The balance of seaborne-cargo delivery in the US shifted further east in the last year, resulting in East and Gulf Coast seaports making gains against their West Coast counterparts in CBRE Group, Inc.’s second-annual North American Seaports and Logistics Index.
The Port of New York and New Jersey had all-time record volumes in 2015 in part due to cargo that was diverted early in the year from the West Coast to the East Coast because of the labor strife that forced importers and exporters to evaluate their shipping and supply chain strategies. In 2015, the port handled a record volume of more than 6.4 million TEUs, which represented a 10.4 percent increase over 2014. The port topped CBRE’s port infrastructure ranking, which considers local population density, projected population growth, Class I rail lines serving the port, number of container terminals, mean low water channel depth, total number of cranes, and total number of post-Panamax cranes –key attributes for high-volume port activity – and finished second overall in CBRE’s North American Seaports and Logistics Index, up one spot from the previous year.
The Port Authority of New York and New Jersey is midstream in the implementation of a $4.3 billion capital plan to invest and upgrade existing port infrastructure. Most notably, 64 feet of air draft is being added to the Bayonne Bridge to improve the accessibility of the primary terminal, Port Newark- Elizabeth, for post-Panamax ships. Currently, only the Port Jersey terminal is able to easily accommodate the larger ships. Alterations to the Bayonne Bridge are expected to be finished by mid-2019.
Leasing activity in the Northern New Jersey and New York markets was especially strong in 2015, with 36 percent of new lease commitments signed in one of the port submarkets. The market as a whole absorbed 16.0 million sq. ft. of space, while the submarkets directly adjacent to the port (Hudson Waterfront, Newark, Linden/ Elizabeth, Carteret/Avenel) absorbed 3.87 million sq. ft. Availability fell by 180 basis points (bps) and rent increased by 6.2 percent to $6.82.
“The ports continue to be a primary economic engine for the Tri-State region and this is particularly true for the New Jersey industrial real estate market,” said William Waxman, CBRE Executive Vice President of Industrial & Logistics. “Certainly, the expansion of the Panama Canal will be beneficial to not only the Tri-State region, but to the surrounding area as well. While I don’t want to downplay the Panama Canal, I would certainly keep my eye on freight coming through the Suez Canal as well as a potential shift in manufacturing to South America and other regions that may be positively impact East Coast ports.”
In 2015, industrial developers delivered 3.0 million sq. ft. of new product to the New Jersey market, while breaking ground on 6.0 million sq. ft. of new projects. Newly delivered speculative industrial projects have been leased up six months after completion, on average. Increased demand and tightening supply will continue to drive new construction in the market over the next three years; we anticipate deliveries outpacing net absorption by a factor of nearly 5 to 1. Rents are projected to grow at a healthy annual rate of 4.0 percent.
Meanwhile, the Port of Long Beach snared the top spot from its Southern California neighbor, the Port of Los Angeles, due mostly to the arrival of a new Asian shipping line in Long Beach. However, most of those on the rise in the top 10 are East and Gulf Coast seaports.
“Companies today are facing monumental supply chain pressures due to changing consumer behavior and a need to balance cost and service while keeping their business safe from interruption,” said Adam Mullen, Occupier and Supply Chain Leader in CBRE’s Industrial & Logistics division, the Americas. “Recent shifts in port volumes as companies strain to determine their best global shipping routes underscore that global commerce is in a race – an arms race of sorts – to build better, even more efficient supply chains.”
The renewed momentum for eastern ports can be attributed, at least in part, to shippers shifting cargo east in response to last year’s labor trouble at primary West Coast ports. Cargo traffic at western ports was slowed for months before the longshoreman unions and port management came to a resolution in March 2015.
The West Coast labor disruption indirectly contributed to two East Coast ports and one Gulf Coast port climbing in the CBRE rankings, with the Port of New York and New Jersey climbing one spot to No. 2 overall, the Port of Savannah ascending two spots to No. 4 and the Port of Houston leaping five spots to No. 5.
Meanwhile, on the West Coast, the Port of Los Angeles, which posted an uncharacteristically slow year, fell two spots to No. 3, and the Ports of Seattle and Tacoma fell two spots to No. 6. The Port of Oakland, hindered last year by the closure of its Ports of America Outer Harbor Terminal, tumbled five spots to No. 10.
Overall, the major East and Gulf Coast ports accounted for nearly all of North America’s gain last year in cargo volume, whittling away at the West Coast’s traditional dominance. West Coast ports accounted for 52 percent of all TEU (twenty-foot equivalent units) volume last year in North America, down from 54 percent in 2014 and 57 percent in 2010.
In addition, the cost savings of big ships passing through Panama to get to East Coast ports rather than navigating around South America aren’t significant enough to spur an accelerated shift to East Coast ports. However, due to the numerous, persistent pressures faced by shippers, retailers and suppliers, it is likely those companies will continue to weigh such decisions over the next several years.
CBRE’s North American Seaports and Logistics Index takes into account both port infrastructure capabilities, such as total TEU volume, and the fundamentals of the industrial real estate market surrounding each port. The former receives slightly greater weighting. For example, the Port of New York and New Jersey ranks No. 1 in terms of port infrastructure but it weighs in at No. 6 for real-estate fundamentals. That amounts to an overall ranking of No. 2.Related Articles: