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After almost a year of relative stability, the global supply chain faces new disruptions again.
Recently, a severe drought affecting Central America and labor disputes affecting multiple West Coast ports have caused increases in import costs, shipping delays, and freight processing times. These new challenges represent the most significant supply chain challenges for commercial real estate since the outbreak of COVID-19.
In the coming months, delayed shipments of raw materials and equipment will negatively impact real estate development activity across the country.
While the situation is difficult, project managers have options when it comes to dealing with unexpected supply chain issues. Here’s a look at the issues causing the current disruptions and three strategies that can be used to address them.
New Issues Affecting the Commercial Real Estate Supply Chain
The new global supply chain problems are rooted in international and domestic freight transportation bottlenecks.
The Panama Canal Authority (PCA) announced it would reduce traffic and impose new surcharges through the trade corridor to conserve water in late June. The new restrictions are part of an ongoing effort to combat a severe drought in the region, significantly decreasing the Canal’s water depth. As a result, large vessels loaded with heavy shipping containers don’t have enough buoyancy to move through the waterway safely.
The organization’s new strategy aims to balance environmental and economic concerns, but it’s already negatively impacted international trade.
CNBC reports container ships moving through the passage have had to reduce their cargo by 40% in recent weeks. In addition, the PCA warned conditions “could worsen” as the summer goes on, which would prompt further transit restrictions.
For commercial real estate, the trade restrictions will translate into more change orders and construction delays. As the year goes on, essential construction supplies and tools like lumber, steel, and manufacturing equipment will become less accessible and more expensive. For commercial real estate, those supply chain disruptions will result in cost increases that will upend existing budgets and extend project timelines.
The other issue impacting America’s supply chains is labor unrest at multiple West Coast ports.
Last month, the Ports of Seattle, Los Angeles, Oakland, and Long Beach experienced weeks of decreased freight activity due to “concerted and disruptive work actions.” Bisnow found that disputes over worker pay between the Pacific Maritime Association and the International Longshore and Warehouse Union resulted in slowdowns and port closures. Though the PMA reached a tentative six-year deal with dockworkers, the shipping delays will affect America’s supply chain.
The unfortunate reality is project managers can’t control the consequences of unexpected supply chain disruption. Like the pandemic, natural disasters and labor disputes aren’t predictable, preventable, or easily resolved. But, project managers can be proactive when dealing with unexpected development challenges.
Find Vendors with Local Manufacturing Resources
The first strategy project managers can use to address new supply chain disruptions is finding vendors with local manufacturing resources.
When a general contractor sends over a change order indicating that the price of essential building materials has substantially increased, it can have a domino effect on project delivery. Project leads have to reallocate budgets, change schedules, and even delay the start of construction.
However, having good relationships with multiple contractors can help project managers weather the storm.
Access to an online marketplace of trustworthy vendors can be crucial when unexpected problems arise. For example, if a third-party provider imports their raw materials from overseas, the recent supply chain issues might affect their business.
And as every project manager knows, a key vendor’s sourcing problems quickly become their development headaches.
But other vendors that source their materials and equipment locally might not have those problems, meaning they could offer better pricing and scheduling. Connecting with a new contractor to get a new bid quickly can keep a project from falling apart. Instead of stressing out over a disruptive change order, you can proactively search for and partner with alternative vendors.
While unexpected supply chain snarls are an unfortunate reality of the real estate business, you don’t have to accept worst-case scenarios.
Consider Using Domestic Logistics-as-a-Service Provider
Similarly, project managers can mitigate new supply chain disruption by partnering with large domestic logistics providers.
During the pandemic, the global supply chain suffered several major shocks that disrupted real estate development across the country. Because deliveries of raw materials to construction sites became inconsistent, project planning, budgets, and schedules suffered. Although the COVID-19 emergency has ended, many traditional logistics providers are operating below their full capacity.
For that reason, this summer’s new logistics bottlenecks will have a larger effect on the supply chain. But project managers have more options now than they did during the height of COVID-19.
Bisnow notes that Amazon, Prologis, and Maersk have recently reinforced their logistics networks with new warehouses and distribution centers to become logistics-as-a-service providers. The emerging logistics-as-a-service providers are changing their formula by offering their streamlined logistics workflows and tools to outside companies, similar to how Amazon offers on-demand cloud computing services through its AWS subsidiary. Currently, those firms want to address the retail sector, but their recent efforts suggest an interest in expanding into other markets, like industrial real estate.
The rise of logistics-as-a-service providers is good for commercial real estate, especially in light of recent events. The companies at the forefront of the trend have warehousing, transportation, and route planning systems that can support project development nationwide.
By investigating the capacities and capabilities of these third-party providers, project managers might find solutions to their fulfillment woes.
Invest in Proptech Solutions To Reduce Costs
Finally, project managers can address current and future supply chain disruptions by investing in a property technology or proptech solution.
Al Brooks, J.P. Morgan Chase’s Head of Commercial Real Estate, made the recommendation in his 2023 Midyear CRE Outlook. The executive noted that real high energy and raw materials costs, along with supply chain troubles, are making real estate development more expensive.
Brooks advised the industry to investigate the benefits of innovative technology platforms that can help cut costs and reduce inefficiencies. Emerging proptech solutions can benefit the entire industry because the field includes everything from automated rent collection tools to smart building management platforms.
The emerging field also includes solutions that can help project managers harness commercial real estate data to be proactive when dealing with adverse conditions like unexpected shipping delays or cost overruns. Project managers can use intelligence-based platforms to put all their project data at their fingertips, significantly reducing manual data entry and improving budget visibility.
From J.P. Morgan’s perspective, investing in new proptech tools is one of the best ways to withstand the real estate market headwinds.
New Solutions for New Problems
The Panama Canal drought and West Coast port labor disputes will be serious problems for commercial real estate, especially in a post-pandemic landscape. But the industry is in a very different place than it was two or three years ago.
The adverse conditions created by COVID-19 pushed the marketplace to change and adapt by embracing new solutions and methodologies.
While project managers face an uphill battle this year, new resources are available to support successful deliveries. It’s just a matter of doing the legwork to determine which solutions can address your specific problems. And thanks to commercial real estate’s embrace of modern technology, project managers have access to platforms that help them address past and future supply chain challenges.
Want more insights on successfully delivering real estate projects in a chaotic world? Download our Guide to Overcoming Real Estate Greatest Obstacles Ebook today.
Tag(s): Real Estate Technology
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