MetroFreight

4.1i <p><strong>Evaluating Tradeoffs Between Rental Rates and Drayage Costs for Port Dependent Warehouse Users</strong></p>

Project Number

4.1i

Project Summary

Evaluating Tradeoffs Between Rental Rates and Drayage Costs for Port Dependent Warehouse Users

Project Status

Complete

Year

2016

Topic Area

Sustainable Urban Freight

P.I. Name & Address

Professor; Margaret and John Ferraro Chair in Effective Local Government; Senior Associate Dean for Research and Technology; Director, METRANS , Sol Price School of Public Policy
University of Southern California
650 Childs Way
Ralph and Goldy Lewis Hall (RGL) 216
Los Angeles, CA 90089-0626
United States
giuliano@price.usc.edu

Port dependent warehouse users make location decisions based on proximity to the port, proximity to their customer base, warehouse availability and rental rates. Warehouse choice can also present tradeoffs for users tied to overall warehouse size and level of technology, both of which can impact the productivity and efficiency of the warehouse.  The condition of the surrounding transportation infrastructure i.e. efficient access to highways or railways, can also be a major factor that makes some warehouses more attractive to shippers, depending on the nature of their storage and delivery needs.

Port dependent shippers face a unique set of conditions in determining their warehouse needs. Rather than positioning warehouses solely in relation to their customers, they instead place the warehouses in the roll of the “middle man” responsible for efficiently receiving cargo from the ports, storing and/or reprocessing that cargo and moving it on to the next point in the supply chain - which could be anywhere in the country. For this reason, the locations of port dependent warehouses are less closely tied to population centers and more closely tied to locations that prevent the cargo from getting “stuck” due to congestion as it moves from the port to the warehouse and often out of the city.

In most major U.S. port cities, container terminals are not positioned close to the downtown. For this reason, a monocentric rent gradient does not adequately capture the warehouse location dynamic. Port dependent shippers often do not see sufficient value in high-rent downtown locations and tend to cluster either in proximity to the port container terminals, or in less costly sites on the periphery of the city. While peripheral sites have lower rental rates per square foot, they also require more substantial dray trucking costs that can lead to higher operating costs and, in some cases, less certainty of truck availability.

 The following study uses case studies from the Los Angeles basin and the counties surrounding the Port of Savannah to examine the circumstances under which lower warehousing rental rates are preferred to lower drayage rates. A discrete choice model is developed to illustrate the decision process of the warehouse user in determining whether to locate in a near-port location or a less costly location further from the port.  The study uses historical data on warehousing rental and occupancy rates disaggregated to the submarket and, in some cases, zip code level in order to demonstrate how rates for different port dependent markets have changed with shifts in the economy. We then cross reference these with contemporaneous shifts in transportation rates and corridor congestion patterns. By comparing these critical decision factors, the study seeks to determine the inflexion point in which one factor becomes the driving force in determining where port dependent shippers choose to lease warehousing space.