Report Examines Trends in Global Manufacturing, Goods Movement and Consumption,
and Their Effect on the Growth of United States Ports and Distribution
HERNDON, Va., November 12, 2010 – 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. The report, Trends in Global Manufacturing, Goods Movement and Consumption, and Their Effect on the Growth of United States Ports and Distribution, provides:
• An overview of manufacturing as an industry and the competitive issues facing domestic and foreign manufacturing.
• The accommodations being made in the logistics industry to support manufacturing.
• An array of drivers that impact site selection for warehouses and distribution centers.
• A perspective on the headwinds facing the United States manufacturing industry and the challenges that they will face from global competition.
• Insights into the inter-relationships and demands that exist between manufacturing, distribution and warehousing and how they may create new leasing, sales, development and construction opportunities.
Sponsored by the Foundation and prepared by Curtis Spencer and Steve Schellenberg with IMS Worldwide Inc. in Webster, Texas, the full report is available for complimentary download at htt://www.naioprf.org.
Manufacturing Trends 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.
Consumption Trends: It is estimated that in 2025, India and China will account for nearly 25-40 percent of the total world demand for goods and services (1), 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 $1.87 billion in goods output while the United States is expected to produce $1.71 billion 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
(2). Global Competition International markets are improving their attractiveness to business and competing with the United States for multi-national marketing, investment, research and development and manufacturing. Increasing pressure from new entries into the roster of countries that are attractive to multi-nationals include the BRIC (Brazil, Russia, India and China) countries as the top locations for foreign direct investment in 2009-2011
(3). Additionally, U.S. government policies have a profound impact on manufacturing and manufacturing-related employment in the United States. Decisions that are made by multi-national 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:
Corporate Income Tax Policies
Research and Development Policy
Export Policy
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
(4). 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.
Numerous citations are credited within the full report, available for download on http://www.naioprf.org. Citations in this release include: (1) Anil Gupta, Smith School of Business, University of Maryland (2) National Association of Manufacturing (3) United Nations Conference on Trade Development, World Investment Survey 2009-2011 (4) American Association of Port Authorities About the NAIOP Research Foundation: The NAIOP Research Foundation was established in 2000 as a 501(c)(3) organization to support the work of individuals and organizations engaged in real estate development, investment and operations. The Foundation’s core purpose is to provide these individuals and organizations with the highest level of research information on how real properties, especially office, industrial, retail and mixed-use properties, impact and benefit communities throughout North America. For more information on how to contribute or for complimentary research reports, visit http://www.naioprf.org.
About NAIOP: NAIOP, the Commercial Real Estate Development Association, is the leading organization for developers, owners and related professionals in office, industrial and mixed-use real estate. NAIOP comprises 15,500 members in North America. NAIOP advances responsible commercial real estate development and advocates for effective public policy. For more information, visit www.naiop.org.
