U.S. Ports & the Panama Canal: Who will reap the benefits?

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Steve Grable, SVP, Industrial Services, JLL Atlanta

Steve Grable, SVP, Industrial Services, JLL Atlanta

by Steve Grable, SVP, Industrial Services, JLL Atlanta

The United States is an import-export powerhouse. But as goods flow through our largest ports and the Panama Canal nears completion, fundamental changes are driving multimodal and supply chain strategies and forcing logistics/operations changes:

  • The global shipping industry is consolidating and creating mega-alliances. Its fewer mega-ships (New Panamax vessels, with capacities of up to 14,500 TEU) create economies of scale; drive transportation costs lower; make less frequent U.S. port calls; and increase the all-water advantage to the East Coast—especially as international trade recovers.
  • Given the projected port congestion as a result of larger ships, well-designed port logistics and infrastructure efficiency will be paramount to successful supply chains.
  • The most efficient ports and their strategically collocated industrial corridors—with benefits like connectivity to inland ports and cargo off-load efficiency—will command higher premiums and drive more throughput.

Who Will Reap the Savings Benefits?

What do these new and projected changes in ship size and port efficiency mean for Atlanta, Southeastern seaports, and surrounding industrial property as the Panama Canal nears completion?  And who will grab the largest share of the winnings: ocean carriers or shippers?

  • While shippers will not reap all future economic benefits, the competitive fundamentals of the maritime industry will continue to give them leverage in negotiating rate structures.  The current preference for slow steaming that saves on fuel costs is a case in point.  Since 2008 with the full advent of the recession, shippers have focused on lower costs with longer transit times and not speedy delivery of cargo. Cost savings from slow steaming have benefited shippers and the carriers alike.
  • Construction of larger vessels is a long-term strategy used by global ocean carriers to lower their costs—and effort already well underway throughout the world, with some non-U.S.-bound ships carrying up to 18,000 TEUs. Once the Panama Canal expansion is complete, the same strategy by carriers will likely be carried out there as well.
  • The promise of the new mega-carrier alliances is greater control over routes and vessel usage to lower expenses and increase the rates paid by shippers.

Many intriguing questions inspiring debate continue to swirl around the Panama Canal expansion—from the actual cost of moving ships through the Panama Canal to the winners and losers in the port wars.  Within another year or two the answers will finally begin to roll in.

For more information on the trends impacting today’s shipping headlines and tomorrow’s industrial real estate markets, download JLL’s June 2014 Industrial Impact Series white paper, “Bigger is better and slow & steady,” view Steve Grable’s LinkedIn profile or email him at steve.grable@am.jll.com.

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