TEU Volumes Rise; Port Markets Continue to Cool
Key Takeaways
Headlines Impacting Ports and Cargo Flows
Canadian Rail Stoppage
Supply chains in both the U.S. and Canada were negatively impacted by a brief lockout of workers at Canadian National Railway and Canadian Pacific Kansas City in August. Although the Canadian government announced measures to resolve the work stoppage, workers at Canada’s two largest railways have yet to reach a deal. Additionally, the union representing Canadian rail workers filed an appeal against the government order that forced them back to work. For now, train and cargo flow at both railways are back to normal.
The (short-lived) ILA Strike at East and Gulf Ports
The contract between the ILA and East and Gulf Port owners expired Sept. 30, and the ILA elected to strike Oct. 1. However, late on Oct. 3, the ILA and port owners tentatively agreed on wage increases (+61.5%) and to extend the current contract through Jan. 15 to provide more time to come to a long-term agreement.1 Automation remains a key issue for the new six-year contract to become final. Nonetheless, port workers went back to work on Oct. 4 while negotiations start back up.
From Oct. 1 through Oct. 3, no cargo was able to enter the U.S. from the East and Gulf ports, causing bottlenecks and supply chain snarls. Approximately 43% to 49% of all U.S. imports are handled at these ports, and according to Everstream Analytics, for everyday workers were on strike, it could take one week to clear the delays and backlogs of cargo ships that were unable to dock and unload their cargo.
Red Sea Crisis
The ongoing crisis in the Red Sea has led to cargo ships traveling through the Suez Canal being consistently attacked by Houthi rebels in Yemen. While the crisis has not had a substantial effect on shipping to and from North America, it has increased transit times for shippers that choose to avoid the Suez Canal. Delays have been more notable for shipping between Europe and Asia, and the crisis has also driven shipping rates higher for much of the year.
Through July 2024, all 10 key U.S. ports of entry registered annual TEU increases, as consumer resilience and a steady economy persisted despite a multitude of headwinds. All four West Coast ports yielded double-digit year-to-date (YTD) increases through July compared to one year ago, with the Port of Long Beach leading at 20%, the highest among all U.S. ports. On the East and Gulf Coasts, Savannah posted a 13% year-over-year (YOY) climb for TEUs handled, while New York/New Jersey (+12.3%) and Virginia (+11.8%) also reported strong gains compared to the first seven months of 2023. The most substantial improvements for imports were on the West Coast, where Oakland (+20%), Long Beach (+19.5%) and Seattle-Tacoma (+18%) led the nation.
While import volumes edged higher across key U.S. ports, this has not affected their respective warehouse markets, many of which have experienced limited or negative net absorption since early 2024. However, some port-proximate markets continued to see healthy demand. The Houston and Savannah industrial markets absorbed over 9.9 and 7.3 msf of space, respectively, since the start of 2024, due largely to robust delivery totals for pre-leased facilities.
In Canada, Vancouver was the only major port to register annual improvements, up 18.6% annually. Conversely, the ports of Montreal and Halifax recorded declines of 8.8% and 2.9%, respectively, through July. Meanwhile, Mexican ports of call yielded marked increases through May, driven in part by nearshoring, especially near Pacific Coast ports, which handled 73% of Mexico’s total TEUs. Over 3.7 million TEUs were handled nationwide in the first five months of 2024, a 17% surge YOY. Leading the way were the ports of Manzanillo (+12.9%), Lazaro Cardenas (+35.5%) and Veracruz (+18.8%), which totaled 1.6 million, 910,891, and 534,131 TEUs, respectively.
2023 North American Market Share for Import Volumes (TEU)
Work stoppage risks during the 2022 West Coast port negotiations led shippers to shift market share away from West Coast ports, diversifying entry points to ensure shipments reached consumers. East and Gulf coast ports have typically handled more TEUs per month, but the gap has begun to shrink since late last year and reached its lowest level in July (51,000 TEUs), somewhat fueled by the looming disruptions at the East and Gulf ports during the October 1st strike.
Despite Mexico surpassing Canada as the top trade partner for the U.S., due in part to nearshoring, China remains the leading partner for maritime trade. China is the largest source of imports at all 10 major U.S. ports, with Vietnam and India rounding out the top three.
