S. E. Williams
In mid-summer CBRE, the world's largest commercial real estate services firm, released its 2016 North America Inland Ports Logistics Report.
The report discussed how the rapid growth of e-commerce had fueled the development of warehouses and distribution centers in twelve of the nation’s primary inland-port markets at nearly twice the national rate—its list of inland port markets included California’s Inland Empire.
According to the report, even with the surge in construction, demand for industrial buildings in at least nine of the twelve areas have seen availability rates decline from post-recession peaks faster than the national rate primarily as the result of e-commerce that has flooded American seaports with what the report described as “an unprecedented volume of foreign cargo destined for markets across the country.”
The way it currently works in many of these areas is that cargo is routed from seaports to nearby inland ports, which are major transportation hubs where cargo is handled, warehoused and broken into smaller batches for further distribution to consumers within that region.
According to the Head of CBRE’s Industrial & Logistics Research in the Americas, David Egan, “As online commerce continues to expand, more shippers, retailers and logistics firms will seek top-quality, big-box warehouses in the leading inland-port markets to serve as critical links in their supply chains.”
The report stressed that collectively, the 12 inland ports have expanded their base of industrial properties by 2.7 percent in this year’s first quarter and far outpaced the national average growth rate of 1.6 percent. The fastest growing of the 12, was the Inland Empire with a growth rate of 4.3 percent.
Inland ports are defined as having a Class I rail connection to a major seaport and having access to significant transportation infrastructure, be it rail, highway, waterway or a combination of the three. Because of this rapid growth, the Inland Empire is among the three inland ports nationally experiencing the greatest difficulty keeping up with demand and having the least availability.
Inland Empire economist and consultant to the Port of Long Beach posted a guest commentary in the San Bernardino Sun earlier this year that reinforced the perspective of the CBRE report. “In 2016,” Husing declared, “The huge and growing volume of cargo flowing through Southern California is requiring us to rethink how it can be moved efficiently.”
According to John Husing, the growing demand gave increased impetus for a detailed economic analysis of the value and benefits of an inland port to be served by a dedicated train. The Port of Long Beach in conjunction with the Port of Los Angeles has commissioned just such an analysis. Husing was quick to remind readers that this was not a new idea; however, increased demand has made this a growing priority.
As mentioned above, an inland port is a non-seaside hub where significant amounts of cargo are handled, warehoused and broken into smaller batches for further distribution. The inland port is often anchored by an intermodal rail facility but can also have an inland waterway, such as a river, along which cargo can be shipped. To be categorized as an inland port the following criteria must be met. Firstly, there must be direct connection to a major seaport via Class I rail; and secondly, there must also be access to major transportation infrastructure usually in the form of rail but can also include an interstate highway or inland waterway.
These criteria are mandatory and beyond that, inland ports share many, if not all the following additional criteria—access to large markets; plentiful industrial real estate inventories with an abundance of Class A warehouse and distribution space; large and consistent labor pools; and local and/or state economic development policies that provide Free Trade Zones and tax incentives.
In describing how an inland port could work in the inland region Husing explained, “To better process cargo, step one will be to work with cargo owners and ocean carriers to have cargo loaded not by port of destination but rather by major U.S. destination, with the Inland Empire the test case.”
The way it would work is that cargo going to the inland area would be loaded onto the dedicated train. Each day the train would transport approximately 250 railcars to the inland port where they would be unloaded, sorted and picked up by trucks and delivered to warehouses in the area. Empty containers and cargo would be placed on the train and returned to the harbor.
According to Husing, although there would be costs associated with building the inland port itself, there should be no costs associated with changing the process. It would also be a win-win for the various stakeholders in the process from the ocean carriers, terminal operators, the harbors, the railroads, trucking companies, truck drivers, companies that own the cargo being moved, exporters, and most importantly—the environment.
Due to the inland region’s deplorable air quality, the growing increase in the number of trucks that transverse the region has triggered an equal and opposite increase in concern over health issues related to truck pollution. An inland port would reduce the number of vehicle miles travelled by heavy duty trucks in the area and it is projected, traffic would be cut because cars and trucks would spend less time in stop and go traffic.
Although an inland port appears to be a viable and economically feasible option, building an economic case is the key to a consensus path forward. The outcome of the joint analysis by the Port of Long Beach in conjunction with the Port of Los Angeles will be an essential first step.
Amid this evolution, America has elected a new president and as Forbes recently reminded the nation—President-elect Donald Trump is not just a business man, his area of expertise is commercial real estate. The decisions he will ultimately make as president could have a significant impact on how the future of warehousing in the Inland Empire unfolds.
Beyond concerns about the commercial real estate industry, there are also concerns over how decisions by President-elect Trump could impact the nation’s trade policies and as a result, California in general and the Inland Empire specifically. The state’s economy is intimately tied to the flow of goods and services in and out of the Pacific Rim.
Some California economists wonder what would happen to the state’s economy if the President-elect is as good as his word. What would happen if he really does cancel the North American Free Trade Agreement; or pulls out of the Trans Pacific Partnership negotiations; or disrupts America’s flow of trade with China?
Another growing area of concern is Trump’s promise to levy 35 percent tariffs on companies who are building their products overseas and then importing them for sale in the United States. The cost will most certainly be passed on to consumers who in recent years have grown used to paying low prices for less costly imported goods—a blessing for many consumers during tough economic times. In addition, if American wages remain suppressed few would be able to afford the probable increase in the costs of products.
The clock is rapidly ticking toward Inauguration Day 2017. In a few short weeks, the anxiety and anticipation will come to fruition—only time will tell.
To view the CRE report in detail visit www.researchgateway.cbre.com/Layouts/GKCSearch/ DownloadHelper.ashx.