Houston May Benefit From U.S. Supply Chains Shifting Away From China
The coronavirus pandemic revealed just how reliant U.S. companies are on China for their supply chain needs. Now, manufacturers are seeking to establish new distribution models that will benefit regions like Houston and the southeastern U.S., a new CBRE report says.
Many U.S. companies are expected to adopt a “China Plus One” strategy, in which they leave the bulk of manufacturing operations in China, but expand their supply chain into other countries to reduce disruption risk and limit the impact of tariffs.
Chinese exports to the U.S. decreased 12.7% in 2019, and total trade between the countries was down by $100B year-ove- year. Some countries to benefit from the growing trend include Taiwan and Vietnam, the U.S.’ fastest-growing trade partners. Total trade between the U.S. and the two Southeast Asian nations increased in 2019 by $18.7B and $9.1B, respectively, according to the report. Some countries outside of Asia, like Belgium, the Netherlands and France, have seen increased activity as well.
CBRE said the Gulf Coast and Southeast regions of the U.S. are best positioned to capture industrial demand, boosted by an increase in trade with Europe and parts of Asia that access the U.S. through the Suez Canal.
Port Houston is expected to grow and benefit from its strategic location, favorable real estate conditions and established worldwide trade partnerships. Texas is the second-most-populated U.S. state, and the report said companies will continue to ship goods from all over the world to keep robust inventories in the Texas region.
In the second quarter of 2020, Port Houston outperformed other top 10 U.S. ports with a 14.1% increase in outbound container volume, according to NAI Partners’ latest industrial report. The increase was largely due to the export of resins, which are produced in mass volumes at petrochemical facilities along the Gulf Coast.
“Houston has a prime trading location, with the ability to efficiently reach all directions on the globe. It also has significant logistics capacity, available land and lower asking rents. These fundamentals, along with access to a growing population, will help drive Port growth and capitalize on select shifts in supply chains,” CBRE Associate Research Director Michael Valleskey said in a release.
The trend of reshoring, or returning manufacturing activity to the U.S., is also anticipated to increase. The disruption caused by the pandemic has spurred retailers and manufacturers to reconsider moving some or all of their operations closer to their consumer base.
“If you're importing any kind of materials from Asia, you're going to have a problem right now,” Margaret Kidd, University of Houston Instructional Assistant Professor and Program Director, Supply Chain & Logistics Technology, told Bisnow in late February. “When we operate in a business climate of just-in-time production, you don't have major corporations keeping large inventories of spare parts."
As a result, some real estate markets could see near-term demand rise as supply chains are adjusted, CBRE’s report said.
Finally, the United States-Mexico-Canada Agreement, which was signed in late January, is also expected to drive more reshoring and increased industrial demand, especially in the automotive industry, as a provision in that agreement mandates a higher percentage of North American-sourced materials in the assembly of autos.
