uli fall meeting - 102711 curtis spencer - 411 theater - the...
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The Panama Canal Expansion and Impact on Industrial Real Estate
Presented by :Curtis Spencer, President IMS Worldwide Inc.
Jim Curtis, Managing Partner Bristol Group
Jim Flynn, President The Carson Companies
Moderated by:Ed Schreyer, Executive Managing Director Industrial Services CBRE
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2
The Panama Canal:Impact on Industrial
Real Estate
Curtis Spencer, PresidentIMS WORLDWIDE INC.
Member of the 9th and 10th COAC committee
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Supply Chain Trends
• Slow Steaming
• Environmental Concerns
• Costs – Door to Door today
• Labor Issues – EC looks like WC!
• Panama Canal Expansion – 2014
• Suez Canal – Pirates?
• Recession 2?
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Shanghai to North American Ports: Slow Steaming Effects –
2000 & 2011
Source: ShipmentLink.com (Evergreen) Sailing SchedulesFrom China, it takes about 2 weeks to bring cargo to the west coast and about 4 weeks to bring it in on the east coast. (2000)
3517
34
36 36
17
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Source: ShipmentLink.com (Evergreen) Sailing SchedulesFrom China, it takes about 2 weeks to bring cargo to the west coast and about 4 weeks to bring it in on the east coast. (2000)
3517
34
36 36
17$1,533
$3,034
$2,950
Shanghai to North American Ports: Slow Steaming Effects –2000 & 2011
Pricing as of October 2011
$1,200$3,100
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Source: ShipmentLink.com (Evergreen) Sailing SchedulesFrom China, it takes about 2 weeks to bring cargo to the west coast and about 4 weeks to bring it in on the east coast. (2000)
3517
34
36 36
17$1,533
$3,034
$2,950
Shanghai to North American Ports: Slow Steaming Effects –2000 & 2011
Fuel Surcharges-Worse!
$1,200$3,100
+ $712+ $867
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“The Earth is Round”New Routes to the New World!
Narvik, Norway
Vostochny, Russia
Hong Kong, China
Singapore
Rotterdam, Netherlands
Prince Rupert, Canada
SavannahNorfolk
New York
Los Angeles
Lazaro Cardenas
Punto Colonet
North China
HOUSTON Bombay
Sydney NS
NEW Routes for Imports into the USA
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2005 2006 2007 2008 2009 2010 2011
Mill
ion
s o
f TE
Us
LA LB
NY/NJ Savannah
Oakland Houston
Hampton Roads Seattle
Tacoma Charleston
U.S. Key Port Growth
2005 - 2011
* 2011 TEUs annualized based on actual current
TEU volumes
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East Coast Ports: Current Channel Depth, Ship Capacity
Source: VPA
NY/NJNY/NJMiami
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z
Megapolitans
Sources: Population, employment, and real estate growth forecasts by Robert Lang and Arthur Nelson of the Metropolitan Institute at Virginia Tech and Phil Hopkins of
Global Insight; Business 2.0, November 2005
East Coast-West Coast TEUCost Line Equilibrium- Sept. 2010
I-35 Corridor +40%
Gulf Coast Belt +31%
Cascadia +38%
Norcal +35%
Southland +35%
Valley of the Sun +81%
Great Lakes Horseshoe +10%
Atlantic Seaboard
+12%
Southern Florida +52%
Equilibrium
Line Q2 2011
I-85 Corridor +35%
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East Coast Perspective
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EC Ports will Grow because:
• Increasing Eastern Europe/Indian Trade- Via the Suez. “Watch out for Pirates!”
• Increasing S. American (Brazil, Chile, etc)
• GDP Growth
• Proximity to Major Markets
• Small increase in Asia-US trade through Panama and Suez routings.
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WC Ports will Grow because:
• Increasing Asian China Trade (GDP lowered to 9% Growth Rate)
• Increasing SE Asia Trade, non-China• GDP Growth• Proximity to quicker/cheaper Intermodal
Routings that can penetrate to within 250 miles of East Coast.
• Small decrease in market share of China-based-US trade through Panama and Suez routings.
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Panama Canal Bottom Line• BALANCE – In Market Share after 2014 will be the
answer. Approx. 52%-48% today, 50%-50% after 2014.
• IF- Ocean Carriers re-work pricing after Panama Canal Expansion- lowering prices by 30% for all water, compared to LA/LB + Intermodal, AND the RRs do not drop correspondingly—you could see 10%-20% Market Share drop from WC to EC.
• Likelihood of this happening? 1 in 10.
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Actual Market Share by Route2009-2011
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Recession 2? Are we heading there?
• I personally don’t think so, but….
• Slow Growth – Yes
• GDP Growth 1.2% this year, 1.5% next
• Gridlock in DC? YES!
• But, no Obama-care implementation
• No change in deficit.
• “Kick the can down the road” is the song! We all know it, so start singing!
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How do we fix it?
