Midwest industrial real estate just got even hotter, thanks to a bigger, better Panama Canal

market position -- panama photo

 

Guest post by Margy Sweeney 

The mother of all short-cuts for the supply chain world—the Panama Canal—just got a lot bigger this June, and so did the ships that move through it. As a result, the Midwest industrial real estate market may also be getting a big boost, Panamax-style. However, when and how that boost will occur depends on who you ask.

Margy Sweeney, Principal, Akrete: What’s the magnitude of the Panama Canal expansion and its impact in the Midwest? 

Rich Thompson, Global Leader of Supply Chain & Logistics Solutions, JLL:  Higher capacity along with improved economies of scale is expected to make the Panama Canal route more competitive alongside the other major options: the Suez Canal and U.S. intermodal shipping. The expanded Canal and new locks will be able to accommodate ships as large as 13,000 20-foot equivalent units (TEUs)—more than double its current 5,000 TEU capability. The Panama Canal will also be able to accommodate 12 to 14 additional vessels each day, totaling an additional 20,000 trips each year. The market “battlefield” that is the focus of attention is the Midwest. East Coast ports are working to better connect via rail to service the Midwest population centers in hopes of picking up market share from West Coast ports.

Adam Roth, SIOR, NAI Hiffman and President, Chicago Chapter of SIORBigger shipments, faster arrival of goods from Asia—coastal ports have been anticipating the benefits for years, and their industrial real estate surrounding ports has been preparing for the impact. But in my opinion, the impact further inland will not be as profound. Midwest industrial real estate market activity is not expected to be deeply influenced over time, however buildings and supply routes will shift, influenced by the changes in shipments of goods.

Todd Hendricks, Global Supply Chain Strategist, Darwin Realty: The major ports, container volumes and longshoremen throughout the United States will be affected greatly over time.  With new trade routes, the infrastructure supporting these new import /export lanes will also be greatly affected.  Houston east to Miami, north up to New York / New Jersey and all the way inland to the Midwest: all can expect to feel new surges and increased volumes, along with a need to handle more volume and increased infrastructure. But take warning: I don’t believe it will happen as soon as some believe.

Sweeney:  Sounds like that will mean long-term changes in what gets built. What’s the future going to look like when it comes to Midwest industrial facilities? 

Thompson:  There is no substitute for seeing things firsthand. A JLL team recently toured the Panama Canal region and met with the Panama Canal Authority’s Executive Vice President, Oscar Bazan. In addition, we met face-to-face with all of the East Coast port directors. The consensus is that a more competitive route through the Panama Canal and more efficient rail options from East Coast ports will benefit the Midwest. It creates options for shippers that did not exist before the way they do now. One thing to remember is that the expanded Canal is not the silver bullet answer. For higher-value goods or products that need speed, such as fashion or electronics, shippers will likely continue to choose the West Coast ports and cross country rail and truck transport to inland distribution centers in the Midwest including Chicago.

Hendricks: The future will follow the ships. That will mean creating mega-ports, high velocity warehouses, cross-dock and consolidation centers. It will also mean taking increased volumes of imports and exports and delivering the product direct to store with multi-stop truckload carriers or direct to customer. By creating less touches and streamlining productivity, customers can expect to get product faster and adhere to just-in-time expectations.

Roth: Panamax is all about options—logistics strategists can now choose from more routes to more ports.  Ultimately, more goods coming into the region means more opportunities for both well-established distribution corridors such as Chicago’s I-55 sub-market or Indianapolis’ industrial parks—as well as for emerging and secondary Midwest markets.

Sweeney:  What do you expect to see over time, as the Panamax Effect matures?

 Roth: I recently heard the term “snacking” – purchasing items on your mobile device when an opportunity presents itself like waiting in line or being on hold.  We are all getting addicted to e-commerce—we want 24-hour connectivity and visibility along with immediate delivery.  The omni-channel solution for companies is very challenging.  The Panama Canal expansion will be a part of that solution. With more options to the East Coast, we can expect to see shifts in how shippers design their logistics strategies amidst growing consumer expectations.

Thompson: Of course, it will take time for full market impact to become evident. Clearly, there are many variables that come into play that will impact a company’s decision as it relates to imports and optimizing supply chain flows. But one thing is clear; companies and their supply chain professionals will work the math to determine the most cost efficient and service effective ways to serve their customers.

Hendricks: Over time, I believe we will see increased southern and east coast traffic resulting in more Midwest inbound and outbound shipments as a result of the Panama Canal.  Many customers will choose to build manufacturing or distribution centers in southern locations because the cost of shipping to the Midwest and other points is beneficial to bottom line profits.  And as more product starts to enter these markets, capacity will dwindle, rates will climb and we will all be looking for the next great idea within supply and demand on how to save money and increase product flow patterns.

Margy Sweeney is an entrepreneur with more than 20 years’ experience marketing and publicizing commercial real estate. She is the founder of @TeamAkrete, a consulting firm.

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