Jones Lang LaSalle port report floats freight flow complications

Mega-mergers, bigger ships, autonomous trucking part of incoming tide of disruption facing major North American trade gateways   
Freight containers and container trucks at Delta’s Tilbury Industrial Park; Metro Vancouver’s dwindling supply of industrial land suitable for cargo and port uses is a growing concern | Chung Chow   

A new analysis of port industrial space and freight flow through Vancouver and other major North American trade gateways highlights a host of disruptive marketplace forces now on their doorsteps.

Jones Lang LaSalle’s (NYSE:JLL) 2017 Port, Airport and Global Infrastructure seaport outlook covers 14 port gateways in North America. The report notes that, between 1974 and 2016, the volume of container cargo they handled increased to 45.6 million 20-foot equivalent units (TEUs) from 3.2 million.

But the pace of that growth has slowed, and the report points to five main trends that will shape where future growth will be concentrated and why.

The outlook for the global container-shipping sector remains mixed. But, according to numbers gathered by U.K.-based shipping consultancy Drewry as of mid-August, global container handling was up 6.6% in 2017’s first six months compared with the same time last year.

That data was backed up last week by mid-year numbers from the Port of Vancouver (PoV), where overall cargo rose 4% to 69 million tonnes compared with the same time last year. The increase was led by shipments of grain, up 12.9% over mid-year 2016, and containerized cargo, which rose 9.6% to set a half-year record of 1.6 million TEUs.

Other West Coast North American ports have also recorded robust containerized cargo numbers thus far in 2017. The Port of Long Beach, for example, handled 720,312 TEUs in July – the best month for container cargo in the port’s 106-year history.

However, the Southern California gateway, along with Vancouver and other West Coast North America ports, faces significant competitive challenges, especially from competitors along the East Coast and on the Gulf of Mexico.

The expanded Panama Canal, which celebrated its first anniversary on June 26, has created a conduit for bigger ships to skip West Coast ports in favour of their eastern and southern counterparts.

As the JLL report points out, West Coast ports have posted the slowest growth rate in North America since 2013. Growth at Long Beach, Seattle-Tacoma, Vancouver and Oakland has stayed under 5%, while southeastern and mid-Atlantic ports all grew by close to 20%.

The real estate and investment management company noted that demand for transloading and cross-docking facilities at ports is rising rapidly. That demand is being driven by several issues. Atop the list is the rapid rise of e-commerce, which is based on delivery charges and order-to-delivery times. Retailers therefore need to store more inventory in more locations, which ideally are close to ports. The complexity of e-commerce distribution centres means they require about three times the space of their traditional retail counterparts.

Larger container ships being added to ocean carrier fleets also require more transloading facilities because more boxes need to be loaded and unloaded faster.

Vancouver’s shrinking industrial land bank, especially land suitable for trade purposes, has been well documented.

Robin Silvester, Vancouver Fraser Port Authority president and CEO, noted last week that the city has one of North America’s tightest industrial land markets.

“And that is a problem,” Silvester said. “It’s a problem from the point of view of growth for the port, but more fundamentally it’s a problem for growth of the region’s economy and the region’s ability to create jobs that pay wages where people can afford to live in what is an expensive residential real estate region as well.”

The port’s industrial land crunch was eased somewhat earlier this year with the first phase of the three-phase Delta iPort container logistics centre being built on a 57-acre parcel of a 300-acre Tsawwassen First Nation industrial development site adjacent to the Port of Vancouver’s Deltaport. The site will also be home to a new Canada Border Services Agency (CBSA) container inspection centre aimed at accelerating inspections of incoming containers [“Local shippers irked over CBSA container inspection delays – Business in Vancouver issue 1448; August 1-7).

Vancouver was ninth highest on JLL’s list of cities with the largest year-over-year declines in industrial real estate availability.

According to JLL numbers, it was down 0.6%. Seattle-Tacoma by contrast increased its availability of industrial real estate 0.3%. Charleston, South Carolina’s was up 2.8%.

Walter Kemmsies, managing director and chief strategist for JLL Ports, Airports and Global Infrastructure, said it’s critical for port management to know the type of industrial buildings importers and exporters need and how those needs are changing.

“Insufficient real estate capacity,” he said, “can constrain growth and worsen congestion.”

North American ports are consequently investing heavily in infrastructure upgrades to handle the larger container ships being deployed on major trade routes. For example, the ports of Long Beach and Los Angeles plan to invest more than US$5.6 billion in capital projects over the next 10 years.

In Vancouver, GCT Canada, which operates the port’s Vanterm and Deltaport container terminals, has invested $280 million to expand its Deltaport intermodal yard to increase its annual capacity to 1.9 million TEUs.

