Recently, the logistics business has become very sexy. From warehouses for Amazon to huge transoceanic ships carrying cargo containers to the proliferation of specialized Real Estate Investment Trusts there’s always something in the news. I found the Business Dictionary’s definition of the term the best.
Planning, execution, and control of the procurement, movement, and stationing of personnel, material, and other resources to achieve the objectives of a campaign, plan, project, or strategy. It may be defined as the ‘management of inventory in motion and at rest.’
“In motion” includes road, rail, water, and air.
With the rise of e-commerce, automation-based warehousing and climate-change driven changes in ship power sources, what topic could be better for a blog post about real estate and technology?
Real Estate Investment Trusts make up a large part of the logistics investment universe. For those who are unclear about what these are, here is an explanation from the Investopedia website. “Congress established REITs (real estate investment trusts) in 1960. They allow individual investors to buy shares in commercial real estate portfolios that receive income from a variety of properties, including apartment complexes, data centers, healthcare facilities, hotels, infrastructure (e.g., fiber cables, cell towers, and energy pipelines), office buildings, retail centers, self-storage, timberland, and warehouses.”
Around 50 percent of the links for a “Logistics” Google alert are about REIT transactions, both development and acquisitions of properties. ProLogis, the fifth largest REIT in the country with a value of $34.1 Billion is an owner and operator of “logistics” real estate which includes distribution centers, warehouses, and other properties involved in the transportation and storage of items”.
Of interest, among the three largest REITs by value, both American Tower, worth $61.8 Billion and third largest, Crown Castle International worth $42.5 Billion have invested solely in communication towers, the land they stand on and other parts of the wireless infrastructure. The second largest REIT is Simon Properties, a “pure play” commercial real estate venture valued at $51.7 Billion investing in malls and outlet centers with five of the ten most valuable REIT-owned malls among the company’s portfolio.
There’s a lot of money going into logistics real estate redevelopment especially ports. WSJ Logistic Report February 26, 2019 noted a 15.7 % Year-over-year increase in loaded container imports into the Port of New York and New Jersey in December 2018. CBRE, a real estate consultancy reported that 24 million square feet of logistics and warehouse were added in 2018, a 42% increase and the highest in history.
Alix Partners report that worldwide mandate for container ships to reduce sulfur emissions will cost $10 billion and make or break smaller shippers.
A commercial real estate website, “The Real Deal”” memtioned two current deals, a $13 billion warehouse real estate investment trust Global Logistic Properties and a $1 billion offer for the Singapore logistics firm CWT Group. In February, Bloomburg News announced tthat U.S. warehouse owner Industrial Logistics Properties Trust is buying two real estate portfolios for $905.3 million. In 2018 Blackstone Group bought Gramercy Property Trust for $7.6 billion and ProLogis bought DCT Insdustrial for $8.5 billion.
Liz Graham writes in the April 24, 2019 Walll Street Journal that “Industrial-warehouse manager GLP is planning to take its U.S. arm public this year, according to people familiar with the matter, in what would be one of the biggest real-estate listings on record. The closely held Singapore firm has filed confidentially with securities regulators for an initial public offering that could value its U.S. business, the world’s second-largest owner of industrial warehouses, at more than $20 billion, according to people familiar with the matter.” The second largest IPO REIT offering was by Invitation Homes in 2017 which raised $6.27 billion.
These are exactly what they say, the path from the extraction of raw materials or harvesting of products through transportation to processing to storage and eventual transportation to the end user. From the Central Valley of California to the coal mines of West Virginia, supply chains are the stress points of logistics in the production economy.
A 2015 report by the Institute of Management Accounting estimated that the annual value of global trade was $400 trillion. In a Cision website a new market report published by Transparency Market Research reported that, in 2015, global road, waterways, rail and air transport revenue was $8.18 trillion in 2015 and is expected to reach $15,52 trillion by 2023 No wonder the international shipping industry is constantly looking for ways to capture more business.
A growing consideration for supply chains is their environmental footprint. According to the CDP( here is a description of what they do) emissions located in the supply chain are around four times as high as those from direct operations.Their 2017 supply chain report, invovling 99 primary source companies, reported that In 2017 more than 4,800 companies – the largest data set ever collected by the CDP supply chain program – reported emissions reductions amounting to 551 million metric tonnes CO2, which translates into US$14 billion in cost savings.
For an example of how a company can affect the carbon profile of its supply chain, an article in the New York Times in April 2019 looks to Apple. The company announced that 21 manufacturers in its supply chain have recently vowed to obtain all their electricity from renewable sources, bringing to more than 5 gigawatts the total amount of renewable energy that will be used by the company and its suppliers by 2020. That would bring the use of renewable energy to more than 40 percent for Apple and its manufacturing supply chain, the company said, and the total number of participating suppliers to 44. However, a large amount of its subcontracted manufacturing is done in China where it is difficult to get them to make an effort.
SEAPORTS AND SEA RISE
Seaports are critical transfer points. In the 17th century, they consisted of roughly constructed timber platforms and piers moving bulk and barrelled cargo off and on ships on ramps by humans. Today, giant cranes unload cargo containers which are stacked on giant ships on to trains or trucks at what are called transmodal centers. There are 190 shipping ports in the world, There are always ports being enlarged or modernized. Costas Paris writes in The WSJ Logistics Report’s March 6, 2019 edition that the Jacksonville, Florida port is advancing a $480 million plan to upgrade its facilities, including deepening its channel. The bigger container ships are a growing part of the trade scene on the Atlantic since the expansion of the Panama Canal in 2016 enabled larger vessels to come from Asia.
SSA’ will invest $129 million bu 2023 to expand its Jacksonville 50-acre International Gateway Terminal facility to 80 acres At the same time, the port authority is moving forward with a broader plan to deepen the channel facing the Atlantic Ocean. When completed, the terminal will be able to handle ships carrying up to 14,500 containers each, the biggest vessels now able to serve most ports on the U.S. East Coast.
US shipping sea ports are facing future issues from sea rise. In a Wall Street Journal article dated February 11, 2019 Erica Phillips writes that the Port of Virginia’s $375 million budget for its Norfolk International Terminal includes raising of electrical equipment and moving its data centers to a more remote location. The sea level has risen about 1-1/2 feet in the last 100 years and could raise this much in the next 30 years.
The Port of New York and New Jersey is putting the finishing touches on its $1.7 billion project to raise the Bayonne Bridge. And Georgia’s Port of Savannah is looking at a $2.5 billion improvement plan, including a new, higher bridge over the Savannah River. Despite these efforts the reporting media feels that that the overall effort is far less than required given the fact that, according to a February 2019 article by Sarah Peyok, seaport cargo activity accounts for 26 percent of the country’s GDP.
THINGS YOU PROBABLY DIDN’T KNOW
- The European Union is revamping the tractor part of tractor-trailer truck.
- Nearly 70 percent of freight transported in the U.S. depends on trucks. In fact, trucks transport $671 billion worth of manufactured goods every year.
- Related Companies, the real-estate developer behind Manhattan’s $25 billion Hudson Yards, is going after Amazon
- Alabama’s infrastructure is unprepared for the new economy.
- Yes, there are husband and wife truck drivers out there.