U.S. Ports Update: Investing in the future

Last month’s Congressional passage of the $1.1 trillion Consolidated Appropriation Act of 2014 ensures that several high-priority programs crucial to the safe, efficient, and competitive operation of U.S. seaports are included in the appropriations mix. For many trade analysts, the timing for such a move couldn’t be better.

“U.S. imports were up 3.7 percent by volume in 2013, which is the largest year-over-year increase seen since 2010,” says Paul Rasmussen, CEO of leading trade intelligence resource Zepol Corporation. “U.S. trade has continued to expand during the recent economic recovery and we expect this to continue as we move into 2014.”

Rosalyn Wilson, senior business analyst with Delcan Corporation, agrees with Rasmussen, noting that a more balanced outbound picture should emerge next year as well. “China’s economy, along with the economies of other Asian trading partners, has been picking up steam lately, which should translate into higher exports to those countries,” she says. “U.S. ports will need to accommodate carriers with the outbound move when this happens.”

Meanwhile across the nation, ports will receive funding for Transportation Infrastructure Generating Economic Recovery (TIGER) discretionary grants, U.S. Corps of Engineers’ navigation-related programs, FEMA State and Local Programs grants that include dedicated funds for port security, EPA’s Diesel Emissions Reduction Act (DERA) grants, and funding for several subprograms that aid navigation.

“In this era of fiscal restraint and belt-tightening, we’re pleased to see that a number of the priorities of America’s ports were important enough to lawmakers that they included them throughout this government-wide spending bill,” says Kurt Nagle, American Association of Port Authorities (AAPA) president and CEO. “The funding provided to port-related infrastructure programs is recognition that lawmakers appreciate that seaports are vital to creating and sustaining jobs, economic growth, and enhancing U.S. international competitiveness.”

Shipper agenda will change
Leading industry analysts insist that as the ports get their houses in order, shippers will be reexamining their sourcing and distribution strategies with total landed cost in mind.

“Port executives know that direct investment in infrastructure makes them more attractive to beneficial cargo owners,” says Robert L. Phillips, Jr., first vice president at real estate advisory firm Cushman and Wakefield. “And that makes them more attractive to ocean cargo carriers as well.”

According to Phillips, The Port of Virginia is well positioned for growth, noting that it expanded its containerized cargo business by 5 percent this past year. “The Richmond/Greensboro inland triangle is a solid industrial base that can generate exports,” he says. “Once the Panama Canal expansion is completed in 2015, Virginia can bring vessels in and send them out fully loaded.”

At the same time, the South Carolina Ports Authority (SCPA), which owns and operates Charleston and Georgetown, has seen volume increases across all business segments in 2013—a year marked by the successful opening of the inland port and significant progress of both the construction of the Navy Base container terminal and the Post-45 harbor deepening project.

“We typically see a modest first quarter of the calendar year followed by a stronger second quarter, and we expect 2014 to follow a similar trend,” says Jim Newsome, president and CEO of SCPA. “Much of our growth from April to June will be affected by developments in export business and the implementation of the mega-alliance deployments by ocean carriers…if and when approved.”

Steve Medwin, managing director and head of brokerage at real estate services firm Jones Lang LaSalle in Miami, says that shippers there are mitigating risk by using by several Florida ports. “Miami is the closest U.S. gateway to the Panama Canal,” he says, “but shippers are hedging their bets by sourcing some of their goods through the Suez to the Port of Jacksonville where inland rail connections are well developed.”

Where’s the real estate?
Prime real estate near ports for warehousing and distribution center development may soon become even scarcer, say other Cushman and Wakefield analysts.

“Growing demand for goods from consumers and businesses is propelling the industrial sector into its most positive state since before the Great Recession,” notes John Morris, Cushman and Wakefield’s leader of industrial services for the Americas. “Manufacturing production and shipments are increasing at a healthy pace, as are imports and exports. Real estate demand has responded accordingly, resulting in a very good year for our industry.”

