U.S. Gulf Coast ports are expected to benefit more than East Coast ports in the near term, and to the detriment of West Coast ports, according to a recent report from JLL.
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The refining and processing of oil and gas into chemicals, plastics and other products has helped boost port volumes and industrial real estate demand along the Gulf Coast.
Chicago-based industrial real estate services and investment management firm JLL pointed out how U.S. West Coast ports are losing share to East and Gulf Coast ports in its JLL Ports Airports and Global Infrastructure (PAGI) 2017 Seaport report.
JLL said in the report, which analyzed 14 port gateways in the U.S. and Canada, that it expects the expanded Panama Canal will benefit the Gulf Coast ports in the near term more than the East Coast ports, to the detriment of West Coast ports.
The decline in oil prices has had a reverse effect on the Gulf Coast, fueling a boom in the petrochemical sector. “In recent years, the refining and processing of oil and gas into chemicals, plastics and other products has helped increase port volumes and industrial real estate demand along the Gulf Coast,” JLL said.
Even before the completion of the Panama Canal expansion in June 2016, West Coast ports had already been losing share to East and Gulf coast ports.
More industrial real estate is currently being constructed near U.S. East and Gulf Coast ports than near West Coast ports, despite the ports of Los Angeles, Long Beach and Seattle-Tacoma have the highest occupancy rates as compared to other ports.
However, as of 2016, West Coast ports were still handling 53.8 percent of total U.S. TEUs.
JLL’s report also touched on other supply chain trends worth keeping an eye on, including mergers and alliances. In the coming months, with multiple mergers and acquisitions occurring between ocean carriers, the control that carrier alliances – including the 2M Alliance, OCEAN Alliance and “THE” Alliance – have will shift, and vessel sharing will reorganize travel routes, JLL explained.
Meanwhile, as ocean carriers continue to deploy larger vessels, they are likely to reduce the number of port calls.
In addition, as larger vessels call at U.S. ports, more funds are needed for port infrastructure to move cargo profitably, JLL said. Although U.S. ports have been upgrading navigation channels and waterside infrastructure to accommodate these larger ships, inland road and rail infrastructure capacity has not increased in tandem, resulting in congestion, Walter Kemmsies, managing Director, economist and chief strategist for JLL’s U.S. ports, airports and Global Infrastructure Group pointed out.
“This may not be improved anytime soon,” he said. “Therefore, it makes sense to conduct more logistics operations closer to ports.”
Meanwhile, the rail industry is expected to grow and see revenues rise, and since rail is seen as a less expensive option than trucking, shippers look to rail to carry large amounts of cargo quickly, JLL said.
However, due to large cargo volumes entering the U.S. via mega-ships, rail infrastructure must be able to operate efficiently, JLL said. Luckily, ports are investing in infrastructure improvements, with the Port of Baltimore hoping to raise the Howard Street Tunnel to allow double-stacked trains to pass through.
JLL also pointed out how labor shortage in the trucking industry remains a concern, as the majority of drivers are nearing retirement, and the sector is seeing a limited number of new entrants. However, the trucking industry is seeing a shift to utilizing technology, such as automation, to make the movement and tracking of cargo more efficient.
Looking ahead, although the expanded Panama Canal opened in June 2016, its fill capacity will not be realized in the near term because some East Coast ports are not prepared to receive the neo-Panamax vessels, according to Kemmsies.
In regards to NAFTA, JLL believes that if renegotiations lead to a reduction of trade between the U.S. and Mexico, particularly of manufactured products, the largest impact would likely be lower truck and rail volumes, since the majority of trade between the two countries is land-based.