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December 5, 2017

By Walter Kemmsies, Economist and Chief Strategist with JLL Ports, Airports and Global Infrastructure

For starters, we don’t need to wait for trade agreement renegotiations to determine what needs to be done with infrastructure. Rebuilding infrastructure damaged by a string of devastating hurricanes can take several years, at a significant cost. These disasters have worsened the already poor state of U.S. infrastructure, which expert surveys indicate is, in some cases, to the point of endangering safety.

Beyond hurricane recovery, the U.S. needs to invest in infrastructure that will support exports.

And the need for export investment and streamlining the bureaucracy within federal infrastructure projects is something the Trump Administration seems to recognize. As of now, talks surrounding the NAFTA renegotiation include opening up markets for U.S. exports.

In particular, the U.S. appears focused on improving access for U.S. exports to markets around the world, expanding its network for agricultural goods, high-end capital goods, petrochemical products as well as services. Between infrastructure repair and expansion, embedding more technology would be a cost-effective means of increasing capacity in these programs.

In recent history, most federal infrastructure dollars have been funneled toward supporting imports and new developments, instead of maintaining or upgrading legacy structures. Now, export infrastructure is a critical area of need. To support export expansion, three areas need to be addressed: our seaports, riverway infrastructure and logistics facilities.

American ports, for example, have been dredged to accommodate arriving container ships. However, to fully aid the extremely deep-laden boats carrying the heavier goods American companies typically export, still-deeper dredging is required in some ports.

And it doesn’t end with seaports. River ports and infrastructure along the Mississippi River and its connected waterways are in need of investment. The Mississippi’s locks were built over a century ago, and even with proper maintenance, they weren’t designed for this long of a service life. The roads also weren’t built to move such heavy equipment, such as Caterpillar tractors, coming from the Midwest today. Investing in the Rust Belt’s infrastructure can help revive outdated terminals along the Mississippi, create new hubs for raw material transport and restore the waterway to its once starring role in the global supply chain.

What’s more, logistics facilities to support a more robust export economy are a necessity. While imports arrive in containers that are unloaded into smaller shipments for distribution, the process is reversed for exports. Products must be delivered in small shipments and consolidated for overseas shipping.

Therefore, you need a significant amount of space near ports to keep empty containers, which importers don’t need. You also need cold storage and facilities designed for safe handling of agricultural products. Finally, nimble rail operations and design are required to efficiently transfer small shipments.

While we have seen investment in distribution centers near U.S. ports, those centers are often supporting imports for e-commerce or other consumer-oriented logistics uses. Of course they are much-needed and aid the rapid growth of e-commerce distribution, but investors need to also consider adding export facilities to their industrial real estate portfolios.

Behind e-commerce distribution centers, cold storage facilities are the second-fastest growing industrial property segment. Inland hubs along key riverways could be viable export distribution facilities as the markets develop and river ports expand.

Overall, smart infrastructure investment would nurture broader-based economic growth, which is a major need for the cities and states that lost economic momentum with the decline of the manufacturing era. Employers strongly consider both the quality and reliability of local infrastructure when determining location and expansion strategies, and the right infrastructure improvements could make a notable impact in their decision-making process.

Click to read more about infrastructure investment in the U.S.

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Walter Kemmsies

Managing Director, Economist and Chief Strategist, JLL

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