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September 3 2018

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48 The Journal of Commerce | September 3 2018 Surface Transportation square foot, although rents vary consid- erably by region: $4.54 in the Midwest, $4.75 in the South, $5.17 in the Northeast, and $9.28 in the West. Demand was broad-based by region. Nationwide, 64.1 million square feet of industrial space were absorbed in the second quarter. Net absorption totaled 6.87 million square feet in the North- east, 19.23 million square feet in the Midwest, 26.59 million square feet in the South, and 11.44 million square feet in the West. Absorption of warehouse and logistics space is projected to remain buoyant through 2019, although rent growth will gradually decelerate next year as supply modestly RENTS FOR WAREHOUSE space increased 7.2 percent year over year in the second quarter of 2018, but that didn't put a damper on demand by importers, exporters, logistics providers, and e-commerce fulfillment retailers, with absorption rising 4.9 percent, according to Cushman & Wakefield's sec- ond-quarter industrial report. "Healthy demand combined with modest supply growth caused US indus- trial rents in the second quarter of 2018 to increase 7.2 percent from a year ago, rising in 58 of 79 markets; 18 markets reported double-digit gains," Cushman & Wakefield stated in its Marketbeat US Industrial Q2 2018 report. The average national asking price in the second quarter was $6.11 per outpaces demand. Nevertheless, net ab- sorption in 2018 is projected to exceed 240 million square feet nationwide for the third consecutive year. Net absorption in 2019 is projected to exceed 200 million square feet, the sixth consecutive year that number will be eclipsed, the report stated. As warehouses and logistics operators become more efficient, increasing rents are not expected to blunt demand for more space, especially near seaports and in large inland hubs where import distribution and e-commerce fulfillment needs are the greatest. Real estate accounts for only about 5 percent of total supply chain costs, according to a Prologis report in April. The national industrial vacancy rate in the second quarter was 5 percent, unchanged from the first quarter, but well below the five-year historical average of 6.8 percent, Cushman & Wakefield report- ed. Vacancy rates have declined steadily from 8 percent in 2014. Seaport-dependent industrial hubs continue to be the tightest industrial real estate locations in the United States. The second-quarter vacancy rate was 1.5 per- WITH US SHIPPERS desperate to locate capacity to move their freight, there is growing demand for Class I railroads. However, many logistics providers, analysts, and cargo owners say railroads are pushing away inter- modal business rather than embrac- ing it. From the railroads' perspec- tive, they are taking all the business they can while also cautiously balancing the need to keep investors sweet with lower operating ratios. A series of actions over the last 12 months have left shippers question- ing why some railroads are providing less service and slower service when business is strong. Many shippers don't believe railroads have wel- comed the additional business even though the opportunity was there. Class I railroads have begun to lease locomotives and hired and trained conductors. But as one intermodal ex- ecutive told The Journal of Commerce in April, the railroads were reactive rather than proactive to the market. There is a sizable opportunity to be had because trucks are historically scarce. FTR Transportation Intelli- gence reported truck utilization is 98 percent versus 85 percent during the freight recession. FTR Vice Presi- dent Don Ake said he's never seen this level of utilization. However, trains are about 2 miles per hour slower than a year ago and below the five-year average, according to rail performance measures. On a 1,500-mile trip, a train averaging 31 miles per hour would take 48.4 hours to get to destination, while a 29-mile-per-hour train would take 51.7 hours. For shippers and truckers, every minute counts, and delays cost money. "Ultimately, shippers will pay for good service, and so I think the real risk is: Do people move away from intermodal and back toward truck? Trucks are consistent. Do we see shippers move away from intermod- al because of the inconsistency and lengthened cycle times," said Todd Tranausky, FTR's vice president of rail and intermodal, on a webinar in August. Railroads are stuck in the middle in many ways, between shareholders who insist on low operating ratios, higher margins, and increased profits. One bad quarter and total value of a company can drop quickly. Meanwhile, shippers insist on reli- able service, but also a price within their transportation budgets. CSX believes by eliminating low-volume lanes, such as Buffalo and Syracuse, New York, its equip- ment can be redeployed to more profitable cargo and busier lanes. Chief Executive Jim Foote believes it's possible to simultaneously deliver top-notch service and lower operating ratios. CSX's performance Differing priorities Rail industry seen missing out on intermodal growth potential By Ari Ashe Lower vacancy, higher rates Demand and absorption of warehouse space on the rise despite jump in rental costs By Bill Mongelluzzo Some shippers question why the railroads are cutting service and/or slowing service when the demand is strong. Trucking | Rail | Intermodal | Air & Expedited | Distribution

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