It is no secret that the global shipping industry has advanced profoundly in the last 15 years. Like a modern-day equivalent of the Industrial Revolution, globalization and technology have driven new and more sophisticated supply-chain operations and have spurred the seismic shift in how goods are transported across the planet.
Fueled by years of growth in import and export traffic, many gateway markets in the United States expanded their logistics space at a frenetic pace. Once cargo volumes collapsed in 2007 and 2008, industrial property fundamentals in gateway real estate markets quickly deteriorated. Now, despite the global economic downturn, many U.S. ports continue to invest billions of dollars to position themselves for future strategic growth and undertake massive capital investment plans to remain competitive once trade rebounds.
The significant $5.25 billion expansion of the Panama Canal will ultimately alter global shipping patterns, allowing larger ships to pass through its locks.
The latest piece of its extension is a $687 million private-sector project that will be among the largest new maritime infrastructure developments in Panama. The new Panama Canal Colon Port is located three kilometers (1.86 miles) from the Atlantic entrance of the canal and spans 51 hectares (126.02 acres), with 22 hectares (54.36 acres) of the terminal to be developed on reclaimed land.
The new port is among the first to be designed specifically to complement the Panama Canal expansion project currently underway and is targeted to open in 2014. It is expected to accommodate a through-put capacity of 1 million twenty-foot equivalent units (TEUs) in its initial phase, and 1.6 million TEUs upon completion in 2015.
With larger cargo shipments on the move through Panama, goods can reach the U.S. East Coast both easily and economically. This will continue to spark competition among emerging ports on the East Coast as they vie for a permanent share of all-water transpacific container traffic. East Coast ports with deep-draft channels and sufficient intermodal networks such as the Port of New York/New Jersey, Savannah (Georgia), and Virginia are each poised to capture additional market share and threaten the historical dominance of the West Coast ports. But we do not expect West Coast ports to slide into a long-term decline; in fact, they should bounce back in line with economic recovery. There will likely be a dip, however, in cargo traffic even as Asian economies exit from the global recession and U.S. import trade begins to pick up.
For the East Coast ports, we anticipate that cargo volumes will increase as fuel prices climb and eastbound intermodal capacity constraints push rates higher; they will see their market share continue to grow over the next 10 to 20 years. Although West Coast ports have experienced the most severe declines in cargo volumes, they have not fallen victim to high vacancy rates owing to the overdevelopment seen in other U.S. ports across the country. The Los Angeles/Long Beach (California) market and its population of approximately 24 million people have remained relatively buoyant compared to national trends throughout this down cycle, but in markets such as Houston (Texas), Savannah, and Jacksonville (Florida), supply quickly surpassed demand.
In parallel with a recovery in consumer spending, the return of import cargo flows and the Panama Canal development coming to fruition, we expect a rebound in industrial property indicators to begin in 2011 and port markets to regain their importance once again as major regional economic drivers.