October 2009 | News | Trends

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Shippers and service providers have enough difficulty meeting customer demand despite encroaching time, service, and cost constraints without political bureaucracy getting in the way. But it does. Pitched battles over quality of life and the goods that bring quality to life are frequent and fervent—and serve as yet another reminder that domestic transportation policy and oversight is lacking and necessary.

Last year's brouhaha between Canadian National Railway and Chicago suburbs over the railroad's acquisition of the Elgin, Joliet & Eastern Railway line, and plans to reroute traffic around the city, frames ongoing efforts elsewhere to curtail infrastructure development and freight movement.

In New York state, Governor Paterson is pushing through a policy, introduced last year with U.S. Senator Chuck Schumer, that allows the New York State Department of Transportation to restrict large trucks from using seven highways as short cuts and to avoid tolls in the Finger Lakes region. The initiative, similar to a plan enforced in New Jersey, seeks to maximize large truck use of New York's interstate highways amid community concerns that freight haulage is hazardous to the environment and the region's quality of life. Longer routings, however, will contribute to more carbon emissions, time, costs, and congestion moving product in, out, and through the area.

The Finger Lakes region is one of the state's primary economic engines because of its agricultural and wine industries and tourism draw. So the conflicts between the travel patterns of large trucks and local/regional economic development, environmental, and safety concerns are especially transparent.

In the upscale environs of Burbank, Calif., a similar controversy is stirring. The International Air Cargo Association (TIACA) recently aired its grievances with the Burbank Glendale Pasadena Airport Authority's (BGPAA) proposed plans to ground all night flights at Bob Hope Airport. The air cargo trade association is calling on the U.S. Federal Aviation Administration (FAA) to reject the airport's application, which intends to curb flights between 10 p.m. and 7 a.m.

BGPAA states that its goal is to "eliminate or significantly reduce nighttime aviation-related noise at the airport, now and in the future, to provide meaningful noise relief to the communities it serves."

All-cargo carriers are the only aircraft currently operating at Burbank during the proposed curfew period. TIACA argues that imposing such a ban would have a discriminatory effect on these operations and preclude the benefits of operating aircraft during overnight hours. These include overall fleet and flight structure; infrastructure constraints; timing efficiencies; and customer drop-off and delivery needs.

The potential backlash of green lighting this plan and stopping overnight cargo flights could have considerable impact on job growth and economic development for the area, as well as set a negative precedent for other curfew applications pending with the FAA.

In addition, TIACA cautions that such a ruling will substantially impact businesses that rely on air freight for their shipments, leading to inefficiencies in airspace usage and undue burdens on the airports that accept displaced flights.

Changing Port Complexion

A receding global economy and downturn in import volumes is recasting U.S. port dynamics.

Ports are undertaking massive capital investment plans to remain competitive once trade rebounds, according to Jones Lang LaSalle's Ports, Airports, and Global Infrastructure report. Key findings in the study, which examines real estate surrounding U.S. transportation hubs, are that weak global trade flows have destabilized U.S. port growth and supply is outpacing demand in many markets.

"Fueled by years of growth in containerized import/export traffic, many U.S. gateway markets expanded their inventory of logistics space at a frenetic pace," says Craig Meyer, managing director and head of the Chicago-based global real estate services firm. "Once cargo volumes collapsed in 2007 and 2008, property fundamentals quickly deteriorated."

During the boom 1990s into 2000, many U.S. ports played catch-up as container volumes ran rampant and double-digit percentage growth was the norm. In the last few years, and despite a global economic slump, ports have continued investing in infrastructure to meet future demands—and for good reason.

The $5.25-billion Panama Canal expansion will fundamentally alter global shipping patterns, allowing larger ships to pass through its locks. With larger shipments on the move, goods can reach the East Coast easily and economically, sparking East Coast ports to compete for a permanent share of waterborne transpacific container traffic.

East Coast port markets with deep-draft channels and sufficient intermodal networks are poised to capture the greatest market share, which will rock the West Coast ports' historical dominance.

"Although West Coast ports have experienced the most severe declines in cargo volumes, they have not fallen victim to high vacancy rates due to over-development seen in other U.S. ports," adds John Carver, executive vice president, Jones Lang LaSalle. "The Los Angeles/Long Beach market has remained buoyant compared to the national average, but in Houston, Savannah, and Jacksonville, supply has surpassed demand. A market correction will begin in 2011, and ports will regain their importance as major regional economic drivers."

Even so, Jones Lang LaSalle expects the West Coast's share of cargo traffic to eventually decline as shifting global trade patterns and competition from other U.S. ports create more market parity.

A Real Estate Offer You Can't Refuse

Now's a good time to go shopping for a cozy new multi-use manufacturing and warehouse facility—one with convenient highway access, a private rail spur, scenic multiple-rack views, durable epoxy floor coatings, and airy skylight ambiance. If you're less particular about amenities, bargains abound.

Declines in retail sales, manufacturing activity, and international trade—combined with the delivery of new speculative space to the market—have pushed up vacancy rates in the logistics sector for the ninth consecutive quarter, according to Grubb & Ellis' Logistics Market Trends report for the second quarter of 2009. For all classes of logistics space, the vacancy rate ended the first half of 2009 at 13.3 percent, a steep increase of 260 basis points from mid 2008.

The Santa Ana, Calif.-based commercial real estate advisory firm expects demand to pick back up in the second half of 2009 as new orders rise and inventories remain low, which indicates manufacturers will need to boost hiring and production in the near term. "Not only does this bode well for manufacturing space, but it also will bring relief to the logistics sector as these products begin to move through the supply chain and logistics users absorb some of the excess space to satisfy the increase in activity," says Bob Bach, senior vice president and chief economist of Grubb & Ellis.

The pipeline of new development has dried up to just 9.2 million square feet of space, down sharply from the 60.4 million square feet under construction in mid 2008, the report states. The decline in new construction and the demand in anticipated near-term expansion are critical components of the logistics market's return to health, according to Grubb & Ellis.

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