Global shifts in manufacturing, consumption trends and international competition are three leading factors that will shape the future of goods movement and the demand for warehouse and distribution space, according to a report issued by the NAIOP Research Foundation.
Sponsored by the foundation and prepared by Curtis Spencer and Steve Schellenberg with IMS Worldwide Inc. in Webster, Texas, the full report, Trends in Global Manufacturing, Goods Movement and Consumption, and Their Effect on the Growth of United States Ports and Distribution, is available for complimentary download at www.naioprf.org.
Global shifts in manufacturing have occurred as supply chain tracking systems and logistics networks better support remote production sites that offer lower labor costs. However, challenges with the extra distance - including efforts to deliver parts for production and the delivery of the finished product - make it more difficult to retain predictability in the supply chain. Additionally, managing the longer and more complex supply chain adds expense, which must be tracked to make sure it does not erase lower-cost labor benefits.
Traditionally, products with high labor content have historically sought global production centers where they can access the lowest possible labor costs in wages and benefits. Manufacturing in the United States has been subjected to competition from countries with lower wages and viable platforms for business operations with an infrastructure to support production of labor intensive products. With adequate export systems, many countries have taken lower value-added jobs from the United States and used them to begin their own evolution toward economic stability.
It is estimated that in 2025, India and China will account for nearly 25 percent to 40 percent of the total world demand for goods and services, as the demand for consumer goods such as clothing, food, automobiles, phones and pharmaceuticals is driven by growing populations and a new and expanding global middle class. These consumers will have a dramatic impact on the site selection process for the manufacturing facilities and distribution centers supporting the flow of goods between global production centers and consumers.
In 2011, China is expected to out-produce the United States for the first time, producing $1.87bn in goods output while the United States is expected to produce $1.71bn in goods output. In the United States, this production value has created 12 million jobs within the manufacturing industry, which accounts for approximately 10 percent of the overall United States workforce.
International markets are improving their attractiveness to business and competing with the United States for multinational marketing, investment, research and development and manufacturing. Increasing pressure from new entries into the roster of countries that are attractive to multinationals include the Brazil, Russia, India and China as the top locations for foreign direct investment in 2009-2011.
Additionally, U.S. government policies have a profound impact on manufacturing and manufacturing-related employment in the United States. Decisions that are made by multinational corporations go well beyond the selection of manufacturing locations, and include decisions about where to locate corporate headquarters, research and development centers, production centers and distribution networks. Four have a varying impact on when, where and why companies select and locate facilities:
1. Corporate Income Tax Policies
2. Research and Development Policy
3. Export Policy
4. Environmental Policy
A key to retaining competitiveness and attractiveness in the United States is to re-frame business policies with a focus on corporate taxes, research and development taxes and consistent application of policy regulations. This is vital to ensure that companies based in the United States are not hindered and that there is an environment where investment is seen as less risky in the United States than in other countries.
Containerized Trade and the Effect on Real Estate
Containerized trade is the engine that drives warehouse and distribution space. Goods flow from origins to destination buildings in ocean containers are measured in 20- or 40-foot equivalent units (TEUs). These containers are transferred from a ship to the terminal, and then loaded on a train or truck for local, regional or inland delivery.
Growth in containerized traffic is an indicator for creating new industrial demand. Total United States container volumes in 2008 were 42.7 million TEUs and declined to 37.2 million in 2009, which is a total net reduction of 13 percent. Given a total estimated TEU capacity at United States ports of 64 million, there is significant latent capacity without adding new port infrastructure.
Historically, United States trade volumes track at 2.5 times the GDP or economic growth. Thus, findings suggest that containerized trade growth of 6-8 percent in the United States is in line with historic performances and expectations.
An important, but unknown, factor for East and West Coast ports is full comprehension of how much of a transition of all-water services from western ports to eastern ports has already occurred and how much "transfer" cargo still exists that could make the western-to-eastern coastal shift. According to an August 2009 Jones Lang LaSalle report, as much as 25 percent of current goods that flow to inland ports through western gateway ports could shift to eastern or Gulf Coast ports after the completion of the Panama Canal expansion. The authors of this report offer an alternative view and believe that much of the cargo that will shift from western ports to eastern ports has already done so. New ships that carry larger loads of cargo will have a more dramatic impact on the eastern ports, as ships with only regional capacity will be segregated from those with the necessary infrastructure to support the larger ships and will move goods efficiently and competitively both on a regional and national platform.
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