Q: Why are the Ports of Los Angeles and Long Beach so significant to the commercial real estate industry in Southern California?
KT: The Southern California port complex is the largest of its kind in North America by a multiple of two. Our local port complex imports more loaded containers than anywhere else on the continent, and that immense volume drives transload and warehouse activity.
The port complex is and will continue to serve as the primary demand driver for shippers that need to transload their products into more cost-effective, deliverable unit sizes and then repackage those products and send them to customers. All of this needs to happen in a facility close to the products’ point of entry, and as a result we have a large pool of companies who need logistics real estate here in Southern California.
Q: Why should we keep a focus on the Ports as real estate experts?
KT: As imported and exported loaded container volume ebbs and flows, the demand for industrial space rides with it. As the Ports go, so goes the absorption rates and the property values for industrial and logistics facilities. As primary stakeholders in goods movement, we as a company are deeply invested in the health of the Ports, and we need to ensure we stay aligned with them.
Accordingly, we are very mindful that we need to understand the dynamics of the Ports, especially how they relate to global trade. More than ever before, supply chains are adjusting in response to tariffs and new legislation as well as increased costs, driver shortages and labor issues at our port complex.
Q: As a broker, what port-related opportunities do you come across?
KT: I work as an industrial real estate broker in a market that is highly dependent upon transloading operations (moving containers and re-sorting them to put back onto a more efficient over the road, second last mile trailer) and upon solving for the increased volume of goods that continues to pass through our port complex (speed and efficiency is key). It’s a very dynamic situation—every year we see a larger volume than the one before. Having a deep understanding of that situation helps us support our clients with forward planning, underwriting, financing, and working through entitlements. Over time, this work has been very accretive for me and for those who understand global supply chain movement. Not only do we understand the implications of what happens when we have shipping bottlenecks—we can advise clients on how to adjust and plan accordingly.
Q: How do the Ports of Long Beach and Los Angeles stand against our competition?
KT: We’re no. 1 in North America. For comparison, we import two and a half times more volume than the next closest competitor which is the Port of New York and New Jersey. When ocean carriers leave China, in order to reach the East Coast they either pass through the Panama or Suez Canals, which adds an additional day on the water. The best-case scenario from Shanghai to New York is 27 days on the water—meanwhile we are just 12 days away.
Q: So, sounds like we have an advantage based on our geographic location?
KT: Yes, our proximity to Shanghai provides a huge advantage. It’s all about speed to market. Companies like Amazon have an army of specialists who stay up late every night solving for one thing, and that’s speed. If they can identify a supply chain route that maximizes speed, they’ll gravitate to that option.
That’s why our port complex is so dominant. Forty percent of all the imported product from East Asia that lands in North America passes through our ports. And once you learn there are just 13 container terminals in North America, and we receive 40% of volume at just one location, you realize how significant our position is.
Q: Is there a Port system that qualifies as the best in the world?
KT: Well right now, if you were to evaluate a model marine terminal operation it would be the Long Beach Container Terminal (LBCT) which just spent $2B on automation. This was a big bone of contention with the West Coast International Longshore and Warehouse Union (ILWU), but in the last round of negotiations with the Pacific Maritime Association, they established that part of their collective bargaining agreement would allow the West Coast Ports to implement automated technology such as autonomous vehicles.
With the LBCT you will see the deployment of the Internet of Things, predictive analytics—all kinds of sophisticated technology at work. It’s a true model of efficiency. In fact, the dwell time (the time a container sits on the dock) and turn time (the time it takes for a truck driver to enter and leave the terminal with new cargo) is significantly faster at the LBCT than those terminals without automation in place (see YouTube video showcasing LBCT automation here).
The average driver turn time in a non-automated terminal is about 90 minutes. At the LBCT it’s a little over 35 minutes. This matters to drivers, because a shorter turn time gives them more incentive to service our ports instead of going elsewhere for their work. Drivers get paid by the number of turns they make per day, and they will avoid terminals with lengthy turn times. Right now there’s a shortage of qualified drivers, so it’s even more significant that our ports complex is attractive for them. Efficiency and speed are more paramount than ever, and right now the LBCT is the fastest, most efficient large port terminal complex in North America.
You’ll see similar handling overseas in places like Shanghai and Rotterdam, but right now Long Beach has the definite edge in the Western Hemisphere.
Q: Other than speed, can you list some other advantages our Ports have?
KT: Delivery density is the next most critical thing that eCommerce shippers try to solve for with their analytics. The calculus is that they need to get their goods to as many people as quickly as possible, and our local ports certainly provide that.
