Geopolitical Shocks Disrupt SoCal Supply Chains
Rising conflict in the Middle East is creating significant disruption for global transportation networks, with direct impacts on LA/Long Beach ports. C.H. Robinson's latest update warns of schedule volatility and rising costs as major shipping lines like CMA CGM begin avoiding the Suez Canal, putting pressure on Inland Empire distribution hubs.
The diversions away from the Suez Canal are not happening in isolation. Concurrently, the Panama Canal, a critical artery for trans-Pacific trade to the U.S. East Coast, is grappling with a severe drought. This has forced the Panama Canal Authority to slash daily vessel transits, down from a peak of 38-40 to as low as 24 by the first quarter of 2025. The dual disruptions are forcing logistics operators to make difficult choices between longer routes, congested alternate canals, or shifting to West Coast ports. Rerouting ships around Africa's Cape of Good Hope adds up to two weeks and 4,000 miles to a vessel's journey from Asia. This extended transit time has effectively reduced global container shipping capacity by an estimated 9% and increases fuel consumption by 30%. For a single large container ship, the detour adds approximately $400,000 in emissions costs alone under the EU's trading system. This logistical volatility directly impacts the Inland Empire's industrial real estate market. The overall industrial vacancy rate climbed to 8.1% in the fourth quarter of 2025, significantly above the 10-year average of 4.0%. Some major tenants like Goodyear Tires and Lowe's have moved out, contributing to negative absorption of 1.5 million square feet in the last quarter. Despite the headwinds, leasing activity in the Inland Empire remains one of the most active in the nation, with 42.1 million square feet leased in 2025. However, the market is softening; average asking rents in Q4 2025 were down 11.6% year-over-year, and sublease availability represents a significant 18.9% of total available space. Landlords are increasingly offering incentives like improvement allowances and rent-free periods to attract tenants. The construction pipeline has contracted sharply from its 2022 peak. Only 2.8 million square feet across 15 projects remained under construction at the end of 2025, with few new starts anticipated for 2026. This pullback in development is expected to help rebalance the market over the next 12 to 18 months as existing new supply is absorbed. While the Port of Long Beach is on track for a record year, moving over 9 million TEUs in the first 11 months of 2025, the San Pedro Bay port complex is not immune to the disruptions. The Port of Los Angeles saw a 12% decrease in volume in November 2025, driven by an 11% drop in imports as warehouses remain full and importers adjust their ordering pace.
