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October 7, 2019

A looming deadline set to force international shippers to substantially reduce emissions will provide opportunities for logistics investors around the world’s secondary ports.

On the 1st January 2020, the United Nations International Maritime Organisation (IMO), the regulatory authority for international shipping, will enforce a sulphur cap on the fuel of marine vehicles.

The regulation – IMO 2020 – will force ocean carriers to use more expensive, cleaner fuel or install expensive scrubbers which reduce pollution. Either way, their operating costs will be higher. To offset costs, shipping companies will deploy larger vessels, since an increase in ship size does not mean an equal increase in fuel consumption, says Walter Kemmsies, Economist and Chief Strategist of JLL’s US Ports, Airports & Global Infrastructure Group.

“There are a lot of 10,000 TEU vessels calling at U.S. ports today and some 14,000 TEU vessels. I would anticipate a shift from the 10,000s to the 14,000-18,000 size.”

Currently, most cargo ships are in the 10,000 – 14,000 TEU (Twenty foot Equivalent Unit – corresponding to the size of a standard 20ft shipping container) range, with larger ships ranging from 18,000 to 23,500 TEU. One 20,000 TEU ship does not use as much fuel as two 10,000 TEU vessels.

Repercussions for logistics real estate

Most ports can accommodate the sheer size of the larger ships, but they might not be so well placed to process the extra cargo the ships carry.

On the water side, most large U.S., European and Asian ports are ready to receive 14,000-plus TEU vessels. US West Coast ports could handle 18,000-plus TEU vessels, while most major European and Asian ports can handle 22,000 TEU vessels.

But, the question is how well they can handle these vessels on the land side, says Kemmsies.

“Los Angeles and New York already have severe traffic congestion and larger ships dropping off more cargo could result in paralysis. In Europe, the larger ports of Rotterdam and Hamburg, while in Asia, Shanghai and Hong Kong have similar land side issues.”

JLL estimates that ports need 60 million square feet of logistics real estate in order to be able to cope with processing the cargo from 14,000 TEU ships.

More pressure on the busiest ports means nearby ports with the capacity to develop further logistics infrastructure could win new business, creating opportunities for logistics real estate investment, says Kemmsies, pointing to Seattle, Tacoma and Oakland on the west coast and Savannah, Norfolk and Charleston on the east coast as examples of ports that could benefit.

“Greek, Italian and Southern French ports also have some headroom,” he adds. “Overall, newer and smaller ports which are not competing for waterfront real estate and highway capacity with residential real estate, such as Savannah on the U.S. east coast, are busting through the gates.”

Savannah, in Georgia, is the fastest-growing port in the U.S. and last year announced a US$2.3 billion, 10 year plan to boost capacity. There is more than 6 million square feet of logistics space under development at the port, much of which is speculative, says Chris Tomasulo, JLL Managing Director in Savannah.

“With YTD absorption of over 7 million square feet in a market of 66 million square feet, vacancy rates under 1.5 percent and demand outpacing development, developers are scouring the market for land that can put into production immediately.

Click to read why inland ports are on the rise and where investors are seeing opportunity.

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Walter Kemmsies

Managing Director, Economist and Chief Strategist, JLL

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