In its strongest performance since 2005, the U.S. industrial real estate market saw 328.5 million square feet in leasing activity and 117.2 million square feet of positive absorption in 2013. Industrial leasing activity was up 6.2 percent year over year, and analysts say that this reflects a more robust future for the nation’s leading container seaports.

“The Port of Houston, for example, is growing by leaps and bounds,” observes B. Kelley Parker, III, executive vice president at Cushman of Wakefield in Texas. “Petrochemical exports are continuing to ramp up, and inbound calls serving the mega-retailers are higher than ever.”
Colliers International, another leader in global real estate services, has recently defined Houston “as the most irreplaceable” ocean cargo gateway. While the “irreplaceable” designation was bestowed last year based on the vital nature of the port’s physical aspects, the latest award recognizes the Port of Houston Authority’s operational excellence. The report says that the port is not only “vital to U.S. energy interests, it’s also highly profitable.”

Gulf port neighbors Corpus Christi and Galveston are also contributing to this surge say analysts. “Corpus Christi has been targeted as a key ocean entry for plant machinery and container cargo destined for South Texas as well as to important industrial conglomerates of Northern Mexico,” notes Parker. “Galveston provides direct access to the open Gulf of Mexico, and has cargo facilities less than 10 miles from the open sea.”

Regional collaboration
Leveraging the infrastructure of regional ports has been a dream for some time, but political barriers to such an arrangement have been difficult to overcome—until now.

Just last month, the ports of Seattle and Tacoma filed a discussion agreement with the Federal Maritime Commission that will allow them, under federal regulations, to gather and share information to identify potential options for responding to “unprecedented” industry pressures.

“While the ports of Tacoma and Seattle have many advantages, such as naturally deep water and strong highway and rail connections to the second largest concentration of warehouses and distribution centers on the West Coast, we must use our combined marketing strengths in the face of continued soft demand and increasing competition,” says Port of Seattle CEO Tay Yoshitani.

Meanwhile further down the coast, the Port of Portland is using its economies of scale to specialize as a niche gateway for auto exports.
Ford’s slogan is “Go Further,” which is exactly what an estimated 30,000 Ford vehicles will do this year when they’re exported through Portland to China for the first time. Following inspections by Chinese government auditors, Auto Warehousing Company’s (AWC) facility at Terminal 6 received full approval, meaning that export shipments can now begin through Portland. The country recently opened its doors to a variety of new Ford cars and trucks coming from several plants in the U.S., Canada, and Mexico.

“We’re proud to be serving as the primary gateway for exports of new Fords to China and furthering our mission to provide access to international markets,” says Bill Wyatt, executive director for the Port of Portland. “This fulfills a national role for Ford vehicles manufactured in plants throughout North America.”

Finally, no mention of West Coast shipping can end without a cursory look at Southern California, where industrial leasing activity was up 6.2 percent year over year. According to Cushman and Wakefield analysts, the Greater Los Angeles region continued to lead the nation with 35.8 million square feet in activity.

This is welcome news for the Port of Long Beach, which expects big things in 2014. Cargo volumes here rose 11.3 percent last year to 6,730,573 units—making 2013 the port’s third-busiest year ever behind only 2006 and 2007.

In 2013, imports were up 12.8 percent to 3,455,323 twenty-foot equivalent units (TEU), exports rose 10.7 percent to 1,704,932 TEU, and empties were up 8.8 percent to 1,570,318 TEU. Shipping container volume rose in part because major shipping lines—CMA CGM and Mediterranean Shipping Co.—started to increase their services to Long Beach at the end of 2012.

“Our economy is getting better, and the port is providing a shot in the arm for Long Beach and all of Southern California,” says Al Moro, acting executive director of the Port of Long Beach.

That upturn, along with the much needed monies for enhanced infrastructure, represents not only a “shot in the arm” for U.S. ports in 2014—but also a kick in the pants.