The ‘wrong inventory’

During the pandemic, consumers wanted things to make them feel comfortable at home — whether it was sweatpants, home décor or the latest fuzzy blanket. But as many workplaces have transitioned to hybrid or in-office work models and people are back to socializing outside the home, products that were over-ordered by companies during the pandemic are now piled in warehouses unused and unpurchased.

This “mispurchasing” of goods, as Rick Holden, vice president of business development and a corporate officer for Richmond-based Riverside Logistics, puts it, has led to a massive influx in warehouse inventory across the state. “This created a huge glut of inventory that we’re still working through,” Holden says. 

The vacancy rate for warehouses in the Hampton Roads region is less than 1%, says Trevor Dunlap, president of Chesapeake-based transportation and logistics companies Givens Transportation Inc. and Givens Inc. “Warehouses are full here locally in Virginia, but also across the country,” he says. “The vacancy rate in Hampton Roads is like 0.7%, so warehouses are super full.”

The Richmond market also saw a massive increase in warehouse inventory during the past couple of years. Richmond’s warehouses have traditionally been less than 40% full, but since the pandemic, they’ve jumped to 90% full, says James Durfee, vice president of business transformation at Riverside Logistics, a third-party logistics and supply chain management company.

“Today, we see evidence that the wrong stuff is sitting in the warehouses,” he says, referring to pandemic-popular items like leisure wear and furniture. “The turnover [rates] are a lot slower.”

Typically, a company will sell and restock inventory roughly every two months. Now, overstock may sit in warehouses for much longer, a phenomenon dubbed “pandemic hangover.”

Mike Coleman, president and CEO of Norfolk-based logistics and shipping firms CV International Inc. and Capes Shipping Agencies, also notes that there are still challenges with supply chain backlog.

“There’s still a lot of difficulty finding warehouse availability,” he confirms. “Many are full with excess inventory.”

The need is questionable

Some supply chain experts predict, though, that the issues with warehousing capacity won’t last.

“In my opinion, the glut of inventory in warehouses is temporary, not uniformly distributed across industries, and will be dealt with — worked off, sold on the discount market, etc. — relatively quickly,” says Barbara Hoopes, a professor and supply chain expert with Virginia Tech’s Pamplin School of Business.

This means that most companies won’t move to build more warehouse space to handle the current excess inventory but will rather turn to contracted or public warehouses — a warehouse that allows businesses to rent space to store their products — for shorter-term and more flexible space, Hoopes adds.

“This signals good news for third-party warehouse/distribution companies, whose services and capacity will continue to be in demand — especially regionally,” she says. “The third-party logistics industry will likely play an important role moving forward to absorb unpredictable demand and inventory levels.”

Holden also worries about building too much more warehouse space. After the glut of inventory clears out, warehouses will ultimately have excess space, he says. For right now, Riverside Logistics is being more careful about the clients it’s taking on — and has even had to sever ties with some customers as warehouses remain too full. 

“We’re much more selective on who we take. We’ve actually had to ask some clients to leave our space,” Durfee says. “The nature of the beast was that we were kidding each other that we’d be a good fit long term. It took us a while to internalize that across our management team because we had never done that before.”

The labor issue with warehouses

While inventory levels remain high in warehouses, so does the demand for labor. Talent in the supply chain industry as a whole has been scarce, particularly for warehouse workers and truckers. In fact, 73% of employers have had difficulty attracting warehouse talent, according to hourly worker staffing firm Instawork’s State of Warehouse Labor report for 2022.

In turn, some warehousing companies have implemented higher hourly rates. Warehouse workers prior to the pandemic made about $14 to $15 per hour, which has now risen closer to $20 per hour, Durfee says. Some logistics businesses are even taking a more serious look at warehouse automation to ease the pressure for hiring for jobs that are traditionally hard to fill, Hoopes says.

But just as inventory levels remain unpredictable for the future, so does the demand for logistics labor. 

“Yes, there may be some competition for warehouse workers at the moment,” Hoopes says, “but it’s hard to say if it will last very long in the face of prolonged uncertainty.”