Two massive port complexes, a nation apart, are on surprisingly similar tracks to increase their share of the global trade in containerized goods. Sharing a belief that the widened Panama Canal would convince more shippers to route their products from Asia directly to the East Coast, U.S. port authorities on both coasts have devoted the better part of two decades to deepening channels, raising bridges for greater clear heights, investing in greater terminal automation, and shoring-up dockside infrastructure to handle ever-larger ships.

This timeline shows the extent of these dual efforts, which have continued through economic prosperity, recession and recovery, and despite labor disputes, natural disasters and shipping bankruptcies affecting international trade. (Click on the image to enlarge)

For the Port of Los Angeles and nearby Port of Long Beach, recent infrastructure improvements are a matter of retaining market share: California’s closer proximity to manufacturers in Asia has made the Southern California ports the dominant U.S. entry point, receiving 50 percent of all containerized goods shipped to the United States.

The Port of New York and New Jersey (PONYNJ), by contrast, recognized increasing ship traffic through the Suez Canal and the promise of larger ships passing through the Panama Canal as an opportunity to capture new business. Since 2000, the port has been preparing to handle larger vessels and to increase overall efficiency. As a result, PONYNJ is catching up to its West Coast rivals, having logged a peak annual volume of 6.25 million TEUs (20-foot-equivalent units) of shipping containers imported or exported through the port in 2016, or almost 13 percent of total U.S. volume. PONYNJ is the nation’s third-largest port by annual container volume, after the Ports of Los Angeles and Long Beach in the No. 1 and No. 2 spots, respectively.

The highest annual volume recorded at the Port of Los Angeles was approximately 8.86 million TEUs, in 2016; nearby Long Beach handled 6.8 million TEUs that same year. Collectively, the two Southern California ports handled 15.6 million TEUs in 2016, or 32 percent of national volume, and their combined volume is expected to grow 3.9 percent annually through 2040.

Escalating rental rates in the major port markets on both coasts reflect in part the value retailers and manufacturers place on proximity to consumers in the nation’s largest population centers. Roughly one-third of the containerized cargo entering Southern California’s twin ports remain in the region to serve 20 million local consumers. New York and New Jersey anchor the most populous urban area in the country and constitute a lucrative destination for imported goods, many of which pass through the Suez Canal to reach the region’s consumers. As the world’s concentration of low-cost labor shifts from China to India and other markets bordering the Indian Ocean, the volume of goods passing through the Suez Canal to enter the U.S. via East Coast ports will likely increase.

“Ports on both coasts have demonstrated their commitment to serving the largest container ships.”
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A limited supply of buildings and the increasing volume of containerized goods to be processed drive demand for warehouse and distribution space at the major ports. Existing buildings and developable tracts command premium prices, with exit capitalization rates on industrial properties at PONYNJ now roughly equal to those near the Ports of Los Angeles and Long Beach.

Land constraints are choking off construction at the major ports, the exception being California’s Inland Empire, where land is more plentiful. Developers there must decide how far away from the region’s population center they can build before the distance makes a location impractical for distribution centers.

Nearer the ports, some developers are razing and replacing obsolete structures with wider and taller warehouses offering improved efficiency and capacity. In primary markets where tenants have limited options, landlords can command much higher rents from tenants facing lease renewals, forcing some occupiers to relocate to secondary and tertiary markets. Near PONYNJ, companies seeking to move from the Bronx and Brooklyn are adding to industrial demand; used to paying higher rents in New York, they are unfazed by increasing New Jersey rents and more likely to pay at or above asking rates for newer product and increased efficiency.

The largest ports on both coasts have demonstrated their commitment to serving the largest container ships and maintaining high volumes of cargo traffic. In 2016, New Jersey’s Transportation Trust Fund established $400 million in annual funding devoted to road, bridge and transit improvements, vital to ensuring the stability and expansion of the local economy and transportation network. Major improvements are ongoing in Southern California as well, including the $1.5 billion replacement of the Gerald Desmond Bridge, to be completed in 2018.

Despite a decade of media attention predicting that the Panama Canal widening would spread shipping from the major ports to an array of smaller markets on the Gulf and East Coasts, the ports of Los Angeles and Long Beach and PONYNJ have retained their stature as the dominant entry points for containerized merchandise and manufacturing components to be assembled domestically.

Matthew Dolly

As Director of Research for the New Jersey office, Matthew Dolly delivers commercial real estate and economic trends, analysis and reports to team members, clients and prospects.

+1 973.947.9244

Michael Soto

As Research Manager for the Southern California region, Michael Soto oversees research operations, analytics, statistical data maintenance and production of quarterly reports.

+1 213.430.2525