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Industry Sea Changes Affecting U.S. Shipping Gateways

Damage from recent hurricanes could have a ripple effect across U.S. seaports, underscoring the rising demand for more sophisticated industrial real estate and infrastructure.

Q4 2017
When Hurricane Harvey swept through Houston, the short-term effect in and around Port Houston was that cargo was rerouted, trucks were diverted, and railroad connections disrupted. The long-term impact of both hurricanes Harvey and Irma on U.S. seaports remains to be seen, but the disruptions already evident help underscore the rising activity in vulnerable seaport communities — as well as the other gateways they work with in the ongoing war for near-instant delivery.

Demand for industrial real estate across the U.S. is stronger than ever, with no small thanks owed to the newly expanded Panama Canal. It’s been just over a year since the major maritime corridor completed its $5 billion expansion project, but its effects are already clear, particularly around East and Gulf Coast ports. The market was more than ready for a new, more efficient way to connect people to goods.

Larger ships and greater volumes are making sophisticated shelf space a hot commodity in all 14 of the port markets tracked in JLL’s 2017 Seaport Outlook, and developers are doing their part to answer the call for more modern warehouse and logistics space. More than 25 million square feet of industrial real estate is being built in top U.S. ports as we speak, with most (65 percent) of that construction centered around the East and Gulf coasts.

Five Trends Influencing Seaport Real Estate Strategy
1. East and Gulf Coast ports are making waves.
The expanded Panama Canal, increased trade with Asia, and importers’ pursuit of a four-corner strategy throughout the coasts are creating major momentum along the eastern and southern coasts. Recently, mid-Atlantic and southeastern seaports have experienced a 20 percent uptick in trade volumes compared to just 5 percent growth on the West Coast. All this cargo means good space is getting harder to find. For example, over the last two years alone, East Coast ports including New York/New Jersey and Jacksonville have seen the biggest drop in vacancy rates.

The expanded Panama Canal, increased trade with Asia, and importers’ pursuit of a four-corner strategy throughout the coasts are creating major momentum along the eastern and southern coasts. 2. M&A is changing the players and the map, adding uncertainty.
The four long-standing shipping alliances have become a trio, with now just three alliances masterminding 90 percent of the world’s trade routes. This shift could disrupt control and travel routes in unseen ways. And as carriers work out new ways to stay competitive and reduce costs, industrial real estate tenants may find they need to become more agile in keeping up with industry change.

3. Larger ships plus fewer port calls? Expect more competition.
More ocean carriers are bringing larger vessels, across all cargo types, to U.S. ports now that the Panama Canal has expanded. Meanwhile, port leaders have also been expanding their own capacity, deploying new cranes, dredging channels, deepening berths, and removing air draft restrictions for some time. With more ports now able to accommodate their massive cargo loads, shipping liners could decide to cut the number of port calls they make, which will only intensify fierce regional port competition.

4. First mile strategy is spurring technology advances — but there’s a catch.

Efficient e-commerce is utterly dependent on efficient trucking, and the trucking industry is responding by ramping up technology strategy, such as incorporating autonomous vehicles into their fleets. But technology can’t eliminate congestion on the roads, especially in and around crowded ports. A complex, multi-year infrastructure overhaul is necessary to address these growing snarls, but that would mean slowing down delivery times and driving up operating costs in the meantime.

5. The rail industry is becoming a viable alternative to trucking.
Many shippers have been finding rail is a less expensive and more sustainable option than trucking, with intermodal loads now accounting for more than half of railcar volumes — 10 percent more than it was 10 years ago. And now with road congestion issues on the rise, rail is poised to become even more attractive, as long as it continues to become more nimble.

Leaders at each gateway, and all the stops in between, will experience these industry trends in different ways. But, much like weathering a hurricane or other major disruption, one key way forward will be to lay out a real estate strategy that is resilient enough to sustain long-term growth, while also being nimble enough to handle imminent change.
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