Panama Canal Expansion Driving Three Key Trends in U.S Logistics Sector

Report on impact of Panama Canal expansion on supply chain logistics and industrial real estate sector


With the $5.25 billion Panama Canal expansion project underway, U.S. corporations are eyeing their options on how they can best capitalize on the larger ships soon to be heading towards the United States. Now real estate consulting firm Jones Lang LaSalle has identified three major trends that U.S companies should consider when evaluating their real estate and supply chain options.

“The expansion will allow the Canal to accept ships nearly twice the size of current capacity allowance. This is likely to forever change the U.S. port system as we know it today,” says John Carver, head of Jones Lang LaSalle’s Ports Airports and Global Infrastructure group. “With the Panama Canal project under budget and on target to open in 2014, the amount of growth and investment within the broader logistics universe will be exponential, impacting everything from shipping and rail line construction to warehousing and terminal development around the world.”

Carver notes that port authorities have been preparing for the Canal expansion ever since the U.S. turned over control of the canal to the Republic of Panama in 1999. “Since then, the country has attracted capital investment from around the world, ensuring its ability to accommodate increased traffic demands and the future trend towards larger, deep-draft vessels,” Carver says.

According to Jones Lang LaSalle, the Canal expansion has also fuelled three emerging trends in industrial real estate:

Oil price volatility and slow steaming = more storage

The Panama Canal expansion opens up more opportunities for energy savings. Higher fuel costs are driving the need for slow steaming to reduce shipping costs. This means shippers are adopting slower delivery times through fuel conservation and slower shipping speeds. Slow steaming will result in a slower supply chain and the need for a larger amount of products to be stored on land. This in turn will mean that shippers will have to expand their space requirements to ensure that they have ample inventory on hand.

“Manufacturers and retailers must store merchandise longer to keep inventories buoyant, and this will increase demand for warehouse and storage space near ports,” says Carver.

 

Increased competition between ports to receive larger ships

With larger vessels sailing through the expanded Panama Canal, they are likely to make fewer ports of call. Consequently, there will be winners and losers along the U.S. Eastern Seaboard. Currently, only the Port of Norfolk has the 50-foot draft depth necessary to accommodate the larger “post-Panamax” container ships; while the ports of New York/New Jersey and Miami have projects approved and/or underway to increase their depth by 2014.

The competition for market share is not only amongst the U.S. East Coast ports. High-value cargo still will be delivered to the United States via the West Coast, but an expanded canal and cost efficiencies have the potential to shift the line for “discretionary” cargo within the country.

Discretionary cargo, such as furniture and household products, could now reach the U.S East Coast via all-water routes, and then be transported westward as far as Dallas for distribution. It is traditionally shipped via Memphis.

Increased container volumes through the new Panama Canal locks will drive ports to be more efficient, and put pressure on current infrastructure and warehousing around ports, according to Jones Lang LaSalle.

“The demand for industrial property around these receiving ports both inland and coastal is surely to rise,” comments Carver. “As U.S. ports are gearing up to cater for the next generation of post-Panamax and the even larger Super post-Panamax vessels, federal funding for necessary dredging and pier-side infrastructure has not been readily available.

“This has created opportunity in a growing number of areas for the private sector to offer new solutions through public-private partnerships (P3s) in order to bring port expansion projects to fruition.”

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