High Costs Could Impact Shipping Routes

Two trends in international trade worth highlighting:

American exports are booming, thanks to the dollar’s current weakness.  This considerable increase in volume has made it virtually impossible for U.S. manufacturers to get space on container ships within a four-week window, especially for products shipping from the ports of Los Angeles or Long Beach to any Pacific Rim destination.  To illustrate the scope of the change, container space from these ports was available on demand just one year ago.  And, according to a recent Reuters article, waiting times for cargo space have jumped from two days to three weeks on the East Coast. 

Fast-rising transportation costs that are a direct result of the cost of fuel is another important logistics trend – one that could negatively impact globalization.  According to an August 2 article in the International Herald Tribune by Larry Rohter, shipping a single loaded 40-foot container from Shanghai to the United States has soared to as much as $8,000 per unit, compared with just $3,000 earlier in the decade.  Additionally, there are cost add-ons, primarily in the form of fuel surcharges and government-mandated fees. To save on fuel costs, container ships have shaved their top speeds by nearly 20 percent, which means it takes longer for products to reach their intended markets.

Shipping to and from Prince Rupert in British Columbia is slightly less costly, because the distance to Asian ports is shorter than from Los Angeles or Long Beach.  Still, space amounts to several thousand dollars per container.  

“If prices stay at these levels, that could lead to some significant rearrangement of production, among sectors and countries,” said C. Fred Bergsten, author of The United States and the World Economy and a director of the Peter G. Peterson Institute for International Economics in Washington.  “You could have a very significant shock to traditional consumption patterns and also some important growth effects.”

A far better alternative could be to ship to and from Asia from the southern border regions, where the going rate is approximately $800 per loaded container.  That price differential could potentially lure companies to move production facilities to Mexico or the Southwestern United States – primarily Texas.  This would give them the opportunity to leverage the more attractive shipping rates through the growing Mexican ports of Lazaro Cardenas and Punto Colonet.

Pat Gallagher

Jacksonville Industrial Market Poised to Become the Nation’s 10th Largest

 According to market research from Colliers Dickinson, Jacksonville’s industrial market is thriving, thanks to its first-rate transportation infrastructure — consisting of the JAXPORT deep-water port, an international airport, three railways, three interstates and several major highways. Industrial vacancy rates are the lowest they’ve been in five years, rents and property values are soaring. With the fourth-quarter of 2008 completion of Japanese shipper Mitsui O.S.K. Lines’ TraPac Container Terminal east-coast hub, Jacksonville will acquire a coveted direct link to lucrative East Asia trade markets.Port officials estimate that by 2011, approximately 1.6 million 20-foot container units will move through Jacksonville annually.That will double the city’s current cargo traffic; future growth could make Jacksonville the third largest east-coast port in 15 or 20 years.  Additionally, Jacksonville has the potential to become the nation’s 10th largest port. Thanks to this enhanced capacity, demand for bulk-distribution space is soaring.An additional five to eight million square feet of bulk warehouse space will be needed within just one year of the TraPac Terminal’s completion.

Study Break

On NAIOP member Jack Schultz’s list of Top 10 Development Trends for 2008, one really stands out.  Following Kalamazoo, MI; Newton, IA; and El Dorado, AZ, have promised to pay for the college education of anyone who completes grade and high schools.In light of of the economic flux that we are currently in, this seems like a bold incentive package that inverts the traditional concentric circles of economic development.Instead of corporate tax incentives to bring jobs and improvements to the community, these communities are funding higher education to attract (and educate) people, then entice employers needing educated labor, with the net effect of driving retail, and higher-end residential development as a way to lift the general economy.

The 7 Habits of Highly Effective CREs

The Spring 2008 issue of Development Magazine quotes Mark Gibson, Leader, Strategy and Operating Real Estate Advisory Services for Ernst & Young, on the seven skills that corporate real estate executives should bring to the table, listing them in order of importance:

• Project Management
• Strategic Planning
• Process Implementation
• Understand the Business
• Fortitude
• Real Estate

Real estate makes the bottom of the list.  This is interesting and a concession to the idea that the new commercial real estate executive is largely a strategist with a global perspective who reports directly to the CFO and works to harmonize real estate with IT and HR to achieve enterprise-level objectives.The one thing I think Gibson missed is CRM (Client Relationship Management) which remains, along with strategy, where the focus of the internal corporate real estate department is since the movement toward outsourcing began in the 1990s.

The Other Fuel Price

The current debate about spiralling fuel prices uses the price of gasoline at the pump as the belwether of energy prices. In the real estate industry, the energy metric commonly raised is electricity. But another spike is more striking: Diesel fuel prices soared 26.75 cents, or 7 percent, to an average $4.0630 per gallon from $3.7955 two weeks earlier, according to a report by Reuters, Sunday, March 23, 2008. While gas prices hit us directly, diesel is the fuel of our macroeconomy, driving the global supply chain — from trucks to trains, ships, boats and barges, not to mention farm and construction equipment Worldwide demand has been increasing because of emerging economies like China and India, as well as Europe — all of which has tightened global refining capacity. Also, the Federal excise tax on diesel fuel is 24.4 cents per gallon — a full nickel higher than the tax on gasoline. Time will tell what impact this will have on the industrial real estate sector which remains strong — in part because manufacturing output in the U.S. has never been higher and continues to expand, helped by the weakening dollar which has buoyed a good deal of outbound trade. Also, retail remains solid, particularly the indy grocers and big-box retail which fuel so much of the warehouse/distribution construction in our country. Will the rsising cost of fuel cause a shift in the suply chain? Perhaps the most compelling proofs of the impact of diesel prices may be anecdotal and personal. Take trucker Charles Monroe, a driver for more than 30 years. During an interview with WDEF in Chattanooga, TN, Monroe said, “Since I’ve been driving fuel prices have tripled at least. It’s about $600 to fill this one up if she’s empty.” With diesel prices at almost $4 per gallon, many drivers are cutting back. Independent trucker Jessie Smith says , “If they got three or four trucks they’re parking them and running just one and doing short hauls. The rate of the freight is not going up with the fuel prices. I’m doing mostly short hauls. They pay a little bit more per load and per mile and that helps with my fuel bill.”