PoV’s $2 billion Terminal 2 container terminal project at Deltaport is still awaiting approval. The three-berth container terminal, in planning stages since 2012, would provide the port with an additional 2.4 million TEUs of capacity.

DP World, the Dubai-based company that owns Prince Rupert’s Fairview and Vancouver’s Centerm container terminals, plans to invest $350 million to increase Centerm’s container-handling capacity to 1.5 million TEUs from the current 900,000.

Its $200 million Fairview expansion in Prince Rupert, which will almost double the container terminal’s annual capacity to 1.35 million TEUs, is scheduled to be completed at the end of this month.

Silvester said PoV will also be applying for investment allocated through the federal government’s new $10 billion national trade corridors fund for road and rail connections in the port.

In addition to larger container ships being deployed by major ocean carriers, JLL’s list of five trends to watch included:

•Gulf Coast ports winning more market share from their West Coast counterparts;

•mergers and alliances in the ocean freight sector shrinking shippers’ options and raising uncertainty in the shipping industry;

•autonomous trucking and next-day delivery; and

•rail competition for greater container market share.

Kemmsies said the rise of competition from Gulf Coast ports is the most critical trend that Canadian and U.S. ports need to address.

“For many years I tried to explain to the Census Bureau analysts and others that the Gulf Coast has been the natural gateway for U.S. exports, most of which come from the Midwest, and that with the advent of frack-ing, capital goods and petrochemical exports would rise significantly. West Coast ports have forecasts that include discretionary volumes to markets in the central south area of the U.S., but this could be lost to Houston, New Orleans and Mobile.”

trenshaw@biv.com

@timothyrenshaw   

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North Vancouver developers to pay higher rates for bigger projects

Community amenity contributions set to rise 35% in the city centre and 52% on the outskirts
Cindy Goodman/North Shore News files

If you build denser you’ll pay dearer.

That’s the message in the City of North Vancouver where rates for community amenity contributions – which tend to be levelled on developers who exceed density guidelines – are set to rise 35 per cent in the city centre and 52 per cent on the outskirts beginning Jan. 1, 2018.

The city centre is sandwiched between Mahon and St. Andrews avenues and bordered by the highway and the waterfront.

The change is late, according to North Van City Voices, a watchdog group advocating a freeze on development given the number of housing projects in the pipeline.

By not charging heftier fees, the city has fuelled real estate speculation while “doing little to generate affordable housing,” according to member Fred Dawkins, who recently appeared at council to oppose the city’s density bonus rates.

Dawkins took aim at The Anchor, a 61-unit East Third Street development approved in 2012.

In that case, the developer requested 10,888 square feet be excluded from the city’s floor space calculations. In return, the developer pledged to fill that space with 18 market rental units and to pay the city a $100,000 community amenity contribution. The developer also funded infrastructure improvements and public art.

Given that those units are now selling for approximately $1,000 per square foot, the increase in value was essentially a gift to the developer “with no strings attached,” argued Dawkins.

The value of rental density on vacant land was approximately $100 per square foot in 2012, according to a city staff report.

“This value is not to be confused with the cost per square foot of improved land in today’s dollars,” the report noted.

If a project similar to The Anchor were approved in 2018, the developer would likely be on the hook for a $2.3-million community amenity contribution under the new rules.

Coun. Rod Clark sought to defer council’s July 24 decision on community amenity contributions, citing his desire to pore over a report from North Van City Voices in greater deal.

The deferral was narrowly defeated following an objection from Coun. Craig Keating, who emphasized the city’s role in addressing the regional housing crisis.

“When you talk to actual human beings who need real places to live and cannot afford to buy in this community, rental housing policy is absolutely crucial,” he said, describing the city’s 0.3 per cent vacancy rate as
“punishingly low.”

A “healthy” vacancy rate is between three and five per cent, noted a city staff report.

Low vacancy rates are leading to higher rents, according to a 2016 report from the Canada Mortgage and Housing Corp. New tenants in older buildings face 6.4 per cent rate hikes, more than twice as much as the allowable increase for established tenants.

For Coun. Pam Bookham, all new development “needs to make a financial contribution to the redevelopment of Harry Jerome.”

Bookham also backed deferral, suggesting developers already have five months to “get in under the lower, existing rate.”

Keating differed with Bookham on both the deferral and the primacy of the new Harry Jerome community recreation centre.

“Talking about the thing that people in our community need, I think a place to live is top of the list,” he said. “By the time you get to a pool and curling . . . you’re pretty far down the list.”

The city’s community amenity contribution rates are currently “a bit low,” according to staff.

