Seaports Adapt to Changing Landscape Brought by COVID

SEATTLE—Prior to the COVID-19 outbreak, US seaports experienced a robust year in 2019 with increased 20-foot equivalent unit/TEU counts for both inbound and outbound traffic as well as minimal labor disputes, according to a recent Industrial US Seaport Outlook by Colliers International. But, in January 2020, the US signed a trade deal with China that imposed increased tariffs of as much as 25% on Chinese-made goods, prompting US importers to increase sourcing in locations such as Southeast Asia. Still, overall trade volume increased.

Then COVID-19 posed unprecedented challenges. The pandemic caused an economic stir, reducing consumer demand on certain items and resulting in decreased TEU volumes.

During these unprecedented times, as consumer behaviors and lifestyles were altered and companies adjusted supply chain strategies, US seaports also had to adapt to the changing landscape. The need to accommodate larger cargo vessels has forced ports across the board to adapt with capital improvement projects underway or recently completed at nearly all locations to better service larger vessels. Plans to modernize infrastructure and improve functionality remain necessary for more efficient operations with dredging and infrastructure construction projects underway. Eastern ports are ramping up draught capacity to allow for larger container vessels, while bridge and other infrastructure projects are ongoing on the West Coast.

To further illustrate the shock to maritime trade, blank sailings or canceled ocean vessel routes are becoming more frequent. Through the end of April, there were nearly 170 blank sailings from China into the West and East coasts. And carriers scheduled 80 blank sailings to the West Coast and 43 to the East Coast from early April into July, according to Sea-Intelligence Maritime Consulting. These canceled sailings by ocean carriers are a direct response to decreased consumer demand during the pandemic. Fortunately, these numbers were expected to level off during the summer months as manufacturing in China continues to normalize and US shutdown limitations ease.

However, most of the industrial markets surrounding nine key seaports reviewed by Colliers performed well and include some of the strongest US markets. Combined, the markets reported an overall vacancy rate of just 4.5% at the end of the first quarter of 2020, lower than the national average of 5.1%. Year-over-year occupancy gains and new supply also outpaced 2018, and totaled 17.7 million and 23.4 million square feet respectively. An additional 54.9 million square feet remain under construction in these nine markets alone.

At the onset of the COVID-19 outbreak leading into the second quarter, consumer demand remained high especially for personal and healthcare-related items. Other items such as apparel and footwear have experienced a significant drop in consumer demand. Yet, product continues to pile into the ports, prompting the need for temporary storage space.

This has caused an uptick in short-term space requests, which should quell the fear that industrial sector fundamentals will drastically suffer. In fact, quite the opposite is true, as the industrial sector is expected to rebound faster than other property types as it responds to pent-up demand, says the report.

“The bright spot for the real estate in the port area has been the increase in space requirements for the safety net supply of goods in order to avoid supply inventories being so quickly exhausted as discovered when the pandemic broke,” Amanda Ortiz, Colliers national industrial research director, tells GlobeSt.com. “The imbalance of supply and demand has created an enormous amount of pressure on port locations. Shippers do not want to move product any further than they have to and with supply constraints, it has exacerbated an already challenging environment.”

The Northwest Seaport Alliance was established in 2015 and was the first arrangement of its kind in North America. The ports of Seattle and Tacoma joined forces to unify management of marine cargo facilities and business operations to strengthen the Puget Sound Gateway.

The dedication to the shipping industry has been well received, with 40% of the state’s family wage jobs tied to international trade. In fact, marine cargo operations in both the Tacoma and Seattle harbors support 58,400 jobs and generate nearly $12.4 billion in economic activity. Marine cargo activity also generates nearly $136 billion in total economic activity, representing one-third of Washington’s state GDP, according to the Colliers report.

The Northwest Seaport Alliance is amid a 10-year strategic plan to grow cargo volumes, create jobs and improve its financial performance. The plan includes developing and managing strategic terminals equipped to handle newer and larger container ships and associated additional cargo. Investments currently underway include the Terminal 5 Berth Modernization and the Pier 4 Reconfiguration, which will create one contiguous berth capable of serving two 18,000 TEU ships.