March 21, 2016
By: John Talhelm, Senior Vice President, JLL Houston
Upon completion, it promises to deliver cost savings to companies needing to quickly transport goods and materials to market. This is increasingly important as organizations seek to stay competitive by operating the most cost-effective and efficient supply chains.
Since the Panama Canal first opened in 1914, increases in the size of container ships have surpassed the canal’s capacity. The expanded set of locks, set to deliver this May, will be longer, wider and deeper, allowing “Post-Panamax” vessels up to 13,000 TEU’s (Twenty-foot Equivalent Unit) to pass through.
When complete, the Panama Canal expansion will impact growth and investment within the broader logistics universe, impacting everything from shipping to rail line construction, to warehousing and terminal development around the world.
As construction nears its final stages, many questions remain about the true impact it will have on the global macroeconomic and logistics environment. The following are a few topics that have important industrial real estate implications for major markets in the United States.
Decreasing time to market
The Panama Canal will remain the faster all-water route from Asia, still better than the Suez Canal in Egypt. With larger ships passing through the new locks, it will give an advantage to cargo needing to reach East Coast and Gulf Coast ports.
While it remains fastest for trans-Pacific cargo to be shipped into West Coast seaports, and then transferred via rail and truck to the center of the country, the expanded locks will enable economies of scale that will reduce the cost per TEU via Panama.
It will take time before a beneficial shipping ‘bounce’ occurs
Cascading larger vessels and more services through the new set of locks in Panama is not expected to occur immediately after opening. It will take time to recapture traffic that for the last several years has been routed through the Suez Canal. Furthermore, the Canal is opening at a time of global economic volatility and slowing growth in some emerging markets.
Getting goods close to customers
Two-thirds of the U.S. population lives east of the Mississippi. The Panama Canal supplies shippers with an effective option for reaching that population. While this may not be impactful for all types of cargo, the expanded canal will impact supply chains and the location of warehouse and distribution operations in the future.
In light of all this, competition for trade volumes among U.S. East Coast seaports is expected to continue, and many have invested heavily over the past few years in infrastructure and capital improvements. However, how U.S. site selection decisions, and investment in East Coast logistics real estate will change, is a story that has yet to be written.
How will this impact Houston?
Centrally located on the Gulf Coast, Houston has long been a strategic gateway for the transport of cargo. Moreover, with one of the world’s busiest ports, many have postulated about the impact of the Panama Canal expansion on the city and the Port of Houston.
While some have assumed that vessels as large as 13,000 TEU’s will call on Houston, this will not be possible due to a maximum water depth of 45 feet in the Houston Ship Channel and the two container terminals. “Post Panamax” vessels of that size draw over fifty feet of water. Currently, Miami, Norfolk, Baltimore and New York/New Jersey are the only East Coast ports that have terminals able to accommodate the 50-foot drafts of these cargo ships.
Nonetheless, the Port of Houston Authority (POHA) is in the process of dredging the channels at Barbours Cut and at the Bayport Container terminal to 45 feet. This will match the main ship channel depth, which is dredged to 45 feet to a point just east of the Beltway 8 bridge. With these improvements, the Port will be able to accommodate fully loaded vessels up to 8,000 TEU’s.
When fully developed, Barbours Cut and Bayport will each have the ability to handle three million TEU’s per year. In 2015, containerized cargo at the Port exceeded two million TEU’s for the first time in the Port’s history. That being said, activity at the Port is likely several years away from reaching the new six million TEU capacity.
The biggest impact on container terminals in the next three to five years is likely to come from the local expansion of manufacturing plants that produce plastic resins. Currently, the Port of Houston exports approximately 74 percent of all resins manufactured in the United States.
With the recent downstream energy construction boom and the dredging of the Port of Houston, the city and its port can expect to see an increase in the export of containers over the next few years. This type of growth, will be supported by the completion of the Panama Canal expansion, which will allow for the export of downstream products to the Far East markets.
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About the Author
John Talhelm is a Senior Vice President within JLL’s Industrial Services group. He has more than 27 years of experience in commercial real estate and specializes in ship channel and barge-served land. John also serves on JLL’s Supply Chain & Logistics Solutions team, to which he brings extensive experience in the development of deep-water ship terminals, as well as airport-based cargo facilities.