• Flat Tax – No Deductions – 17%. <$50,000, no tax
• No estate tax or cap gains tax.
• SS tax and Medicare tax without a ceiling.
• Move SS benefits to 69 in 2025 – plenty of $$
• GDP Growth would jump by 2% to reach 3.2% this year, 3.5% next!
• Free the Commerce Department by eliminating CVD and AD on any raw material and component for import into the USA. Would add 1-2 Million Jobs! And $500 Billion in Exports.
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Bottom Line for Industrial RE?
• Stay in the Markets where the PEOPLE ARE!
• Invest where they PEOPLE ARE GOING TO BE!
• 10 and 20 year Demographics are changing.
• Northeast did not sustain the “hit” that everyone predicted, because of the Recession.
• Florida and PHX actually stayed the same over the past 5 years!
• Look for where the demographic trends are likely to emerge in 10 year segments and plan accordingly.
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LA/LB: 40MDallas: 45M
Atlanta: 60M
NY/NJ: 120M
Chicago: 80M
POPULATION REACH BY MARKET.
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z
Megapolitans
Sources: Population, employment, and real estate growth forecasts by Robert Lang and Arthur Nelson of the Metropolitan Institute at Virginia Tech and Phil Hopkins of
Global Insight; Business 2.0, November 2005
Population Forecast 2005 for 25 years
I-35 Corridor +40%
Gulf Coast Belt +31%
Cascadia +38%
Norcal +35%
Southland +35%
Valley of the Sun +81%
Great Lakes Horseshoe +10%
Atlantic Seaboard
+12%
I-85 Corridor +35%
Southern Florida +52%
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z
Megapolitans
Sources: Population, employment, and real estate growth forecasts by Robert Lang and Arthur Nelson of the Metropolitan Institute at Virginia Tech and Phil Hopkins of
Global Insight; Business 2.0, November 2005
Population Forecast 2011-After the Recession – same 25 Years
I-35 Corridor +40%
Gulf Coast Belt +45%
Cascadia +31%
Norcal +30%
Southland +30%
Valley of the Sun +60%
Great Lakes Horseshoe +18%
Atlantic Seaboard
+18%
I-85 Corridor +40%
Southern Florida +42%
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Invest Re-DevelopDevelop Operate
Jim Curtis
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• Labor Arbitrage
• Transportation/Energy Costs
• Manufacturing Redundancy
• Population Centers
Drive supply chain decisions
Globalization, Labor Arbitrage and Supply Chain Costs Define the Modern Business Process Model
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Transportation50%
Inventory22%
Labor10%
Customer Service 8%
Rent 4%
Admin 3%
Supplies 2%
Other Warehouse 1%
Logistics CostPercent of Total
Source: Establish Inc. / Herbert Davis Company
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Imports
% of US imports in 2006
Suez Canal
6% of Asian imports
Panama Canal
19% of Asian imports
75% of Asian Imports go via the Pacific to California
Average Navigation Time from China to US East Coast
21.1 days 21.6 days
Transit via California: 18.3 days-- 12.3 days sailing, 6 days rail
Source: USDA Report, Impact of Panama Cana Expansion on the US Intermodal System, January 2010
Approximate # of ships passing through in 2008
18,000 15,000
Share of Seaborn Trade
10% 5%
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THE FUTURE OF INDUSTRIAL REAL ESTATE WILL BE SHAPED BY:
• Infrastructure/Multimodal Connectivity
• Climate Change/Environmental Considerations
• Energy/Transportation Costs
• Users’ preoccupation with reliability and supply redundancy
• Population Centers and/or Transloading Centers
• Whether Manufacturing Centers shift to other areas (Insourcing, Mexico, China, Vietnam, Indonesia - ?)
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Carson Estate TrustJim Flynn
• Private REIT• Incorporated in 1914• Developer/Acquirer of Warehouse/Logistics
Style Buildings• Focused on Southern California and
Houston, Texas• 11 million square feet
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• Relative World Labor Rates• Value of the Dollar• Cost of Transportation• Cost of Raw Materials
Macro Trends That Will Affect the Flow of Goods
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China Versus MexicoManufacturing
China Mexico
Currency vs. U.S. $ (last 5 years) +20% -19%
Shipping to U.S. 3-4 Weeks 1-2 Days
Duties Up to 23% None or Very Low
Intellectual Property Weak Enforcement Protected
Fully Burden Labor Rates $1.00-$1.50/hr. $2.50-$3.00/hr.
Projected Trend: Manufacturing slowly moves back to North America. Demand for Panama Canal could decline.
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U.S. Population & Consumption
West Coast Gulf & East Coast
Population 46% 54%
Total Retail Sales 54% 46%
Loaded Inbound TEU’s 56.6% 43.4%
Conclusion: Regions most economically serviced by water, already serviced. Only small increase in traffic through the Panama Canal may result.
Source: Grubb & Ellis, Port Websites
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Q & A