Latest posts by Christopher Trahan (see all)
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The second in a series of articles on how changes in port infrastructure and development can impact industrial real estate. To read the previous article in this series, Government Officials’ Shortsighted Port Investment Hampers Industrial Market, please click here.
In the age of globalization, the potential impact that rural river ports and intermodal connectivity have on the industrial real estate sector is tremendous. Through the facilitation of trade and creation of jobs, seaports and river ports have historically been catalysts for economic growth. In fact, most of the world’s major cities are port cities. The responsibility of trade and economic development has traditionally been placed on seaports due to the seaports’ proximity to cities and to the oceans. The strategic use of rural river ports in economic development, however, should change. The transition of rural river ports into modernity can have great implications for industrial real estate.
Increases in trade volume resulting from advances in transportation and technology put pressure on existing port facilities as well as ancillary services and warehousing. Development is driven by the demand generated through these factors prompting benefits to the industrial real estate sector. Proximity to cities allows the charge for economic development to be placed on seaports. Economic clustering exacerbates this tendency. In the past, with less commerce and political clout than that enjoyed by seaports, rural river ports mostly played a passive role in recruiting and retaining industry. 1 Today, because the forces of globalization are driving competition for industrial investment, rural river port authorities are identifying new ways in which they can proactively impact economic development.
For one to understand the significance of rural river ports in the U.S. transportation network, one must understand their role and scope. The U.S. inland waterway system is divided into five main systems including the Mississippi River system, the Ohio River Basin system, the Gulf Intercoastal Waterway system, the Great Lakes waterway system, and the Pacific Coast system. Together, these contain 12,000 miles of shipping lanes with 300 commercial marine ports and 240 locks. 2 According the U.S. Chamber of Commerce, 56 percent of crude petroleum, refined into gasoline and sold at neighborhood gas stations, travels inside these inland waterway systems. The U.S. inland waterway system also moves 22 percent of chemicals used in consumer products, 19 percent of nonmetallic minerals used in construction materials and energy production, and 19 percent of agricultural products (including 60% of U.S. grain). The system moves 12-15% of ton-miles of U.S. freight. 3 Increasing the competitiveness of rural river ports would stimulate growth, thereby providing many opportunities for the industrial real estate sector to expand.
Traditionally, rural river ports have primarily been concerned with moving these types of cargos, having little initiative to stimulate economic development. The success of these systems has been dependent on their regions’ respective industries as well as their access to intermodal transportation. With few U.S. ports capable of hosting Neopanamax ships, smaller rural river ports are facing the challenge of adapting to market pressures and recent advances in containerization. Several contemporary trends, however, favor rural river ports’ increasing significance. These trends include shipping bottlenecks, omnichannel supply chains, increases in U.S. manufacturing, and increases in automation.
In a study published in 2014, the state of Mississippi identified ways in which rural river port authorities can adapt to modern trends and proactively drive economic development in their respective regions. 4 These recommendations can be applied to rural river ports across the country, but require significant shifts in governance, policy, approach, and political will. Combined with contemporary trends that can help rural river ports and surrounding industrial areas flourish, these recommendations should be initiated immediately. The implementation of these recommendations is necessary and overdue.
Ports are often directed through various forms of governance. They can be state-owned, county-owned, city-owned, or directed through a port commission or port authority. These differing organizational structures vary in financial ability and each layer of community governance usually has missions that diverge from the others. As mentioned in the previous article on ports, most U.S. ports are already under-maintained and underfunded. These conditions compound the problem of divergences in outlooks since divergences create competition instead of cooperation. Port regions should see economic development opportunities as ways to collaborate in order to strengthen the region while involving all stakeholders. Aligning the interests of the government officials, industry, and labor through the formation of economic development associations should be prioritized. The alignment of interests only stands to benefit rural port communities. Unfortunately, many rural river ports do not have such associations.
With the limitation of some port regions’ financial abilities, effectiveness and competitiveness can be difficult to attain. Additionally, while tasked with directing the success of ports, not all individual members of port authorities have either the understanding of economic development practices or the knowledge regarding port enterprise. This can often impede a region’s optimal development of warehousing, logistics and supply chain services, and ancillary services that enlarge a port region’s attractiveness. Any member chosen to serve in the direction of port activity, whether administrator or business person, must be educated on port operations, marketing, and economic development strategy.
In some states, legal restrictions regarding ports are often antiquated while ports in other states enjoy environments conducive to economic development. Restrictions can limit the financial ability of ports to provide incentives for business, and thus limit competitiveness needed to attract industry. Public-private partnerships are often necessary for the development of industrial zones surrounding ports. Port officials are often not aware of available, yet sophisticated and alternative, economic development financing options, and therefore lose out on opportunities to attract business. Because public-private partnerships often require government incentives and adequate infrastructure development, it is crucial that port officials be aware of economic development tools that exist. According to the Mississippi study, many rural river port directors were unaware of available financing tools.
Logistics and supply chain services must also be aware of what port and transportation infrastructure is available in each region. Rural river ports should have effective ways of delineating their value to potential clients. Unfortunately, the Mississippi study found that many rural river ports lacked guidelines for the process of attracting business. It was also found that many rural river ports have inadequate planning and marketing strategies. Many of the ports examined in the study relied on their regional reputations and did not have basic marketing tools such as a website. Several of the ports that were found to have websites had insufficient information about the services the ports offered. Websites are essential for marketing and are often the only way of advertising the criteria for which corporate site selectors are looking.
In the age of globalization, rural river ports of the U.S. are not simply competing among each other, but against ports across the world. Companies such as AECOM are investing in port infrastructure around the globe as they see incredible potential for growth. Competition for business and industry is not exclusive to ports themselves, but their respective communities are also involved in the competition. The good news for the industrial real estate sector is that, as rural river ports adapt to modernity to be competitively relevant, there is tremendous potential for industrial real estate development.
(Image Above Retrieved From: https://tinyurl.com/y7qmkxtv)
- Chad Miller, (2017), The evolving role of rural river ports as strategic economic development actors, Water Resources and Rural Development, vol. 9, pages 28-38. ↩
- Retrieved from http://www.uschamber.com ↩
- T. Grossardt, L. Bray, M. Burton, (2014), Inland Navigation in the United States: An Evaluation of Economic Impacts and the Potential Effects of Infrastructure Investment. ↩
- Retrieved from The 2014 Mississippi Ports Needs and Marketing Assessment ↩