For the uninitiated, the Panama Canal, specifically the canal's locks, are being widened to permit passage of the new generation of super-sized vessels. That project will allow the larger vessels sailing from the Pacific Rim to directly reach East Coast ports. Previously and until then, those vessels must off-load at U.S. Pacific Coast ports, with the goods then shipping cross-country by train or truck at substantial expense.
"This is a $5.2 billion project," Thomas Bisacquino, president of NAIOP Corporate told members of the New Jersey Chapter of the commercial real estate development association. Relating his experiences of a recent tour of the project, "this is more than a ‘short cut,'" he said. "This is a value-add proposition. U.S. ports from New York/New Jersey, to Baltimore, to Norfolk need to invest heavily to handle these larger ships."
For the Port of New York/New Jersey, preparing for 2014 entails a $1 billion lift of the Bayonne Bridge to a clearance of 65 feet to permit entry of the larger vessels. The project, approved and in the planning stages, has been actively supported by NAIOP New Jersey.
Among the interesting facts related by Bisacquino is that existing vessels traversing the canal have a capacity of 4,000 TEUs (a TEU is the cargo capacity of a standard intermodal container. "The new, larger vessels have triple that capacity," he said.
Also, it costs each vessel $250,000 for a one-way trip through the Panama Canal, a transit takes 8-10 hours, the canal alternates east-bound and west-bound traffic at 12-hour intervals, and between 12-15,000 ships make passage each year. In addition to spawning port improvements at U.S. East Coast ports, the expansion project is generating a total of 10.5 million square feet of commercial development at both ends of the canal itself.
Hoped-for post-Panamax prosperity comes at a time when the economy continues to struggle, Bisacquino noted. "There is a lot of uncertainty out there," he said. "On the legislative front, a lot of issues are coming together-taxes, Social Security, the national debt, and so forth. Our industry's biggest issue is tax reform. Ultimately, our industry will have to deal with what we are dealt after the upcoming election.
"The bottom line is that the landlord can't do better than their tenants," Bisacquino said. "As an industry, we rely on economic growth."
The Panamax project, of course, has world-wide implications, and current global economic trends are a patchwork, according to Chris Christopher of IHS Global Insight, a consumer economics expert. For now, "Eurozone growth prospects are dim, the U.S. economy is sluggish, China's export-oriented growth is reaching its limits and slowing down, and there are emerging markets in Latin America-notably Brazil-and Asia," he said.
He likened the global economy to a "Bullwhip Effect-highlighted by volatility. We predict that Asia Pacific will achieve the fastest real GDP growth."
For the New York-New Jersey region in particular, one positive post-Panamax factor supporting the use of the region's ports by the larger vessels is that "goods that arrive here tend to stay here because of the region's large population base," Christopher said. "For other ports, a significant amount of inland shipping might be required."
Asked whether that might mean a flood of goods hitting the region, "it's really a matter of supply and demand," Christopher said. "The expanded canal will permit the passage of extra cargo, but it's a matter of efficiency for this market, efficiency in terms of more cargo per vessel, but fewer vessels and not necessarily more cargo."
"These presentations are extremely timely and of utmost interest to our members," said Michael McGuinness, chief executive officer of NAIOP New Jersey. "We will continue to focus on all issues of importance to commercial real estate as they evolve."