U.S. Ports Update

Healthy TEU Volumes at U.S. Ports Amid Softening Industrial Demand

Key Takeaways

All Ports See Year-Over-Year Increases Through March

The nation’s top 10 maritime ports registered healthy container volume totals through the first quarter of 2024. All 10 ports yielded increases versus the first quarter of 2023, with the ports of Los Angeles, Long Beach and Houston registering 30%, 16% and 15% year-over-year (YOY) improvements in twenty-foot equivalent units (TEUs) handled. This is a shift from the first quarter of 2023, which started off slowly due to the reduction of pandemic-era inventory surplus by retailers. The remainder of 2023 saw improved, but modest, monthly totals, ending the year with 13% lower volume than 2022. However, when compared to 2019, last year the top 10 ports lagged by just 1%.

Each of the past five quarters has yielded upticks in TEUs handled, with first quarter 2024 recording the highest total (11.4 million TEUs) since third quarter 2022. Despite concerns about the U.S. economy entering a recession, the job market has remained resilient and consumer spending has been healthy, leading to strong import totals. In the first quarter of 2024, import totals at the 10 major U.S. ports performed well above the volume recorded in 2019.

Multiple Geopolitical Headwinds Not Shifting Cargo Back West So Far

Despite expectations that West Coast ports would regain market share from East and Gulf ports due to the ongoing Red Sea crisis, Panama Canal drought, and the upcoming east Coast port negotiations, this shift has yet to materialize consistently. While western ports saw their highest market share (52%) of the year in September 2023, East¹ and Gulf ports have consistently captured the lion’s share of TEU volume each month since, handling 53% of the cargo volume in March. Having learned from previous supply chain challenges, shippers continue to diversify ports of entry, resulting in modest growth at most major ports nationwide. Prior to the port negotiations in 2022, West Coast ports maintained a market share of around 53% for the previous three years, as shippers routed most cargo from Asia to the West Coast. Since the middle of 2022, that market share has dipped to 48%.

Shipping Spot Rates Back on the Rise

After reaching a high not seen since February 2022, U.S.-Asia container spot rates declined steadily from February to early April. The recent decline was mainly due to softer volumes during Lunar New Year. In April, spot rates held steady but remained up sharply from a year ago when rates from Asia to U.S. east ports were up 40% YOY, while rates to U.S. west ports rose by 91% annually). The growth in spot rates was mainly due to rising import volumes across the U.S. and increasing purchase orders at Chinese factories. Spot rates to both the East and West coasts of the U.S. are expected to climb in the coming months as import volumes increase. Some importers are moving shipping schedules upward to avoid the upcoming peak shipping season.

The 13 key port-proximate industrial real estate markets have experienced cooling demand coupled with rising vacancy rates and tempered rent growth. While these trends mirror the U.S. macro trends, negative net absorption has been more prominent in many of the port markets as imports reverted to pre-pandemic levels and inventory strategies shifted away from a “just in case” approach. There have been occupiers within port-proximate markets that have placed excess space back on the market. In fact, Inland Empire (1.4%), Charleston (1.4%), Oakland/East Bay (1.4%), Seattle (1.0%) and New Jersey (0.7%) all have seen their sublease vacancy rates swell over the last year. Of the 13 port markets, eight recorded negative absorption in the first quarter of 2024, led by Greater LA and New Jersey, which combined for 7 msf of quarterly net losses. When looking at the rolling four-quarter trend for those two markets, there has been -24 msf of net absorption registered. Conversely, markets such as Houston and Savannah yielded 5.1 and 3.6 msf of positive absorption, respectively, in the first quarter and have seen a combined 39.5 msf of net gains over the last year, largely due to preleased new construction delivering.

