CSCMP's Supply Chain Quarterly
February 25, 2020
Forward Thinking

Industry optimism improves as trade tensions ease

USMCA approval in Washington lessens uncertainty over trade, boosts outlook for industrial investment and export growth.

Suddenly, a cloud of uncertainty over trade is beginning to lift.

So said analysts at a freight transportation industry conference this week, pointing to the White House's passage of the United States Mexico Canada Agreement (USMCA), which moves closer to implementation now that both the U.S. and Mexico have approved the deal. Canada kicked off its ratification debate this week, but a final vote by Canadian lawmakers has not been scheduled. Still, industry watchers say the forward movement on USMCA lessens the uncertainty of the trade environment and promises a boost in business across the logistics and supply chain landscape.

"USMCA should boost business confidence now and yield more exports to Mexico and Canada over time," said Avery Wise, vice president of trucking research firm FTR, speaking at the SMC3 JumpStart conference in Atlanta, January 27-29. He added that the Trump administration's Phase One trade deal with China is also helping to boost confidence.

"Suddenly, trade is not one of the big negatives in the economy," he told conference attendees, adding that remaining tariffs on $370 billion in Chinese imports are a concern despite the Phase One deal.

Other industry watchers agree with the optimistic outlook. Pauline Hale, senior manager in advisory for commercial real estate software firm Altus Group, said separately that passage of USMCA will serve as a boost to the already solid industrial real estate sector.

Hale pointed to the positive impact USMCA's predecessor, the North American Free Trade Agreement (NAFTA), had on capital investment and said she expects "a continuation of what we had back then." Warehouse inventory alone has increased by 3.3 billion square feet since NAFTA took effect in 1994, according to data from commercial real estate services firm CBRE Group, Inc. Combined with growth spurred by e-commerce, that spells greater demand for a variety of warehouse space moving forward, Hale also said.

"Not tightening down on NAFTA is only a plus," she said, pointing to rising demand for warehouse space to accommodate increased automotive manufacturing under the deal as well growing e-commerce activity and last-mile delivery needs, and a related uptick in demand for space among third-party logistics providers (3PLs).

Hale says e-commerce retailers need up to three times more space than traditional retailers due to their broader product mix, and that last-mile demands are driving the need for a variety of warehousing solutions that are closer to consumers. An increase in trade across the continent will only heighten that demand, she says.

"[We will see] continued strong industrial demand [over the next few months]," Hale said.

A December commercial real estate outlook from CBRE forecasts moderating growth in the sector this year, although company leaders said they expect the industrial and logistics segment to "continue its strong run in 2020." Investment volume should be on par with the last two years, the company said—between $478 billion and $502 billion—making it one of the strongest years on record.

"Industrial is still the darling of the [investment community]," Hale added.

If approved in Canada, USMCA will take effect 90 days after that country's ratification of the deal.

Victoria Kickham, an editor at large for Supply Chain Quarterly, started her career as a newspaper reporter in the Boston area before moving into B2B journalism. She has covered manufacturing, distribution and supply chain issues for a variety of publications in the industrial and electronics sectors, and now writes about everything from forklift batteries to omnichannel business trends for Supply Chain Quarterly's sister publication, DC Velocity.

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