The Panama Canal expansion—designed to double the shipping passage’s capacity—has loomed over the global logistics industry. As the epic project finally nears completion (expected in mid-2016), major industrial real estate implications are coming into focus for markets across the United States.
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or more than a century now, the Panama Canal has enjoyed a prime location at the crossroads of two oceans and two continents as the fastest all-water route between Asia and the Eastern United States. With lock expansion now nearing final stages, the higher-capacity canal will be well-positioned to stir up global maritime shipping trends—and in turn, demand for U.S. warehouse and distribution real estate.
How might this expansion affect supply chains and industrial real estate?
The impacts could be quite significant, from logistics site selection and location strategy to warehouse and distribution investment decisions. The expansion will boost speed-to-market to major U.S. ports of entry like New York and New Jersey on the East Coast by giving very large ships a cost-effective, all-water route by which to carry cargo from Asia.
With two-thirds of the U.S. population residing east of the Mississippi River, this new option will give shippers an attractive route to a large proportion of their customers. The expanded canal also puts into play more inland logistics markets in the middle of the country – ones that have the best connectivity by truck and rail from the eastern seaboard.
Some cost savings will emerge as the U.S. East Coast seaports continue to compete for trade. Already, many have invested in major infrastructure and capital improvements to welcome the new traffic. Overall, the expansion could allow for new economies of scale that help push down cost per 20-foot equivalent unit (TEU), the standard unit for a ship’s cargo carrying capacity, via Panama.
Does the rise in East Coast port activity threaten West Coast ports?
The West and East Coast TEU rivalry is likely to intensify as shippers weigh their new options on how and where their goods enter and leave the United States. Some analysts predict that as much as 10 percent of container traffic between East Asia and the United States could shift from West Coast ports to the eastern seaboard by 2020.
It is still fastest for cargo from Asia to be shipped to West Coast ports and moved eastward by rail or truck. West Coast seaports still dominate, particularly Los Angeles/Long Beach, although recent seaports report shows major growth in New York/New Jersey, Savannah and Charleston, too.
How long will it be until we see the impact of the new Panama Canal?
The key takeaway is that demand will continue to rise significantly through 2016 for industrial property markets on both coasts—so long as they are closely linked with larger population bases and intermodal infrastructure.