Today’s Guest Blog Post is Part 1 of 2 from Ben Johnson, Vice President at Cole Capital.
Industrial real estate owners, developers and brokers are in a buoyant mood these days, a fact reiterated by a record crowd of some 300 industry pros who attended the recent two-day NAIOP I.con conference in Long Beach, Calif. This year’s conference attracted some of industrial real estate’s heaviest hitters, including Jack Fraker, vice chairman and managing director of investment properties at CB Richard Ellis, Jim Dieter, executive vice president /industrial operations/brokerage at Cushman & Wakefield and Craig Meyer, managing director and head of industrial and logistics services at Jones Lang LaSalle. The event kicked off with a bang, addressing what has become the most popular topic expected to impact the industrial market in the years ahead: the widening of the Panama Canal, which is scheduled for completion on the canal’s 100th anniversary in 2014.
The wider canal will accommodate larger ships, and many pundits believe that will reroute more trade from West Coast ports directly to their East Coast brethren. In advance of the canal’s opening, U.S. logistics and trading patterns have already begun to shift, and West Coast, Gulf Coast and East Coast ports are in a pitched battle for the business ahead. Curtis Spencer, president of logistics consulting firm IMS Worldwide, chaired a panel including representatives from three of the country’s largest ports. Spencer noted that recent trends are tending to throw cold water on earlier predictions of the Panama Canal’s influence as a true “game changer” for U.S. logistics. “It was cheaper going by water (Asian goods moving directly to the East Coast through the Panama Canal) before the recession, but that’s not the case anymore,” said Spencer.
There are several reasons for the change, he noted, including reduced shipping speeds to save fuel (so-called “slow steaming”), rising fuel costs, environmental concerns and time to market versus costs. The real battleground, according to Spencer, will be in the U.S. heartland, where retailers coordinate the increasingly complex handoff of goods arriving at logistics centers on their way to consumers.
Jim MacLellan, director of marketing at the Port of Los Angeles, said the port has clawed back much of its trade losses during the recent recession, and is concerned about higher fees for cargo moving through the Panama Canal and the impact of slow steaming. “The shift in trade to the East Coast and Gulf Coast ports will be gradual,” said MacLellan. One of the more interesting/unusual factoids coming from the conference was the notion that pirates could tip the balance of world trade, at least in the short term. The spate of Somali pirates attacking ships coming through the Suez Canal (the primary shipping route for cargo moving from Asia/Singapore west to the East Coast of the U.S.) has “jacked up” insurance rates for shippers over the last year, said MacLellan. As a result, many Asian manufacturers are once again favoring shipments across the Pacific to the Western U.S.
However, there are at least two sides to every argument.
“I feel like I have to defend myself here,” said Kevin Burwell, director of the Virginia Port Authority. “We should call this the bring Curtis to Jesus meeting,” referring to Spencer’s belief that East Coast ports will not benefit as much from the Panama Canal widening as originally expected. Burwell believes the Port of Norfolk, for example, could see half a million or more TEUs (twenty-foot equivalent units, a standard measure of cargo) from the Panama Canal after 2014. “We’re going to be a fortunate recipient of the canal’s widening, but it won’t happen overnight,” said Burwell. Meanwhile, in the Gulf of Mexico, the Port of Houston is “right in the middle,” said John Moseley, general manager of trade development at the Port of Houston Authority. At the end of the day, industrial real estate location is about cost and proximity to the consumer, and the Texas economy is growing at a record clip,” said Moseley.
Note: Stay tuned for part two of Ben’s post with I.con coverage tomorrow
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