The community amenity contribution rate of $190 per square foot in the city centre is a “fair price point,” according to an analysis from G.P. Rollo & Associates. The charge should allow developers to make a 15 per cent profit, assuming prices hover above $1,000 per square foot. Charges for projects outside the city centre are set to rise to $175 per square foot.

If the housing market remains strong, the city could pocket between $6 and $10 million per year in community amenity contributions. In 2016, the city collected $3.85 million.

The payment are meant to mitigate the impacts of new projects without reducing the rate of development, according to a staff report. The payments are also meant to encourage developers to build less expensive housing, and housing for residents with special needs.

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Chevron location at 41st Avenue and Oak Street | Google Maps 

Two more Vancouver Chevron stations have been sold and three more sites are currently for sale, allowing the company to profit off their redevelopment potential.

One of the stations, located at the corner of West 16th Avenue and Cambie Street, has already closed in advance of the sale’s completion. The property’s assessed value is $7.96 million – however, sale prices for both of the stations have not been disclosed.

The second station at West 41st Avenue and Oak Street was scheduled to close August 18 and has an assessed value of $14.61 million.

Earlier this year, Chevron locations on West Georgia and Dunbar Street sold for $72 million and $19.4 million, respectively. The West Georgia site was purchased by Anthem Properties and will be redeveloped into high-end residential towers in conjunction with the adjacent White Spot property. Both locations sold for well above assessed value.

Three other Chevron locations are currently up for sale at Broadway and Alma Street, West 4th Avenue and Macdonald Street and West 59th Avenue and Cambie Street. The stations remain open.

Western Investor

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Site C investment 'reckless and irresponsible,' says former BC Hydro CEO

Marc Eliesen's submission to the BC Utilities Commission's Site C inquiry tears down the project's business case
Major earthmoving work on the north bank stabilization component of BC Hydro’s Site C project | BC Hydro

There is not and never was a business case for Site C, says the former president and CEO of BC Hydro.

At the top of a 22-page submission to the BC Utilities Commission (BCUC) this week, Marc Eliesen charges the former provincial government and BC Hydro's board of directors with making a "reckless and irresponsible" final investment decision on the project in late 2014. 

He also notes that the “systemic bias” in BC Hydro’s electricity forecasting has “consistently overestimated” electricity demand, meaning British Columbian ratepayers “do not need and cannot afford” the pending project’s additional capacity.

“It is one thing to over-exaggerate demand projections and quite another to actively engage in subsidizing industry to generate increased electrical need. There never was a realistic need for Site C. The former government engaged in a series of exercises in an attempt to justify it,” writes Eliesen, who has spent more than 40 years in the Canadian utilities sector, in roles that include chair and CEO of both Ontario Hydro and the Manitoba Energy Authority, chair of Manitoba Hydro, and Ontario’s deputy minister of energy

Based on that experience, Eliesen's submission to the BCUC's inquiry states that hydro infrastructure projects experience “staggering construction overruns” and delays, and that there is a “high probability” the costs of Site C stand to increase by 30 per cent, to $12 billion from a budgeted $9 billion. 

In addition to exaggerated demand and potential cost overruns, Eliesen's submission warns that BC Hydro is facing a financial “unmitigated disaster.” As a result, he says ratepayers can expect price hikes if Site C moves forward, and as the crown corporation faces a ballooning debt burden, $5.9 billion in deferral accounts and $56.3 billion in power purchase obligations.

“The notion that Site C will be completed on time and on budget is illusionary,” he wrote. “The [B.C.] economy does not need the negative macroeconomic consequences of higher electricity rates. It is time to stop the losses from this ill-conceived [p]roject.”

Earlier this month, the BC NDP followed through on its election campaign promise to put the BC Hydro Site C Clean Energy Project to review. It asked the BCUC to consider the impact of three options: completing the project by 2024, suspending the project and terminating construction.

Construction on Site C began in the summer of 2015 and continues as the BCUC reviews the project.

An interim report from the BCUC is expected September 20. A full report is anticipated by November 1, 12 weeks after the inquiry was launched.

Third-party submissions to the inquiry are available here.

hwoodin@biv.com 

@hayleywoodin 

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Tech Talk 2: Privacy in the age of NAFTA 2.0

Meghan Sali, communications manager at OpenMedia looks at whether the United States’ digital NAFTA priorities will come up against B.C. privacy laws. 

Tech Talk with Meghan Sali, communications manager at OpenMedia looks at whether the United States’ digital NAFTA priorities will come up against B.C. privacy laws. 

Meghan joins Business in Vancouver's Hayley Woodin on Roundhouse Radio 98.3. Tune in weekdays from 9 a.m. to 10 a.m. in Vancouver on 98.3 FM or online at https://roundhouseradio.com/

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