Supply Chain

The corner and what’s around it
by Christopher Steele

Real estate development still suffers from anxiety over the economy, nervous speculation over future energy costs, responses to globalization, and the possibility that current real estate supply won’t match or exceeds users’ needs. Still, this situation provides opportunities for the brave and the wise to act on new trends as they become apparent and move ahead of the competition.

Cargo Business News’ Southeast Freight Conference in Charlotte provided an excellent forum for discussing responses to the current real estate environment.

Many of the attendees expressed the belief that we are not near a full recovery from the current economic slowdown. Federal stimulus funds have not had the intended impact on jobs growth nor on consumer spending. Likewise, capital markets remain frozen, blocking most speculative development. As a result, few corporations currently have neither the resources to develop their own real estate solutions nor can they find ready-developed properties that meet their new needs.

The panelists at the Southeast Freight Conference confirmed this trend, and there was considerable speculation on when this is likely to end. However, some companies on both the user and developer sides have made progress in planning for the future.

Shipper needs
BMW spoke about their strategy on warehouse development and logistics. In short, the company views all warehousing as a liability, which should avoided. Parts sitting in a warehouse represent lost revenue, and — due to the changeable nature of the
product — might never actually be installed on a revenue-producing car. They would much rather have parts arrive from suppliers just as they are needed and only as much or as many of them are required at that time. Of course, the parts must be there when needed or the whole system breaks down.

This is quintessential just-in-time manufacturing, applied to a large scale. However, this approach also means that BMW won’t be leasing warehouse space (an obvious bit of bad news for distribution center developers). However, such an approach does require parts suppliers to get their products to BMW quickly. This in turn usually means part suppliers need production facilities or their own storage at a place where they can meet these timeframes. This does result in a market for manufacturing and/or warehouse space near the BMW plant — just not of the type or single-tenant size that might otherwise be expected.

Other end-users, manufacturers, and developers noted the temporary lull in fuel cost increases and underlined the key aspect in that concept — its temporary nature. The panels broadly agreed that energy and fuel costs would resume their upward trends as the economy returns to some form of stability. As with the BMW example cited above, this too would point to the need for more, smaller logistics facilities placed close to key consumption zones.

Developer and carrier plans
Developers and carriers have already begun making plans to attempt to keep pace with the likely needs of corporate end users. They are also starting to try to take best advantage of new key pieces of infrastructure.

Any discussion of the Southeast has to include the renovated and expanded Panama Canal, which is expected to come back online in 2015. The Canal is likely to carry increased Asian traffic into Eastern and Gulf ports and — coupled with increased traffic from South America and Europe — should spell a rebirth for eastern freight hubs. Savannah, Norfolk, and Jacksonville have all seen extensive development at the ports themselves and at key inland intermodal points. While Atlantic ports had already experienced some preliminary growth (due to trade flows via Suez), Gulf ports have lagged somewhat by comparison. However, speakers at the conference identified both Mobile (container) and New Orleans (bulk) as probable locations for new investment.

The Norfolk Southern Railroad provided a progress report at the session on their Crescent Corridor project. This $2 billion plus investment in upgraded trackage will stretch from Louisiana to New Jersey, increasing the capacity and speed of travel through this busy shipping lane.

The presence of the corridor — which parallels I-81 for much of its length — could spur additional intermodal development in markets such as New Orleans, Chattanooga, Charlotte, Atlanta, Northwest Virginia, and Eastern Pennsylvania.

This is just a little of the news showing that companies are still on the move, and it might start to show the way towards renewal in the industrial real estate markets.

We’ll move past American borders in our next column to start a short series on global logistics/real estate trends. We’ll start with a discussion of Canadian and Mexican activities, followed by European and Asian trends and how these will impact real estate development.

In This Issue

Up Front

News, Trends & Analysis
New Items

Transport Economics: Don’t be so gloomy

Capitol Watch: From cargo screening to
roadability equipment

Trade Tools: A different world of trade in 2010

Supply Chain
Chris Steele: The corner and what’s around it

Compliance Corner: Hot trade compliance issues for 2010

Tech Trends: Five trends for 2010

Commentary
David Bennett: Five predictions for 2010

Gateway Glance
Georgia

Vietnam

The Port Community
East Coast Ports 2010: Five things to watch for

West Coast Ports 2010: The future of West Coast port productitivy?

The Shipping Environment: Five sustainable trends for 2010

Product Review: Cranes

Casualties
Triple-deck trailer barge snaps towline, tankers leak,
Coast Guard ice breaker runs aground ... and much more

Final Say
Your supply chain dynamics: 2010 crisis? Or oppotrunities?