Although many port markets rank among the priciest in the U.S. for industrial space, some reported notable annual rental rate declines in the first quarter as demand decelerated and vacancy rates edged higher. Charleston’s average rent fell by 30%, while the Inland Empire (-16.6%), Puget Sound-Eastside (-15.9%), and Greater LA (-10.8%) yielded some of the sharpest asking rent decreases nationwide during that time. However, there were some port-proximate industrial markets that continued to see steady rent growth amid relatively tight market conditions: Orange County posted a 2.8% vacancy rate amid a 5.6% YOY rent increase; Hampton Roads, Virginia, saw rents rise 8.5% annually while boasting a vacancy rate of just 3.2% as of the first quarter; and Jacksonville’s 4.9% vacancy rate was 90 bps below the national average despite a 30% climb in rents since last year.

While some major port markets have been hit the hardest in terms of occupancy losses and rental rate declines, the dissipating construction pipeline will help alleviate some of the upward pressure on vacancy rates going forward. Furthermore, demand is projected to accelerate over the next three years.

What to Watch

• According to the NRF, retailers have upgraded their forecast for imports, expecting monthly import volumes to exceed 2 million TEUs into the peak shipping season. This is due to a resilient U.S. economy and consumer spending that is stronger than expected.
  
  
• The ongoing Red Sea crisis has had a minimal effect on U.S. ports despite some carriers opting to avoid the Suez Canal, but transit times have increased, and this continues to hurt shipping capacity globally. Recent events in the Middle East have caused more delays and issues for shipping between Asia and Europe compared to North American ports. However, these events have led to increased shipping rates globally.
  
  
• While the Panama Canal drought has limited the amount of cargo ships through the channel daily, it has not had a major effect on trade from Asia. Currently, 24 ships are passing through daily, versus 32 per day before the drought started. But with water levels starting to improve, it is anticipated that the key maritime crossing will once again allow for full capacity in the coming months.
  
  
• The upcoming contract expiration on September 30 between the International Longshoremen’s Association (ILA) and the United States Maritime Alliance (USMA) is raising some concerns for shippers and occupiers around the ports in the East and Gulf coasts. However, the ILA has not gone on strike since 1977, and negotiations began in February.
  
  
  • While we saw work slowdowns and stoppages during the West Coast port negotiations in 2022-2023, a similar scenario is unlikely this time because ILA longshoremen receive royalties based on the annual cargo volume they process, creating a disincentive for them to allow cargo diversions to West Coast ports. The ILA has tentatively reached some local agreements with the ports of New York/New Jersey and Baltimore, but a master agreement between the ILA and USMA is still pending.
    
    
  • During the West Coast negotiations, shippers began diversifying their ports of entry, and East and Gulf Coast ports yielded upticks in market share from Asian ports. While some shippers have started to shift cargo west due to the Red Sea crisis and Panama Canal drought, port volumes across East and Gulf ports have continued to yield higher market share than their West Coast counterparts. Nevertheless, with the uncertainty of a potential strike, East and Gulf ports may see declines in volumes if shippers redirect their trade flows back to the West Coast in an effort to avoid any potential work slowdown or stoppages.
    
    
• The collapse of the Francis Scott Key Bridge in Baltimore caused a short-term disruption for the local supply chain in the region. The primary imports to Baltimore are automobiles, lumber, farm equipment and construction machinery. With ships unable to pass through the opening, some cargo has been diverted to the ports of New York, New Jersey and Virginia.
  
  
  • The U.S. Army Corps of Engineers partially cleared some of the wreckage to create smaller passageways for ships to pass through.
    
    
  • The bridge is a key trucking route, averaging almost 30,000 daily trips prior to the collapse. Traffic is now detoured, causing major delays and congestion on other bridges and tunnels in and around Baltimore. What was once a five-mile route from the impact area to I-95 is now 15 miles and a much longer transit time.
    
    
  • While the waterway is expected to be fully cleared in the coming months, the bridge is not expected to be rebuilt until 2028.

¹ For this analysis, East ports include NY/NJ, Virginia, Charleston, Savannah and Houston.