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West Coast and California Logistics Blog

Where Should I Locate My SoCal Warehouse?

Thu, Oct 05, 2017 @ 09:00 AM / by Bob Lilja

The logistics question of where to locate your company’s distribution centers and how many you should have is pretty complex. Some consultants charge tens of thousands of dollars to gather the details and develop a software-aided recommendation.

But if you import goods via the Port of LA or Long Beach and you’ve made the choice to distribute from Southern California, analyzing the best SoCal warehouse location is a bit easier to do.

socal warehouseThe two primary geographic options for warehousing are the South Bay area around the ports and the Inland Empire, a huge distribution hub about 60 miles east of LA. 

The main advantage of South Bay is proximity to the port. Your cost for drayage services will be lower, but you’ll pay more for space, and labor is tougher to find (and more expensive) in and around LA.

The main advantages of the Inland Empire are lower space costs and modern distribution centers, but you’ll pay more to transport your goods longer distances from the port.

What’s your warehouse turn rate?

Your turn rate will be the most important factor in determining your SoCal warehouse location. As a general rule, the faster your product turns, the closer you should be to the port. 

Faster turns means you’ve got a rapid stream of containers flowing from the port to the warehouse. You’ll want to optimize these costs, and one way to do that is to reduce the travel distance by locating in the South Bay area. But you want to make sure the drayage costs that you save are not exceeded by higher warehouse space costs.

Here’s an example. Let’s say you’re paying 25% more for space near the port than you would in the Inland Empire. If you’re utilizing 20,000 square feet of space with a third party logistics company (3PL), that 25% delta might amount to about $60,000 a year. If you’re importing 250 containers a year, that five-turn inventory will be essentially a wash between the extra dollars spent for storage and the dollars saved in drayage.  Any import container volume less than this and your SoCal warehouse should be in the Inland Empire. Significantly more and you should stay put close to the port.

Of course the math is not that black and white, but your turn rate truly does drive the decision.  If you’re struggling with the analysis, any professional 3PL based in SoCal would be glad to sit down with you and work through the numbers for your particular situation. 

What’s going on now in the SoCal real estate market?

Industrial real estate rates are rising rapidly in both South Bay and the Inland Empire. Other than that, the two markets are studies in contrast. In South Bay, there is no new construction and vacancy rates are about 1%. If you’re looking for significant space, it will be tough to find it here.

In the Inland Empire, already chock-a-block with warehouses, there is 27 million more square feet of space being developed. Leading real estate firms agree that aggressive development will continue. Despite the pace of development, vacancy rates here are less than 5% (Kidder Mathews) and it’s tough to secure a lease for less than a 5-year term. It’s a seller’s market and landlords are capitalizing.

One macro trend that is driving much of the development is eCommerce. Much of the new space is being used for eCommerce fulfillment, which requires three times as much space as other warehouse uses. According to 2017 data from global real estate firm, CBRE, the amount of logistics space needed to accommodate rising e-commerce sales is 1.25 million sq. ft. per $1 billion of online sales.

Of course, there is plenty of eCommerce fulfillment being done out of LA-area fulfillment centers, which serve small and mid-sized Etailers who turn their inventories quickly but require less space.

Southern California: a prime hub for product distribution

California is the most populous U.S. state and has the world’s 8th largest economy when compared to other countries. Nearly 50% of products that are imported into Southern California end up being consumed in the region.

For importers into LA and Long Beach ports, a Southern California warehouse offers a choice location for distribution, whether it’s near the port in South Bay or 60 miles east in the Inland Empire.

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Topics: west coast warehouses

Written by Bob Lilja

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