Some importers still receiving the freight are rushing to rent space in the combined buildings, hoping to buy time to ease customs tensions.
As import tariffs throw ports in the Los Angeles area into industrial property leases in chaos and cold, one unusual type of building suddenly comes into demand.
Key personnel in guaranteed warehouses must undergo background checks, and operators must set up bonds to protect potential government mission revenues. Customs debt typically starts at around $100,000.
As soon as imported products touch on the current 145% tariff rate on American soil and Chinese goods, the tariffs will be assessed, and the 10% loading tariff, which applies to almost all countries, is expected to dramatically reduce imports at Los Angeles and Long Beach ports over the coming weeks.
However, some importers still receiving the freight are rushing to rent space in a combined building that they hope to buy time to ease tariff tensions, said JLL’s Danny Reume.
“There was an absolutely crazy increase in demand for combined space,” Reume said. “Everyone wants to bring their products here before what they want is a resolution.”
Importers are aiming to keep goods in these warehouses for a month or two until the trade dispute is resolved, he said. In the worst case scenario, importers hope to slowly escape the debt warehouse from the imported warehouse and pay the duties, whilst moving the remaining imports away from the tax officer.
Unfortunately for importers, only a “small” percentage of the area’s roughly 2 billion square feet of industrial property is combined by US customs and border security, Reume said.
Typically, bonded warehouses are used by importers who bring goods from one country and ship them to another country without paying customs duties. Importers can also make limited assembly or other improvements to the goods in the bonded warehouse.
Many importers cancel orders or send goods back to China before unloading, while others choose to bite a bullet and pay, and they land because they don’t want to burden their intense relationships with large national retailers by not trying to raise the promised goods or wholesale prices.
“Suppliers eat a lot of these tariffs,” he said. They assume that the tariff war will ultimately be eased, and if sales are exposed due to too high imports, suppliers want to have products nearby when tariffs decrease.
“Everyone wants to bring their goods here and store them in the Southern California market and have them deposited the fact that this will be resolved in the next 30-60 days.”
The obligation can be deferred for up to five years and is paid based on the fees effective upon withdrawal from the guaranteed warehouse.
“The Trump administration’s tariff changes are a major restructuring of industry-wide import costs and supply chain strategy,” French international transport and logistics company Geodis said in a recent report on bond warehouses. “Based on the basic tariffs on imports and targeted increase in tariffs in most countries in a given state, businesses face greater challenges due to cost management and cash flow optimization.”
Warehouse operators who want to combine buildings to meet the surge in demand will likely not be able to go through the process anytime soon.
The application process could take several months, Geodis said. The property must meet specific physical requirements for intrusion and exit, as well as fire safety and security requirements.
Geodis has more than 50 million square feet of warehouses in the US, but none of them bond. The company is considering changes, says Brian Riley, senior vice president of customs brokerage.
“The question is, if China’s tariffs drop to 10% like all other mutual tariffs, is this necessary and how long it will take,” he said. “And then I bet that interest in guaranteed warehouses will also be significantly reduced.”
However, now, “interest in bonding warehouses is rising compared to what was a year ago,” Riley said.
Another way to delay customs payments is to import goods directly into federally approved foreign trade zones. The important difference from bonded warehouses is that the mandatory price is usually trapped at the rate that applies when entering foreign trade zones, Geodis said. However, the zone allows items to be stored indefinitely.
The overall demand for warehouses used to move goods through the ports of Los Angeles County is expected to decline as widespread tariffs take effect, potentially undermining the economic vitality of one of the world’s largest industrial property markets.
The leases of buildings used to collect and distribute imported goods have been at least temporarily delayed to ensure that businesses retain duties at announced fees or ease through negotiations.
Port officials are forecasting a dramatic decline in trade over the next few days. “Arrives will essentially reduce all cargo by 35% as all cargo from China has been stopped for major retailers and manufacturers, and the cargo coming out of locations in Southeast Asia is much softer than usual,” Jeanseroca, executive director of the Port of Los Angeles, told the Harbor Commissioner Committee last week.
According to real estate economists, the impact of these tariffs is different from supply shocks that suddenly change the supply of goods and services, such as natural disasters, wars, and disease outbreaks.
“Unlike a true supply shock, rising prices from tariffs will not lead businesses to take away additional inventory,” economist Sean Moola said.
The real estate industry group Naiop said in a report.
“Inventory levels are already high and likely to be lower than importers seeking buffers against tariffs. If companies are not fully settling where they get new supplies when current stocks are exhausted, short-term shortages could contribute to higher prices, in addition to rising prices due to tariffs.
“If consumers are in a hurry to buy the item before the prices are fully adjusted to new tariffs, the shortage can occur earlier than expected,” Moura said. “Supply chain disruptions can also contribute to short-term shortages and delayed delivery of construction materials.”
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