Transportation and Mobility: Import/Export Trends Create Big Opportunity for Inland Ports

Spring 2013

Industrial development — which came to a standstill in the recent recession along with virtually every other property type — is coming back strongly thanks to a convergence of trends that could set the stage for significant inland port development, according to reports by Jones Lang LaSalle (JLL) and Colliers International, as well as recent interviews with John Carver, executive vice president, JLL and K.C. Conway, executive managing director, market analytics, Colliers.

The type and scope of development these two real estate companies envision are not your father’s 10-building industrial park, but rather something much larger, a 1,000-acre-plus master-planned project. The successful inland port or intermodal center needs other features and characteristics as well, including:

John Carver

John Carver

  • A market of three million consumers within 200 miles of the inland port;
  • A major, direct connection to one or more actual seaports by a Class 1 railroad, which is a large freight-hauling railroad with operating revenues of $250 million over a three-year period;
  • Free Trade Zone (FTZ) designation;
  • An abundance of reasonably priced labor;
  • An abundance of well priced land for distribution center development;
  • Collaborative stakeholders focused on success of the inland port; and 
  • Enthusiastic state and local governmental entities that are willing to offer strong incentive programs to parties vested in the inland port.

Indeed, there are numerous inland ports already in existence in Chicago, IL; St. Louis, MO; Kansas City, KS; and Memphis, TN with new ones being developed in Florida, Arizona and even North Dakota. Over the next few years, it is anticipated that every major port in the United States will have an inland port connection.

Below are key trends that will foster this development:

Port congestion and lack of port warehouse space. One of the major challenges, which will only grow worse with time unless action is taken, is port congestion and lack of space to store goods that are coming in. Even after a long recession, space is lacking around seaports. According to both JLL and Colliers, as of late 2012, there were just about 10 existing blocks of warehouse or distribution space exceeding 500,000 square feet within a 15-mile radius of major U.S. seaports. Additionally, there were only 20 blocks of space of at least 250,000 square feet within five miles of major ports. This means that large space users must bid against each other for close-in space or transport their goods elsewhere.

table showing the North American Post-Panamax Ready Ports

Expansion of exports. For many years, the intermodal system, including distribution space providers, were focused on imports only, not exports. That is, goods would arrive by ship, be sent to warehouses and then distributed to the consumer, while shipping containers piled up in huge numbers or returned empty. With the advent of the inland port, these vacant containers can be turned around quickly, filled with cargo and sent back. A pioneering example of this, according to the JLL report, are the Chicago area’s RidgePort and CenterPoint intermodal logistics hubs. Although created mainly to handle time-sensitive consumer goods, the same fast-track model can rapidly return containers filled with exports, which currently includes such items as scrap metal and agricultural products, to outbound ocean freighters.

Expansion of the Panama Canal. According to Colliers, expansion of the Panama Canal will alter global trade routes permanently. Now slated for completion in 2015, the canal will accommodate so called “post-Panamax ships” capable of carrying up to 12,500 20-foot equivalent units (TEUs), compared to a maximum of 5,000 TEUs previously. (TEU is a standard industry measure used to convey capacity in container transportation.) This means large ships previously confined to the West Coast of the United States can now come directly to a port in the east. Four East Coast ports will be ready to handle those post-Panamax ships by 2015:

  • Baltimore (2013);
  • Miami (2014);
  • New York (2015); and
  • Norfolk (now ready).

On the West Coast, four ports are ready including Los Angeles, Long Beach, Oakland and Seattle.

Growing emphasis on intermodal rail. High diesel fuel prices, a shortage of truck drivers, highway congestion around ports, and a rethinking of the railroad business model are placing a greater emphasis on rail over truck, which fits perfectly with the development of inland ports. The intermodal portion of the railroad business was historically a lost stepchild, but it is now the fastest growing component of the business. Formerly, railroads wanted long-haul trips because that resulted in the most revenue. To serve the intermodal customer, railroads may run double-stacked, 240-car trains from the seaport to the inland port. JLL describes this in terms of a barbell, the seaport is on one end of the barbell and the inland port is on the other, and the intermodal railroad is the handle that holds both ends together.

Diversification. Shippers and retailers will no longer depend on one or two ports, but rather a grid system. John Carver described the grid system as similar in concept to an electrical grid where if one switching station goes down, the other stations in the grid can pick up the slack. This is good news for the industrial real estate developer because retailers and other shippers will have to build or rent more warehouse/distribution center space to be able to use a grid strategy.

Best service. The bottom line for shippers is that they are seeking the highest quality port service. They want cargo off-loaded and on its way to the customer. They will not tolerate strikes, port congestion, or ports that have not invested in critical infrastructure to keep cargo moving.