A $5.25 billion expansion of the Panama Canal will fundamentally change global shipping patterns, sending more traffic to ports on the U.S. East Coast as the ports gear up with massive capital investment plans, according to a new report by
The canal upgrade, to be completed in five years, and the resulting changes to shipping patterns could shake the West Coast’s traditional dominance in container traffic and port growth.
Currently, property fundamentals around ports have stagnated because of the nation’s economic slowdown, say the authors of the study on ports, airports and global infrastructure. Weak global trade flows have destabilized port growth and the supply of industrial property surrounding the transportation hubs has outpaced demand in many markets.
Seaport container traffic dropped by 5.8% in 2008 over the previous year. At the same time, the supply of warehouse and distribution space in top seaport markets has risen by an average annual rate of 1.5%.
“There’s no question that with the drop-off in container traffic coming in, those warehouse properties that service the ports and are involved in the supply chain of moving goods to the end customer are suffering,” says Craig Meyer, managing director and head of industrial
That’s the case across the country in just about every warehouse market, Meyer notes. It’s particularly acute in markets that are dependent on the inflow of container traffic.
The Inland Empire in
But with the recent global economic slowdown, commercial real estate near the Long Beach port has experienced an increased vacancy rate. In 2008, container volume into the port decreased by 13.2% from 2007 levels, according to the port study. Net absorption in 2008 was negative 1.2 million sq. ft., a pattern that continued into the first quarter of 2009 with negative absorption of 700,000 sq. ft.
Container traffic into Long Beach was 6.4 million 20 ft. equivalent units (TEUs), the report shows, and 7.8 million TEUs into the port of Los Angeles. Shipping containers are counted in 20 foot lengths.
Planning for growth
Even though property fundamentals near many ports have recently suffered, cities and port authorities need to make infrastructure
Expansion of the Panama Canal will have a significant impact on U.S. ports, because it will allow larger ships to pass through its locks. Goods will be able to reach the East Coast more economically.
The increased traffic to Eastern ports is expected to spur competition among Atlantic ports for more container shipments. The ports of New Jersey, Savannah and Virginia are expected to snare the largest market share of increased shipments from the Panama Canal, because of their deep-draft channels and intermodal networks.
Their rise is anticipated to shake the dominance of West Coast ports. As trade increases, the West Coast’s share of cargo traffic is likely to decline.
“We anticipate that up to 25% of the West Coast’s current cargo base could be transferred to the East and Gulf Coasts in decades to come,” said John Carver, executive vice president of Jones Lang LaSalle.