Houston Warehouses, Construction Projects Face Supply Chain Disruption As Coronavirus Spreads

Houston could soon start to see the trickle-down effects of coronavirus on its robust logistics industry, driven by supply chain shortages. And as imports and exports slow, warehouses could begin to swell with stranded inventory.

China represents nearly 20% of the world’s gross domestic product. As the spread of coronavirus has led to a lack of available labor across the country, the manufacturing industry there has taken a direct hit.

“You name the product, they're involved at some point along the supply chain,” University of Houston Instructional Assistant Professor and Program Director, Supply Chain & Logistics Technology Margaret Kidd told Bisnow.

With fewer Chinese businesses able to meet demand, companies are scrambling to diversify their supply chain and source materials from other countries.

Kidd believes that a trickle-down effect will be seen in construction-related activity for both commercial and residential properties.

“If you're importing any kind of materials from Asia, you're going to have a problem right now,” Kidd said.

“When we operate in a business climate of just-in-time production, you don't have major corporations keeping large inventories of spare parts."

U.S. trade with China had already slowed in the last couple of years because of the ongoing trade war. As new clusters of coronavirus cases emerge within other major trading partners, global shipping could experience a major slowdown in the coming months.

Kidd estimates that by April, the U.S. will start to see the effects of the coronavirus in industries outside of services sectors like airlines and hotels, as ships already on the water reach port, and fewer ships set sail around the world.

Houston is a major global logistics and warehouse hub for both Texas and the U.S., and could see some unusual swings in product inventories in the coming months, Gulf Winds International President Todd Stewart told Bisnow.

In particular, Stewart noted that fewer storage containers entering Port Houston would mean fewer containers available to export goods, potentially leading to a glut of inventory for some producers and warehouse owners in Houston.

“We could see potentially higher inventory levels on the U.S. side, awaiting that empty equipment,” Stewart said.

The Gulf Coast region boasts one of the highest concentrations of plastics and packaging-related businesses in the world. While some of the larger manufacturers might have millions of square feet to store high levels of inventory, smaller businesses could be forced to lease more space.

“I think anybody that is faced with higher than normal storage levels warrants potentially leasing more space, if necessary, if they can't ship the product out,” Stewart said.

Stewart said that demand for goods hasn’t changed, and one of the biggest potential challenges could be meeting that pent-up demand, when coronavirus-related pressure begins to ease. As a result, logistics companies could face significant swings in volume.

“Those larger peaks and valleys can absolutely be a challenge to handle,” Stewart said.

The uncertainty around how long coronavirus could last, and how large its impact will be on both the U.S. and broader global economy, is also making it difficult for businesses to plan for the future.

“There are two things affecting business decisions right now. One is uncertainty, and the other is panic,” Greater Houston Partnership economist Patrick Jankowski said.

While SARS in 2003-2004 temporarily hurt the global economy, the virus was contained within China and markets quickly recovered. That may not be the case this time, owing to the highly contagious nature of the disease, Kidd noted.

Jankowski said Houston is also likely looking at a second contraction in the oil and gas industry, as U.S. exports will struggle to move large volumes outside of the country.

“One was already underway, and this will just nudge it along a little bit further,” Jankowski said.

“The danger is, the coronavirus is going to slow down global activity, and we are so tied to the global economy, that this will slow down Houston's economy.”