The Panama Effect

Canal expansion should spark more cargo, CRE demand in Memphis

By Sarah Baker

The expansion of the Panama Canal will affect the supply chain of businesses across the country, including those involved in Memphis industrial real estate.

Memphis real estate could benefit from the $5.2 billion expansion of the Panama Canal that will allow bigger container ships through it. The expansion is expected to be complete by mid-2015. (Photo: Courtesy of Danny Chase, Colliers International)

The 48-mile Panama Canal connects the Pacific Ocean to the Atlantic Ocean through the Caribbean Sea. The $5.2 billion expansion will allow bigger container ships through the canal, providing a more efficient way of moving a large number of containers.

Ships that now go through the Panama Canal can hold up to 4,400 containers, via 105-foot-wide existing locks. Once the expansion is complete, which is expected by mid-2015, ships carrying as many as 13,200 containers will be able to pass through the Canal due to new locks spanning 160 feet.

Andy Cates, executive vice president brokerage with Colliers International Memphis, recently joined a group of about 25 Colliers brokers for a trip to the Panama Canal. Cates said Memphis will fare well with the expansion, partly because more goods will be coming in through the ports of Mobile, Ala.; Savannah, Ga.; Norfolk, Va.; Charleston, S.C.; and Houston.

“These Gulf State ports are all going to try to come to where the logistics is the best to reach the most people when they unload these ships,” Cates said. “Either put it on trains or try to truck it to the next distribution center break point. Truthfully, Memphis is always going to stand up on that. It’s been standing up on that as a distribution operation when people are looking just at the United States.

“Now, we’re actually looking at it from the standpoint of, if these ships are coming in around the Gulf States, where’s the closest major distribution center? Well, it’s Atlanta and Memphis, really. We stand to benefit greatly from that.”

It takes eight to 10 hours for a ship to cross the Isthmus of Panama through the Canal. Cates said the Canal’s expansion is really going to influence how the speed of goods is handled, because if the merchandise is getting to the warehouse faster, it then in turn gets to the consumer faster.

“There’s definitely a potential for savings for the tenants to be able to get their products out quicker to the consumer,” Cates said. “Memphis is positioned to benefit from capacity utilizations. Having all of the railroads here is really pretty amazing.”

Cates said one of the markets that have shown it’s ready for this type of capacity utilization is Greer, S.C., where a $25 million distribution terminal is being built to link to the Port of Charleston and Interstate 85. By fall, the inland port operation will take containers shipped by rail and act as a distribution point to trucking and air freight companies.

“More goods will come into Charleston, but it won’t stay in the city of Charleston,” Cates said. “That inland port will have an opportunity to do all of the trans-loading and stuff there and be much closer to the truck access and get it out of the city of Charleston.”

Dexter Muller, senior vice president of community development at the Greater Memphis Chamber, said his team has been watching the Panama Canal’s expansion closely to see how it’s going to work out for Memphis. However, some of its impacts are going to be determined by the larger steamship lines and how much of their product might be bound for the central parts of the country.

“If for example they go to the East Coast, then we could get less business,” Muller said. “Because a lot of that product is bound for the eastern parts of the United States, east of the Mississippi River, and heavy population centers in the Northeast. So if you were going to go to the Northeast and landed in Norfolk, it wouldn’t be as likely that they would come back to Memphis and then go up to New York. They may stop in Atlanta or somewhere else between here and the East Coast.”

But Muller said regardless of what takes place in the movement of goods through the U.S., there’s going to be a big focus on rail. That seems to bode well for Memphis and Chicago, two railroad centers along the Mississippi River that have been the target of major investments.

Memphis – with five Class I railroads – has direct connections to the Gulf Coast ports, as well as good access to the East Coast ports.

“If you’re in Memphis, you have more flexibility on ports that serve our city because we’re served by basically every port on the Pacific, the Gulf Coast and the Atlantic,” Muller said. “We also have great rail connections to those ports, and we also have interstates that connect us to the trucking route.”

Muller said he believes that Memphis is still “in a catbird seat” to be able to benefit from the Canal’s expansion, because the projections are a huge amount of container shipping’s growth over the next 20 years.

“Everybody’s going to get a piece of that pie,” he said. “We just think that we’re positioned to get a bigger piece than a lot of other communities because of our flexibility and infrastructure.”