Southern California has a huge consumer population that amplifies our delivery density. Consider this statistic: almost one third of the product that arrives in our ports from East Asia stays here within Southern California, where it is sold to satisfy local consumer demand. For shippers, this means that over 30% of their product has reached its target consumer geography the minute it is unloaded at the ports. The remaining product is shipped further across the country either by train or truck, but the fact that much of it only has to reach SoCal is a major advantage.
Q: What should stakeholders be doing to ensure that we keep our leading position as a port?
KT: To start, we need to pay very close attention to legislation, as well as capital allocations by both private equity and state and local governments. Additionally, environmental impact and how the port complex has taken aggressive steps at reducing air pollution. There is a joint ports initiative, that by 2030 our port complex must have zero emission cargo handling equipment and by 2035 zero emissions for all trucks entering the LA/Long Beach port complex. Billions of dollars in capital improvements are allocated to complete this overhaul. This has been an expensive but necessary undertaking, and it’s already yielding results. Statistics from the South Coast Air Quality Management District reveal that our air near the ports is 85% cleaner today than it was 20 years ago, and it’s only going to get better with the new initiatives underway.
The real estate community needs to continue to lobby for increased automation. We should also support legislation to allow our ports to adjust and grow to facilitate the increased flow of containers, ships, trains and trucks that need to move in and out of our region.
Remember—beneficial cargo owners have choices. Instead of Southern California, they could enter North America through the Ports of Seattle and Oakland, or Prince Rupert in British Columbia. They could even bypass the West Coast altogether and head to the Eastern Seaboard through the Panama Canal. It all depends on where they can get the best results with the lowest landed costs. As stakeholders in this competitive environment we have to stay aware of these conditions and pay attention to how they impact our clients.
Q: What news is coming out of the Ports right now?
KT: An alarm went off recently due to news that our combined port volumes were barely up one per cent. However, last year was not a normal cycle. We had an influx of frontloading where everybody was trying to beat the clock by getting their product in ahead of the tariffs. So those numbers a year ago were artificially inflated. Warehouses were filled to the brim, there wasn’t enough space to store everything, and so we had an increase in rents. Now we’re just coming back to a normalized trading cycle, and as we move through September, those volumes will start to pick up even more to replenish retail inventories for the holiday season.
There was a “much ado about nothing” over the only slight volume increase. We’re right where we should be in this sort of trading cycle. But things can change with policy decisions coming out of Washington DC, it’s a fluid situation for sure. There’s no way we were going to see that dramatic hockey stick growth that we saw a year ago.
Q: How has Long Beach as a city been impacted by the Ports?
KT: The city of Long Beach is on fire from a cultural standpoint. Long Beach is going through a profound revival right now toward becoming a popular, urban, seaside live, work, play community with a great concentration of art, entertainment, culture and diversity. We’ve seen an inflow of new restaurants and bars, the rise of a more vibrant nightlife, and many other positive changes.
Meanwhile, from an “intellectual capital” standpoint, Cal State University, Long Beach is very much at the forefront of research and innovation in the study of global logistics and supply chains. I teach classes in the University’s Logistics Program, and the way they’ve positioned themselves as leaders in this field is really exciting.
There’s a lot of activity taking place locally. Whether it’s ocean carrier operations, customs brokerage, freight forwarding, insurance providers, financiers, you name it— all these players want proximity to the port complex, so the community is growing in lock step with the growth of the ports.
Q: How has the Port of Long Beach changed over the years?
KT: When I got into the business 30 years ago, container volumes were not significant. Long Beach was primarily used as an import dray off facility for imported Japanese cars. There was very little container activity.
Manufacturing and industrial companies were just starting to leave Southern California and the Midwest to offshore in places like China. It wasn’t until we developed the right infrastructure around the port complex that we saw an increase in wharfage and containers. Innovations have been introduced which have made a big difference. For instance the efficiency achieved by intermodal rail services, tunneling upgrades (achieving consistent clearance heights in tunnels and bridges), dual trackage (where trains can move shipping containers both east and west simultaneously), the introduction of Gantry Cranes (the massive cranes that move shipping containers), and the closure of Terminal Island and the Navy Complex—all of these factors have helped elevate the importance and success of the Ports.
Q: How does that compare to today?
KT: It’s quite a shift. Downtown Long Beach 30 years ago was a very different place compared to today. Just from that alone, you can tell how much has changed. Part of that growth can be attributed to the operations of our port complex and the stakeholders who support it, whether that’s in engineering, construction, insurance, finance, freight forwarding, and yes, real estate brokerage. There is a very strong ecosystem that has grown up around these ports which has helped boost shipping activity, and ultimately created benefits across our entire regional economy.