement Act of 1949 (designed to leverage federal purchasing power), which will have an impact on production and require significant stockpiles of goods, to have an effect reaching beyond manufacturing
He cites the case of a C&W healthcare client that prior to the pandemic used about 50,000 square feet (sf) to store personal protective equipment (PPE). That client is now looking at 500,000 sf for its PPE storage, he reveals.
“Not only does that dramatic increase in storage capacity create a real estate challenge, it also requires considerations around the systems, equipment and automation to operate a 500,000-sf facility and to store ten times as much product,” Anderson points out.
“We fully expect to see that level of increase for companies across impacted industries –
semiconductors, key electronics and related technologies, telecommunications infrastructure and key raw materials are all noted in the Biden plan.”
The Biden plan calls for those companies to be compensated for excess production and storage capacity they will require, but as of now how they will be compensated remains unknown.
Another key focus area of the Biden plan addresses the United States’ heavy dependence on medicines and ingredients currently produced overseas, estimated at upwards of 70-75% of the total.
Trump is focused on this challenge as well, having used the DPA for a first-of-its-kind loan to Kodak for $765 million to produce drug ingredients domestically, Anderson notes.
“The risk of not having the ability to manufacture, store, and distribute pharmaceuticals in the U.S. – not to mention the equipment and infrastructure to make it all possible – is acutely apparent,” he says. “But the real test of those capabilities will come when a successful vaccine for Covid-19 is developed, given the scale of that demand.”
In spite of the pandemic-created economic downturn, the I&L real estate market has remained strong. Warehouse vacancy rates are low and rents are climbing in prime locations across the U.S.
In some markets, opportunities for large manufacturing or distribution projects are scarce, such as in Memphis. If a company needs 500,000 square feet of distribution space today, they won’t find it in that market, Anderson observes, adding the same holds for manufacturing.
“The measures in the Biden plan will only increase demand, and while that bodes well for the continued health of the industrial real estate market, it may create real estate challenges for the companies that need to shift quickly to produce, store and distribute greater quantities of vital goods,” he says.
The portions of Biden’s plan aimed at supporting manufacturing and providing workforce training and development might accelerate a trend that began before the pandemic, Anderson says.
“Many companies had already made decisions to shift some production, either back to the U.S. or to locations like Southeast Asia or Central and South America,” he explains. “While the health crisis has ignited some urgency and will no doubt impact the size and scale of the effort to rebuild domestic capacity, it’s accelerating a trend we were already witnessing.
Anderson concludes, “What’s clear is that the actions suggested by the Biden plan would greatly influence the behavior of the companies that produce, store and ship critical goods. And it’s possible that the speed and breadth of the shift could be on a level we have not seen in decades.”