This is an interesting time for U.S. seaports. Some distribution center and warehouse occupancy levels have reached historic highs. On the other hand, expensive construction and labor costs keep new development sparse in other seaport industrial real estate markets.
The Seaports Outlook Report and Index from JLL is the result of an examination of the major container seaports in North America and their surrounding real estate. According to the report, occupancy levels by total square feet have surpassed that of 2007, which was the high-point of the last real estate boom.
“We see unprecedented industrial real estate growth around our nation’s seaports,” says Mark Levy, managing director and lead of JLL’s Ports, Airports and Global Infrastructure (PAGI) practice group. “Industrial real estate occupancy has grown by 17 million square feet in the West Coast seaport markets between 2007 and 2014, and rose 15 million square feet between 2013 and 2014 alone. The East Coast and Gulf of Mexico seaports had equally impressive gains and increased by 36.9 million square feet between 2007 and 2014.”
The 15 seaports ranked in JLL’s report received a total of 43.4 million twenty-foot equivalent units (TEU) containers in 2014, which is an 8.5 percent increase from 2007. Of particular note, West Coast cargo volume decreased by 2.2 percent over this time period, while East Coast and Gulf of Mexico cargo volume was up by 25.3 percent. It certainly seems that supply chain disruptions on the West Coast last winter and a sluggish return led to the decreased overall cargo volumes. JLL analysts believe many companies consequently re-evaluated their import strategies, which partly helps explain why TEU volumes are rising faster for Gulf and Eastern Seaboard ports.
“Cost, service and risk are the three perennial drivers for supply chain executives as they develop their logistics strategy,” said Levy. “As a result, the East Coast/Gulf seaports are gaining favor among industry veterans because they mitigate some risk, provide access to major population centers and connect with the optimal inland transportation mode: rail.”
JLL’s Seaports Index ranks U.S. seaports based on terminal operating scores (their proximity to population density, transportation networks and recent infrastructure improvements) and the port area market score (industrial space availability and suitability).
For the fourth consecutive year, the Port of New York/New Jersey topped the index. Its 2014 TEU volume was up 5.6 percent from 2013—and 40.9 percent from 2007—to outpace West Coast rivals Long Beach (ranked second) and Los Angeles (ranked third).
Nonetheless, the ports of Long Beach and Los Angeles are the primary gateway into the U.S., and are expected to remain so based on their infrastructure, automation enhancements and strong rail connectivity to the rest of the nation. Occupancy on the West Coast is also expected to remain strong based on its established markets that are home to notable consumer bases.
Perhaps most notable is that the Port of Savannah received the number four rank. Savannah had TEU growth of 28.5 percent from 2007 to 2014 and industrial development has been pronounced in recent years. What’s critical is that Savannah’s distribution center real estate market serves as a conduit to inland ports in Atlanta, where goods connect with major East Coast and Midwest rail lines. Additionally, the port’s location and proximity to Atlanta mean it will only continue to thrive once more ships begin to arrive after the new, wider Panama Canal opens next year, according to the index.
JLL analysts also expect Charleston (ranked 9th) and Virginia (10th) to see increased cargo traffic, given their rail connectivity to major markets. Both ports – like Savannah – also feature on-dock, double-stacked rail capabilities. These are strong selling points since intermodal rail provides logistics executives with a cheaper alternative to long haul trucking.
It remains to be seen what impact the expanded Panama Canal will have on Eastern U.S. seaport business. It will, however, be interesting to see how supply chains change.