Houston’s Proximity to Laredo Allows Inbound Sea Freight Leverage

HOUSTON—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, along with minimal labor disputes, according to a recent Industrial US Seaport Outlook by Colliers International. 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.

Despite this, overall trade volume increased. But then, COVID-19 posed unprecedented challenges. Most notably was an economic stir that reduced consumer demand on certain items, causing TEU volumes to naturally dropped.

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, and dredging and infrastructure construction projects are underway. Eastern ports are ramping up draught capacity to allow for larger container vessels, while West Coast bridge and other infrastructure projects are ongoing.

To further illustrate the shock to maritime trade, blank sailings, i.e. 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. 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 cancelled sailings by ocean carriers are a direct response to decreased consumer demand during the pandemic. But, these numbers showed signs of leveling off during the summer months as manufacturing in China continues to normalize and US shutdown limitations ease.

However, most of the industrial markets surrounding the 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, totaling 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.

In drilling down into the report, there are several key takeaways from the Colliers research team. The Port of Houston ranked sixth in the US in terms of foreign waterborne tonnage, imports/exports and total tonnage handled.

The US Army Corps of Engineers recently approved a $1 billion initiative to widen the Houston port channel, allowing marine terminals to handle two 14,000 TEU vessels at the same time. The project is expected to begin in 2021.

“Due to recent sourcing challenges, Port Laredo in Texas has held the title as the number one gateway for international trade,” Gregory Healy, Colliers senior vice president, supply chain solution and workforce analytics, tells GlobeSt.com. “Houston sits close to Laredo and has the ability to leverage inbound sea freight with product coming in from Mexico and Central America, making it the ideal spot for global supply chains. This position should only be further enhanced as companies look to increase their supply chain resilience and look to both on-shoring and nearshoring opportunities.”