Why is Inland Empire’s warehousing employment facing significant decline? – A comprehensive analysis by Orange County Register

By Manfred Keil, Johannes Moenius, and Ivan Kolesnikov | Inland Empire Economic Partnership

The logistics industry, which includes transportation, warehousing, and wholesale trade, is playing an increasingly significant role in the Inland Empire. According to The Economist magazine, the region has established itself as the global capital for warehousing.

Using seasonally unadjusted data from the California Employment Development Department, the industry has experienced a growth of nearly 160,000 jobs since 2010, with 110,000 jobs being added in warehousing and storage alone. This translates to a growth rate of almost 125% for the logistics industry and over 600% for the warehousing and storage sector over the past 13 years. During the same period, total (nonfarm) employment in the Inland Empire has increased by approximately 525,000 people, representing a 46% increase. Therefore, nearly one-third of all jobs created in the region since 2010 can be attributed to the logistics industry. Currently, the industry is the second largest employer in the Inland Empire, with 16% of all workers working in the logistics sector, surpassed only by private education and health, which has around 12,000 more jobs.

By comparison, employment in the logistics industry has grown by 39% in California and 33% in the United States since 2010.

The logistics industry has been a success story for the Inland Empire’s economic recovery following the recession caused by the coronavirus pandemic. From May 2020 to December 2021, the industry created a total of 69,000 new jobs, accounting for more than a quarter of all jobs created in the region. Among the ten most populous Metropolitan Statistical Areas (MSAs) in California, the Inland Empire experienced the largest increase in employment during that period.

Despite these impressive achievements, the industry is now facing significant challenges. Since December 2021, there has been a decline of over 20,000 jobs (7.1%) in the logistics sector in the Inland Empire. This decline is concerning and puzzling, as it is unique to the Inland Empire. In contrast, the adjacent coastal counties (Los Angeles County, Orange County) and the United States as a whole have seen growth in the logistics industry during the same period.

The cause of this decline could be either cyclical, related to the national business cycle, or structural, reflecting a dramatic change in the transportation of goods. Another possibility is the impact of automation, which often leads to labor-saving techniques and the replacement of workers with machines.

Let’s consider these three points in more detail. The demand for logistics services depends on economic activity and the volume of goods that need to be shipped. The spatial organization of production and shipping locations also plays a role. If the production or import of goods decreases, the demand for logistics services decreases as well. Additionally, the shift towards online shopping, where services are purchased instead of physical goods, also affects the need for logistics services. Finally, improvements in efficiency within the logistics industry can lead to a decrease in the number of logistics jobs.

First, let’s look at container traffic at the ports. Imports have declined by about 10% since the decline in logistics jobs began. However, the substantial growth in logistics jobs occurred while imports were stable. Even if imports were a factor in the recent decline, whatever drove the previous growth must have also stopped growing at the same time. The possibility of companies diverting imported goods to other harbors due to threats of a railway strike or port strikes may provide some explanation.

Next, let’s consider retail sales. According to U.S. data, retail sales have increased by more than 5% since the decline in logistics employment in the Inland Empire. Moreover, the share of online retail sales has grown by approximately 6%. Therefore, an increase in logistics employment would be expected.

Another possibility is that logistics jobs in the Inland Empire have shifted to neighboring counties. While logistics jobs decreased in the Inland Empire, they were still increasing in nearby counties. However, considering the relative size of the industry in those counties compared to the Inland Empire, this does not seem to explain a significant portion of the decline, if any.

The manufacturing sector does not provide a clear indication either, as there has been no significant change in employment within the industry since the decline in logistics jobs began. This leaves us with automation as a potential explanation.

It is highly unlikely that the introduction of ChatGPT led to a massive wave of automation in the Inland Empire. It is more likely that this technology has impacted commuters, who are not included in the Inland Empire establishment survey employment numbers. While some logistics companies have reported implementing efficiency-improving organizational changes, the process of technological implementation takes time, including planning, setting up machines and robots, and training them. Furthermore, such automation would also need to be prevalent in neighboring counties, which is not evident in the data.

In conclusion, while lower imports may have contributed to the recent slowdown in the logistics industry, the increase in online retail sales should have offset this. Therefore, we are left with a perplexing mystery, but one that could potentially be explained by labor hoarding. In a tight job market, logistics companies may have hired additional staff in anticipation of continued rapid expansion. When this expansion did not materialize, employers adjusted their hiring practices, leading to a decrease in labor demand. Combined with increased uncertainty about a potential recession and the implementation of organizational efficiencies, there was less need for labor hoarding, resulting in the recent decline. This adjustment to new economic realities may ultimately be a positive development. Further analysis will provide a better understanding of whether this conjecture holds true as more data becomes available.

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