Trent Cotney, Partner, Adams and Reese LLP
For the past few years, the construction industry has joined other industries and consumers in being challenged by supply chain issues and rising prices. However, as those problems have begun to ease, there is a new inflation warning to consider.
Although many causes of supply chain inflation that led to higher prices have abated – such as transportation fuel and ocean freight costs – we are now seeing increased inventory due to lower consumer demand. Those bloated supplies are putting pressure on warehouse services and increasing those rates.
Costs for domestic trucking and international ocean and air transportation skyrocketed in recent years and in 2022 they began to level off. But as those costs became more reasonable, demand for warehousing, domestic delivery and labor grew. The capacity for warehouse facilities is relatively low and there seems little evidence that it will increase in the near future.
Some experts, including Federal Reserve Chair Jerome Powell, have indicated that “disinflation” has begun and prices of goods will start to fall. However, the prices of services may grow higher.
One example of such a service is storage and related labor. Some manufacturers have been forced to hold their goods on shipping chassis because distribution centers and warehouses are full. Usually, shippers can keep their products in a container for a given time, but then they are charged per day. Containers that remain on chassis for temporary storage prevent those chassis from moving other containers as new shipments come in. Also, shippers are charged for holding goods on chassis, in addition to the per-day container fee, as well as the eventual warehousing costs. All these fees can lead to huge charges, which will eventually
be passed on to consumers.
According to some estimates, storage pricing in the United States is up 1.4 percent month over month and up more than 10 percent year over year. For manufacturers with unbalanced inventories, warehousing costs, along with slowing consumer demand, could have a significant impact on company earnings.
Also, some inflation factors are still in play. For example, some costs are still rising due to production shortages and manufacturing disruptions in China. In addition, many consumer prices may remain high as companies work to maintain their profit margins and meet contract terms they set long ago with their suppliers.
Construction could take a substantial hit. Supply chain inflation has already made it difficult for contractors to complete projects on time. Now, storage costs and fluctuating building demand could result in additional problems.
For businesses struggling to store their inventories, one solution is short-term warehousing supplied by grounding operations and
third-party logistic firms. Such “pop-up” storage can offer interim remedies and an alternative to using shipment containers and chassis.
For contractors, staying in close contact with your vendors will be more critical than ever. Balancing the need for materials with when you will need them and how you can store them will be a massive undertaking but it will be critical to the health of your business. When possible, find ways to keep the materials onsite or at your own facility so you will not be impacted by inflated prices. Remember to work with your suppliers, ask for their advice as needed and order materials with deliberate, thoughtful timing.
Take advantage of an FRSA member benefit and contact Trent at 813-227-5501 or email him at trent.cotney@arlaw.com.
The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation. Trent Cotney is a partner and Construction Practice Group Leader at the law firm of Adams and Reese LLP and FRSA General Counsel.
Previous Article
Next Article