How the Panama Canal Expansion Affects the U.S. Industrial Market
By Jason W. Tolliver, J.D., Regional Vice President
The expansion of the Panama Canal by 2015 is without a doubt a global game changer, but how does it affect the industrial real estate landscape in the U.S.? We continue to see strong demand for port-centric warehouse and distribution space, and this is translating into large amounts of public and private capital being poured into seaport infrastructure. West Coast ports continue to handle the bulk of U.S. imports while the East Coast ports, which are closer to major manufacturing hubs, benefit from higher exporting. The Panama Canal expansion (also called the Third Set of Locks Project) carries the promise for East Coast ports to receive a greater share of imports. Actually over the past decade, the East Coast share of total U.S. imports has been growing. The added transportation cost savings offered by the post-Panama vessels, coupled with less congestion, will accelerate this trend.
Logistics firms remain laser focused on shipping times, capacity and cost when making supply chain decisions. Improved shipping times to East Coast markets as a result of the expanded canal will likely chip away at the competitive advantage cross-country rail shipments from West Coast markets currently enjoy. Shorter delivery times will be particularly impactful for importers whose need for speed to market must be balanced against costs of shipment.
The primary distribution markets like Los Angeles, New York/New Jersey, Chicago, Dallas and Atlanta will remain dominant. Clearly the importance of the New York/New Jersey market will only rise as a result of the Panama Canal’s expansion, but other markets will also benefit. Markets such as St. Louis, Minneapolis, Memphis, Cleveland, Kansas City and Detroit all stand to benefit and grow in the post-expansion era.
Shippers are keenly aware of the importance of protecting their supply chains from both man-made and natural shocks (think Los Angeles/Long Beach lockdown of 2002 and the 2011 tsunami in Japan). This has prompted supply chain executives to examine alternative ports and develop strategic alternatives to protect their supply chains. The result is that East Coast markets like Savannah and Charleston, among others, have benefitted. Both ports are in the process of transformation and have witnessed public and private capital investments focusing on delivering post-Panamax shipping capability, improved technologies and specialized crane equipment to reduce loading and unloading times.
Jason serves as the Regional Vice President of Research in the Indianapolis office of Cassidy Turley. He has authored numerous market studies on topics affecting the economy, capital markets, finance, leasing, property and project management, and the factors that affect supply-demand fundamentals in commercial real estate.