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September 30, 2019

Many of the world’s fastest growing ports have a surprising thing in common – they are all inland. And their increasing popularity means more need for accompanying logistics investment.

Inland or dry ports were developed to alleviate congestion at sea ports. Many large ports lack the road and warehousing infrastructure to cope with the amount of cargo they can process and those located in busy cities cannot build new road networks, so they handle increased volumes by rail. These railways act as rivers of steel, which take cargo to inland locations where more land is available. Inland ports are often referred to as intermodal facilities, because they are an intersection of rail and road networks.

Land is cheaper inland, so it is better to move cargo – especially long dwelling cargo – inland to free up the more expensive waterside space, says Walter Kemmsies, Economist and Chief Strategist of JLL’s US Ports, Airports & Global Infrastructure Group.

“Sea ports are trying to reduce cargo dwell because this reduces capacity, just as a lingering diner reduces the number of meals the restaurant can serve in an evening.”

China is establishing a new set of 15 inland ports, mostly to improve import logistics where it has underinvested in the past while the U.S. is likely to see about several new inland ports apply or acquire permits in the next 12 to 18 months. Europe already has a well-established network of inland ports but another two or three are likely to emerge, says Kemmsies, especially as an increasing amount of cargo is carried by rail between Europe and Asia.

The development of these new inland ports creates a huge opportunity for logistics real estate developers and investors.

“The inland ports create demand for large distribution centres when located near major consumption markets and medium-sized distribution centres near more geographically spread consumption markets,” says Kemmsies.

U.S. logistics specialist CT Realty and investment partners including PGIM Real Estate launched a 1.7 million square foot, two building project at Palmetto Logistics Park, which is located near an intermodal hub for Atlanta, in April. And earlier this year CT sold a 1.1 million square foot building close to two intermodal rail hubs in California to Bentall Kennedy for US$105.3 million.

Further afield, Canadian industrial real estate investment trust Granite bought Heirweg 3, a 259,388 square foot distribution centre in Born, Netherlands, which is located close to an inland port. It did not disclose the purchase price, but the buy was part of US$154 million of deals announced in July.

There is a direct linkage to rail volume growth and warehouse inventory growth. For example, the inland port markets of Atlanta, Chicago and Dallas have benefited significantly from their freight transportation connections and have seen warehousing stock grow 3 to 12 percent over the past five years, JLL data show.

Substantial sums are being invested in these iron rivers: for example, U.S. freight railroads invested $22 billion to maintain and upgrade the nation’s private rail network in 2017.

Investment in rail and land availability are a requirement for development of an inland logistics park but some of the most successful have been developed in partnership with a government port authority.

“Those initiated by port authorities tend to be 200 to 300 miles away from the port. Sizes range from 100 to 200 acres for the ones closer to the water and several thousand acres for those located 1,000 or more miles away from the port – because they can capture a wider range of occupiers,” says Kemmsies. In the U.S., inland hubs such as Atlanta, Chicago, Dallas, and Kansas City benefit from direct express rail service from major seaports.

Click to find out what IMO 2020 means for logistics investors.

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Walter Kemmsies

Managing Director, Economist and Chief Strategist, JLL

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