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.”