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From Site Selection magazine, March 2012

Positioning for the Future:
The Panama Canal Effect

Gearing up for a widened canal prompts southern
U.S. ports to undergo major expansions.

SVP, Director of Global Logistics and Supply Chains, Grubb & Ellis
Tim S. Feemster is the SVP, Director of Global Logistics and Supply Chain for Grubb & Ellis.

iming is crucial in logistics. For logistics centers and inland ports, timing and location is even more important.

The risks and uncertainties in the global economic and financial marketplace can make site selection decisions more like an exercise in reading the tea leaves correctly. Not exactly an exact art.

Here's a case in point from a few years back that has ramifications and lessons for today.

In 2006 and 2007 the Trans-Pacific container trade was booming, plans for a major Panama Canal expansion were still pretty much on the drawing board and major port and rail expansion projects on Canada's west coast were just getting under way. Burgeoning all-water services from Asia to the U.S. East Coast were viewed mostly as a mild irritant and a distant threat. Besides, business was booming! There was plenty to go around for all comers.

During this period the Port of Tacoma was setting records for its intermodal volumes to Chicago and the East Coast. The port was on a roll and in the middle of a major terminal expansion program — one being a massive new container terminal for NYK that would be built from the ground up and scheduled to open this year. The port also purchased a 745-acre tract, known as the Maytown property, in a rural area about 33 miles from the port. The plan was to develop the property as a major rail logistics center to relieve train congestion at the port.

Those plans were extinguished by the subprime crisis and subsequent economic collapse. The NYK terminal project is a fading memory and the Maytown center, which was strongly opposed by local residents, was abandoned. The port sold the property in 2010 to a gravel mining company at a loss of $10 million.

Today, whatever trade and economic recovery that is occurring is fragile at best. So the question is: Will the $5.25-billion Panama Canal expansion save the day? When completed in 2014, the project will double the canal's capacity and allow most of today's larger "post-Panamax" container ships to traverse it.

The answer to the Panama Canal question is mixed, depending on which coast is involved. For struggling facilities on the West Coast the all-water threat to volumes and market share is now a clear and present danger.

For ports and logistics centers on the East Coast the possibilities are more intriguing, but also something of a double-edged sword. That's because ports such as Savannah, Miami, Charleston and Norfolk (which already has a 50-foot draft) are in a difficult position. They want to prepare for a potential surge in volumes through the Canal in 2014, but there's really no way to know in 2012 what the global and U.S. economy and global trade will be like, or how carriers will arrange their all-water strings. If there's a boom (or boomlet) and they are prepared they could prosper; if they are not prepared they'll lose out. If there is not much of a commercial uptick from the Canal — or carriers do not go all-out for all-water or the economy collapses again — then new facilities could turn into underutilized financial albatrosses.

The West Coast, specifically the Los Angeles area, still has a huge infrastructure advantage over every other U.S. market. Not only is the area supported by the two largest container ports in the U.S., our research indicates that the infrastructure of logistics buildings (as classified A, B, & C by Grubb & Ellis) also significantly favors the area. The Southern California region, for example, has some 955 logistics-classified buildings of more than 200,000 square feet in size totaling over 580 million square feet. Meanwhile Norfolk, Va.; Savannah, Ga. and Charleston, S.C., have a combined 117 logistics buildings in this same size range with a total of about 70 million square feet, and none of these Eastern ports have vacant and available facilities of 1 million square feet or more.

Those numbers, along with the availability of land close to the ports, indicate there is an opportunity for expansion on the East Coast, if ports there are capable of generating bigger shares of the all-water trade through the Canal starting in 2014. But the bigger issue at the moment is dredging to meet the water draft requirements of the bigger ships down to 50 feet.

