Experts discuss how the US logistics industry is adjusting to the post-pandemic market
The US logistics industry is poised for growth as e-commerce expansion intensifies. According to the US Census Bureau, US retail e-commerce totaled $284.1bn in the third quarter of 2023, a 2.3% increase on the second quarter. Preqin Pro data illustrates similar expansion in the private sector. E-commerce deal value rose to $6.9bn by the final quarter of 2023 from just $0.7bn in the first. The pandemic-induced spur in e-commerce has underpinned demand for warehouses.
As we highlighted in the Preqin Global Report 2023: Private Equity, the logistics industry benefited from the pandemic, and warehouse and e-commerce demands have since kept the industry buoyant. Now, three years since the start of the pandemic in 2020, consumer favor for online shopping is yet to subside. According to India-based research firm Ken Research, the US logistics industry is expected to reach $1.5tn in revenue by 2026. Deloitte echoed this outlook, naming the US as a ‘potential growth market’ for its smart last mile logistics – the process of moving a product from the manufacture to the end user.
The number of warehouse deals increased over the last five years in the US as e-commerce activity drove a need for product storage. According to Preqin Pro data, the number of warehouse buyout deals in the US grew to 68 in 2023 from 61 in 2019. Notably, Univar Solutions was purchased for $8.1bn by Apollo Global Management and Abu Dhabi Investment Authority in the largest warehouse buyout deal in the US in the last five years. The purchase comes on the heels of five other US-based buyout e-commerce deals completed by Apollo Global Management in the last three years, totaling more than $10bn.
We asked three experts from Preqin’s Expert Voices network for their view on the ways the US logistics industry is evolving and capitalizing on e-commerce and warehouse demand in the post-pandemic market.
William Kelly, CEO, CAIA Association
The private market investor always expects to build and store alpha within a portfolio company, and then to harvest it upon liquidation.
The pandemic and a new world order of multipolar geopolitical axes have quite literally changed the direction of travel for all goods, and the US is now focused on nearshoring and onshoring their supply chains. A logistics strategy focused on storage may be great for the demanding consumer, but represents a limited business model. The hallmarks of the successful model are now all about improving efficiencies, lowering costs, and driving higher profits ‘just-in-time’ for the alpha-seeking investor. But has all this efficiency rinsed out the inefficiencies that are the lifeblood of above-average returns?
The early wins have been harvested, but a broader view of the US economy shines with opportunity. The consumer drives almost 70% of the local economy, yet it’s widely reported that e-commerce sales still only account for about 15%. The means to move those goods will need to expand so the logistics industry, which represents 10% of the US economy, should only grow from here.
Nolan Olsen, Founding Partner, Langschiff Capital Partners
E-commerce has been driving long-term growth in the logistics industry, but we see logistics as a diversifying investment. In recent years, we’ve raised capital for a number of transportation infrastructure assets, including shipping. Investors often look to allocate to the shipping sector because its performance is less correlated to other markets, and in times of geopolitical instability, many of its subsectors show a negative correlation to the broader markets.
For example, the containership market is currently seeing a boost in rates as a result of geopolitical instability. The situation in the Red Sea is causing shippers to re-route around Southern Africa. This adds time and ton-miles, decreasing the capacity of the fleet.
We’re committed to educating US institutional investors about private capital investments in the shipping industry, and we’re seeing a sustained level of interest. Investors approach shipping in different ways. For example, family offices are attracted to shorter duration and higher returning opportunistic investments, or investments with favorable tax treatment such as the accelerated depreciation allowed on Jones Act vessels. Other investors might focus on yield or diversification across shipping sectors, vessel vintages, and credit counterparties.
Jessica Harrison, Head of US Acquisitions & Capital Markets, Real Estate Equity, Manulife Investment Management
Fundamentals within the industrial sector remain strong and we still see opportunities in the current market environment to capture long-term demand for logistics. Although new construction deliveries remain elevated, we’re starting to see the effects of a diminishing construction pipeline in light of current financing costs, which we believe will lead to outsized demand. The lingering effects of the pandemic have created tailwinds across the sector as companies are currently reevaluating their strategies. Moving forward, these recalculations will include placing greater inventory closer to the end consumer, revisiting supply chain needs, onshoring manufacturing facilities, and advancements in automation. We recently closed on a 35-asset class portfolio consisting of 10.4 million square feet of brand-new grade A warehouse, with an average building size of approximately 300,000 square feet. Leasing activity remains robust in this size range, particularly between 50,000 and 100,000 square feet.
Considering the current economic environment and our data-driven approach to investing, we are leaning into sectors and markets we believe will generate alpha. This includes shallow bay distribution, urban infill, and alternative strategies such as industrial outdoor storage (IOS); all of which demonstrate barriers to entry combined with outsized tenant demand.
Commentary in this article is provided by experts from the Preqin Expert Voices network.
Preqin Expert Voices is a global network of alternative asset professionals with in-depth industry knowledge and valuable ideas to share. We invite senior leaders and highly experienced commentators from across the industry to share their opinions in our forum, including fund managers, investors, consultants, advisors, academics, and more.
Are you a senior executive or thought leader? Are you a regular industry speaker? Are you a frequent commentator in the press? If this sounds like you and you would like to become an Expert Voice, then please get in touch at expertvoices@preqin.com.
The opinions and facts included within the above do not constitute investment advice. Professional advice should be sought before making any investment or other decisions. Preqin, CAIA, Langschiff Capital Partners, and Manulife Investment Management providing the information in this content accept no liability for any decisions taken in relation to the above.