With the completion of the Panama Canal expansion on the horizon, REITs could reap the benefit of asset exposure to the U.S. ports that stand to immediately benefit from the canal’s increased traffic.
Ports along the Gulf of Mexico and the East Coast of the United States are prepping for the opening of the expanded Panama Canal. The project is expected to be completed in early 2016 and will cost an estimated $5.25 billion. The new system of locks will allow new ships to pass through that will be capable of hauling at least two-and-a-half times the cargo of vessels that currently use the canal. It is estimated that container traffic will increase 5% to 15% in ports that can accommodate the new ships, according to a July 8 article in The Wall Street Journal.
With expected increases in cargo volume for U.S. ports, the Journal reported that several major U.S. ports have been preparing to accept the new supersized ships, with six of the top 25 ports for waterborne foreign trade by metric ton volume in 2013 taking measures to ensure immediate benefit from the expansion.
The port of Houston was ranked first for waterborne foreign trade by metric tons in 2013, according to the American Association of Port Authorities. The port is undergoing improvement projects to enhance its container terminals and widening and realigning channels to accommodate larger container ships.
The ports of Baltimore and Hampton Roads, Va., are the only ports on the East Coast ready to accommodate the new vessels, while the ports in Savannah, Ga., and Charleston, S.C., are currently attempting to meet the needs of these new ships by completing dredging projects.
The port of New York and New Jersey is undergoing a project to raise the Bayonne Bridge by 64 feet to ensure height clearance for the new container ships, while the port of Miami is currently undergoing project “Deep Dredge,” which will allow the port to support the supersized ships. Of these ports, Miami is the only port that did not break the top 25 for waterborne foreign trade by metric tons; it was ranked 44th in 2013.
With the expected increases in trade volume, industrial-focused REITs with exposure to these ports are likely to benefit from increased cargo flow. Of the metropolitan statistical areas with exposure to these key ports, publicly traded industrial and diversified REITs have the highest exposure to the Houston MSA, with a total of 21.8 million square feet spread among 208 properties. The Baltimore and Hampton Roads, Va., MSAs have industrial properties owned by industrial and diversified REITs totaling 10.5 million square feet and 1.2 million square feet, respectively.