Although imports have increased compared to 2023 totals, this has not had a positive impact on most key U.S. and Canadian port industrial markets. Houston, Savannah and the Inland Empire industrial markets posted the healthiest absorption totals (9.9 msf, 7.3 msf, and 2.8 msf, respectively) through the first half of 2024, driven primarily by new construction deliveries with tenants in place. Industrial rental rate growth has also moderated across port markets, with most West Coast ports reporting notable YOY declines as demand slipped and vacancies climbed. Many occupiers have shed excess space leased during the height of the pandemic as consumer demand has shifted from non-durable goods to more experiential purchases. Although the economy and consumer have remained resilient, the industrial market has continued to cool, recalibrating after the record-breaking pandemic years of 2021 and 2022.
From 2023 through mid-2024, a significant amount of new supply delivered across the U.S. (856.6 msf) as developers continued to introduce new, Class A supply to the market amid a cooling trend. In that time, deliveries accounted for 4.9% of the second-quarter 2024 U.S. inventory total. However, the pipeline has now substantially dissipated, down 46% YOY. While some port markets, such as Houston, Savannah and the Inland Empire saw robust completion totals over the last six quarters—all exceeding 8% of their current inventory totals—many port markets experienced more modest construction totals. New construction deliveries over the past six quarters remain modest in Los Angeles, Oakland/East Bay, New Jersey and Seattle, accounting for less than 4% of their current inventories.
Inventory-to-sales ratios for retailers have not yet returned to pre-pandemic levels. During the pandemic, retailers adopted a “just in case” inventory strategy, but they have since shifted back to a “just in time” approach, maintaining leaner inventories. This strategy has exerted downward pressure on industrial demand, leading to rising vacancy rates nationwide since 2022.
Before the pandemic (February 2020), the inventory-to sales ratio was 1.43, meaning retailers had enough merchandise on hand to cover 1.43 months. This ratio dropped markedly in 2021 to a low of 1.1 as retail sales surged and global supply chain issues delayed goods. However, as demand moderated and supply chain issues eased, the ratio steadily increased. As of June 2024, the ratio stood at 1.32, still below pre-pandemic levels.
This trend, combined with nominal inflation-adjusted retail sales growth being positive in 13 of the last 18 months, has also prevented occupiers from needing to grow their footprints within port-proximate industrial markets.
Global Trade Dominated by Asian Ports of Call
Of the top 30 ports worldwide for TEUs handled in 2023, 77% were in Asia, as Chinese ports accounted for 12. In 2023, China exported goods worth $3.3 trillion, down from $3.5 trillion in 2022. Meanwhile, only two U.S. ports finished in the top 30: the Port of Los Angeles/Long Beach (No.10) and the Port of New York/New Jersey (No. 24). Asian ports have dominated the export landscape, showing the most notable growth over the past five years (2019-2023). Nine of the top 10 ports for growth during this period are in China and India, with the top 10 ports registering increases of 25% or more. The most significant increases in TEUs from 2019 to 2023 were in Guangxi Beibu in China (+109%), Tanger Med in Morocco (+79%) and Qingdao in China (+43%). Some ports have seen their 2023 totals slip compared to 2019, including the Port of Los Angeles/Long Beach, Rotterdam, Hamburg, Hong Kong and Ho Chi Minh City.
Shipping Rates Slipping After Reaching Peak Levels
After global container freight rates fell to their lowest level in late October 2023, they rose markedly through July 2024 due to the ongoing Red Sea crisis, which pushed shipping costs to record highs during the peak shipping season. Although rates have since fallen, they remain well above pre-pandemic levels. Spot rates from Shanghai to both Los Angeles and New York/New Jersey saw notable declines from mid-July to early October, but both routes are up significantly YOY, by 165% and 120%, respectively. If the ILA strike was prolonged, spot rates would have likely swelled again due to major delays at other U.S. ports of entry.
Future Implications at U.S. Ports
U.S. election results and geopolitical events could impact activity at U.S. maritime ports going forward. Nearshoring has already propelled Mexico to become the No. 1 trade partner of the U.S. in terms of dollar value, while other exporters potentially avoid future U.S.-imposed tariffs, specifically on Chinese goods. As a result, there has been a surge in Asian 3PL leasing activity around port-proximate industrial markets such as the Inland Empire, New Jersey and Savannah. Imports from Asia have also swelled in 2024 due to the rush to ship items to the U.S. before the ILA strike and the election. However, port volumes are anticipated to remain healthy for the remainder of 2024, despite the recent three-day strike at the East and Gulf ports.