Many ports are gearing up for the Panama Canal effect:

  • The Port of Savannah posted a record 2.95 million twenty-foot equivalent units (TEUs — the standard unit of container volume measurement) last year. Savannah is second only to Los Angeles for containerized exports. "Georgia's position as the number-two export port in the nation provides a clear and compelling case for why the Savannah Harbor Expansion Project (SHEP) is so critical for this state, region and country," said GPA chairman Alec Poitevint. The project will prepare the port and its single terminal served by two Class I railroads for the Panama Canal expansion by deepening the Savannah harbor to 48 feet from 42 feet. There were important milestones last year in the effort to finalize the SHEP study and move the project toward construction, including securing a total of $134 million in state funds with an additional $46.7 million proposed by Governor Nathan Deal.
  • The Port of Charleston area is experiencing dramatic growth in private-sector, industrial spec building. Projects involving more than 20 million square feet of class-A industrial space are on the drawing board within 30 miles of the port. Approximately 1 million square feet has come on the market recently and already been absorbed. Within a 60-mile range of the port, two large logistics centers are planned, totaling more than 5,000 acres near the intersection of I-26 and I-95, a key crossroad for freight traffic.

    The port handles the bigger post-Panamax vessels today, up to 9,200 TEUs, at high tide. This is the expected ship size (8-10,000 TEUs) on the Asia-to-East Coast strings after the opening of the widened locks. It is experiencing some challenges to dredge to 50 feet, as are all East Coast Ports. Charleston is working closely with all of the appropriate agencies to speed up the process and expects to complete the project within a couple of years after the widened canal is opened. Key transactions in the Charleston area last year included the New Breed Logistics lease of a 240,000-sq.-ft. facility in Hanahan, and Boeing's opening of its 240,000-sq.-ft. interior parts facility in North Charleston and over 1 million sq. ft. of manufacturing space at the airport.

    Since receiving final permit approvals in 2007 the South Carolina Ports Authority has completed preliminary demolition, site preparation and containment wall construction on a new, 280-acre terminal which, at build-out, will boost capacity in the port by a 50 percent. Construction is currently under way, and the anticipated opening date of the terminal's 171-acre first phase is planned for fiscal year 2018 "or as market demand requires."

  • The Port of Miami also wants to dredge in anticipation of the Canal expansion, but there have been delays in the permitting process. Port director Bill Johnson asserted in January, "Our intention remains that PortMiami will be at minus-50 feet to greet the first post-Panamax ship out of the expanded Panama Canal in 2014." Miami's economic picture has brightened in recent months and it remains the "cargo gateway" for imports and exports to the Americas. This has aided the quick recovery seen in the industrial market.
  • North of Miami, at Port Everglades, a new Intermodal Container Transfer Facility is under development after the Broward Commission approved a 30-year lease and operating agreement with the Florida East Coast Railway. Officials say this will allow freight to move more efficiently between South Florida and the southeast U.S. via rail. The facility is scheduled to become operational in — you guessed it — 2014.
  • The North Carolina State Ports Authority and the Panama Canal just renewed their strategic alliance. The Memorandum of Understanding, which is renewable for five years, was first signed in December 2010. The agreement reaffirms both entities' dedication to generating new business and promoting an all-water-route. It's an important development because two-thirds of the cargo handled at North Carolina's ports — including Piedmont Triad Inland Terminal, Charlotte Inland Terminal, the Port of Morehead City and the Port of Wilmington — transits through the Panama Canal.
  • The Tampa Port Authority plans to buy 110 acres for cargo and other maritime services for $9.2 million near its Port Redwing facilities, in south Hillsborough County. "The decision to purchase is a significant benchmark following our commitment to build this port and underscores our strategic focus," said port director Richard Wainio. The land is owned by South Bay Corp. and Industrial Park Inc. and will enable the port authority to continue to develop land for cargo terminals and distribution facilities, while attracting cargo-generating and port service companies.
  • Four ports along the East Coast should have unencumbered 50-foot harbors by the time the widened canal opens — New York/New Jersey, Baltimore, Norfolk and Miami. New York/New Jersey still has to deal with the air draft problem of the Bayonne Bridge, however. 

    Those ports will have the early lead in the Panama Canal all-water sweepstakes. At the moment it's not as much a question of "if you build it they will come;" first you have to dredge in order for them to come.

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