Importers switching from 'just-in-time' to 'just-in-case'. (Up Front).

A decade after the just-in-time system became entrenched in the inventory operations of retailers and manufacturers, many are reverting to an old-fashioned alternative: leasing lots of space to store products for a rainy day.

Reasons for the change to what one transport veteran calls the "just-in-case" system are numerous. Labor unrest at West Coast ports, massive congestion on access roads to the docks and other disruptions in the logistics chain have importers--retailers in particularly--looking to ways to ensure their goods reach their destination on time.

"They are hedging their bets," said Guy Fox, executive vice president for Redondo Beach-based Stonepath Logistics Inc. "They are building inventory where they didn't do that before."

The trend began quietly about a year ago, when the unionized dockworkers and the steamship lines were locked in a bitter contract dispute. It became more evident this spring.

In the Inland Empire, the West Coast's warehouse hub, 10.5 million square feet of new space has been completed or under construction so far this year, compared with 11 million square feet of completed space in all of 2002, according to Grubh & Ellis Co.

Inland Empire brokers project that 14 million square feet of new space will be complete by the end of the year.

Los Angeles County is also poised for an increase, with 1.4 million square feet of new space coming onto the market so far this year. In all of last year, 2.4 million square feet was completed in the county.

"The percentage of retail users in the warehouse/distribution market has increased in the last six months," said Mary Sullivan, client service manager for Grubb & Ellis.

Among them is the Holmes Group, a Milford, Mass.-based kitchen and home appliance maker, which signed a lease in March for 828,000 square feet of warehouse space in Fontana.

With big box retailers demanding their products based on seasonal conditions, Holmes can't afford any logistics hassles.

"The customer can't afford to have stock not on the shelves," said David Reilly, Holmes' senior vice president for supply chain. "The plan is to be able to service the customers' requirements on maintaining their in-stock levels."

Insurance policy

The additional overhead costs are small compared with missing deliveries during the peak shipping season of August through mid-October.

"There's no question they are trying to stay ahead of the curve of consumer demands," said Chuck Belden, senior director of industrial development for Cushman & Wakefield of California Inc. "It's death for these guys not to have parts on the shelves."

Levitz Furniture Inc. of Woodbury, N.J., is looking for 400,000 to 500,000 square feet of warehouse/distribution space in the Ontario area to store home furnishings and accessories that may be shipped directly to the customer within 24 to 48 hours under a new business plan.

Every store used to have its own inventory, which created a less-than-cost efficient duplication of inventory.

"This will give them inventory control so they can guarantee delivery," said Steve Scott, principle of Lee & Associates, which is brokering deal for Levitz. "This is critical to their business."

A 10-day shutdown of all West Coast ports last fall due to a labor dispute revealed the Achilles' heel of the just-in-time system, designed to deliver retail products and manufacturing parts on an as-needed basis.

When the L.A. and Long Beach ports finally reopened, it took months to clear away the container backlog at marine terminals, and the Long Beach (710) Freeway continues to resemble a parking lot during the rush hour.

Disruptions in the logistics chain are particularly time-consuming and harmful to importers who have for the past five years been shifting more of their manufacturing work to China, where labor costs are cheaper, from Mexico.

Moving goods from Mexico to Chicago takes three or four days by truck, while a trip from China to Chicago by ship and rail or trip takes 18 to 20 days.

"The manufacturing operations have extended the transit time in the supply chain," said Jon DeCesare, a principal of WCL Consulting, a Long Beach logistics management consulting firm. "You have to store your inventory closer to the market to respond to fluctuations in consumer demands."

Brokers are also attributing some of the construction spike to an increase in demand for Class-A space, which comes with 30-foot-high ceilings, nicer yards and fences surrounding the parcel.

For an importer who wants to store and protect merchandise, that's an attractive alternative to 10- to 20-year-old Class-B space with 18- to 20-foot-high ceilings and few or no amenities.

"It really has become a tenants' market," said J.C. Casillas, research manager for Grubb & Ellis. "If you're a logistics firm, you're going to want more bang for the buck. The older stuff is less functional."