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Industrial Impact: June 2014

​Bigger is better, and slow and steady: Today's shipping headlines will impact tomorrow's industrial real estate markets

Cascading of vessels

Larger vessels allow carriers to maximize efficiencies and therefore lower per-container expenditures by up to 35 percent*, which has resulted in an industry-wide push to go bigger. For instance, the Post Panamax (8,000 TEUs) vessels that were once commonplace at the Port of Los Angeles / Long Beach have gradually been replaced by New Panamax (14,500 TEUs) ships.

Slow-steaming the new norm

Fuel can account for 60 percent of aggregate shipping expenditures and, in a move to cut costs, carriers have engaged in slow-steaming at 15 to 20 knots, not the typical 24. Fuel consumption can be reduced by 53 percent, and also helps minimize carbon footprints. Although it can add up to one week to trans-Pacific shipping times, carrier customers have grown more tolerant when shipping less time-sensitive items.

Big ships lead to port congestion

Bigger vessels and slow-steaming may further strain seaports due to more concentrated, intermittent shipments at a time when overcapacity is a growing concern. By expanding berths, utilizing on-dock labor more proficiently (i.e. streamlined and expanded working hours) and investing in new cranes and automated operating systems, terminals can go a long way towards boosting productivity and expediting the flow of goods.

Alliances may shape supply chains and where ships dock

Carrier alliances and consolidations are strategies to further control costs by sharing vessels and port facilities. To this end, the G6 Alliance was formed (comprised of NYK, Hapag-Lloyd, OOCL, APL, Hyundai Merchant Marine and Mitsui OSK Lines) in a move to reduce operational costs. The network came to be when two smaller alliances, Grand and New World, teamed up in 2011. Given its sheer size, the G6 may be able to dictate where cargo will dock instead of retailers or freight forwarders.

Another alliance, the proposed “P3 Network” was declined by Chinese maritime regulators in June 2014; it would have unified the world’s three largest carriers: Maersk, CMA CGM and MSC.

What this means for industrial real estate

Larger vessels and mega-alliances suggest fewer ships in the water and less frequent port calls. It also means carriers can potentially pick the winners and losers. The haves will be those industrial corridors with excellent connectivity to inland ports and those seaports able to quickly (and efficiently) off-load cargo. We believe Atlanta and Baltimore will be notable beneficiaries.

  • Atlanta is a key population center and is connected by rail not only to the Port of Savannah, which is now ranked third in the nation in TEU volumes, but also to several other Southeast seaports, each of which is enhancing their infrastructure to accommodate larger ships. They are hoping to gain from regional population growth.
  • Baltimore is Post-Panamax ready, and CSX is building a near-dock intermodal facility that will be incorporated into its National Gateway double-stack network, which drastically reduces transportation costs.

In the end, this is not a zero-sum game, and established markets home to large consumer bases will continue to prosper. All will have to evolve to remain competitive.

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Bigger is better, and slow and steady

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Bigger is better, and slow and steady: Today's shipping headlines will impact tomorrow's industrial real estate markets

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