The rising costs of fuel and its influence on industrial

Diesel prices are on the rise, but optimism remains strong for industrial

Memorial Day weekend often marks the unofficial opening to the summer vacation season, but rising fuel costs and a recent, inopportune, cyberattack on the Colonial Pipeline have inflicted long- and short-term pain at the pump for travelers and supply chains. Retail gasoline prices have increased by more than 50% per gallon from a year ago, while on-highway diesel prices are up by nearly a third. Higher fuel prices might not quell pent-up demand for vacationers who are hitting the road this weekend, but the impact on supply chains may be a little more endemic.

Signs of inflation are heating up while there is continued pressure on supply chains to meet demand and manage costs

Economic re-opening has become a fresh spark for inflation, especially for in-demand commodities and inputs that are undersupplied. Overall, April CPI (consumer price index) was up 0.8%, equating to 4.2% annualized on an unadjusted basis.  However, gasoline was up 49.6% over the last 12 months and fuel oil up 37.3%. This is a significant hit on supply chains because transportation, inventory, and labor account for more than 80% of total operating costs and more than 60% of goods and materials are transported via truck. Along with a shortage of qualified truck drivers, it only adds another layer of complexity supply chains are facing.

But there’s good news! The industrial and logistics property sectors show no significant signs of stalling out anytime soon

Sector fundamentals remain strong. Also, given that demand levels have been consistently high over the last three quarters and leasing activity buoyant, some transportation costs could be absorbed by shippers to continue to deliver products to consumers, especially if finished goods pricing goes up.  U.S. aggregate vacancy is hovering in the still historically tight lower 5% range, even with spec construction levels elevated. Rising costs could also result in higher rents, but again, that could be offset by the continued need to have more industrial locations and inventories spread out near population centers. Investor interest remains widespread. It is a good time to see that the check engine light is not on, and that the industrial sector has plenty of gas left in the tank this cycle.

The data was harnessed through Avison Young’s real-time data analytics platform, AVANT by Avison Young.  AVANT makes data more accessible and understandable, allowing clients to make informed, strategic decisions and unlocking the full potential of their real estate.