Suez Canal Blockage: Lessons for U.S. Commercial Real Estate

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So, the Ever Given is free again. After running aground in the Suez Canal on March 24 and blocking that most critical of maritime thoroughfares, the massive ship is moving, and now, so are dozens of others.

Experts say things should be back to normal soon, and in the end, the six-day tie-up was hardly a traffic jam of biblical proportions. After all, the critical passageway — first opened in 1869 — once was closed for eight years, from the Six Days War in 1967 until June 1975.

And, while the week-long snafu did cost global commerce a cool $10 billion or so a day, according to USA Today, it may not have much effect here in the New World.

“Since most of the imports blocked over the last week are heading to Europe, U.S. consumers will likely see little effect on prices of U.S. imports,” Jeffrey Bergstrand, professor of finance at the University of Notre Dame’s Mendoza College of Business, told the newspaper in an article posted Monday.

But there are still some takeaways here for investors in commercial real estate.

Don’t put all your eggs on one freighter

There, indeed, was a lot of stuff on that one ship, including 110 containers full of IKEA products alone, according to Reuters.

“This is a devastating event in an already stressed market, where high demand has caused congestion delays that keep import cargo from reaching store shelves in a timely fashion,” Richard Roche, a subcommittee chairman at the National Customs Brokers & Forwarders Association of America, told the news service late last week.

However, the memorable mess is a reminder to businesses everywhere to not put their eggs in one floating basket, no matter how massive.

“I think this really accentuates how end users need to diversify their supply chains. It’s an example of why you don’t want to be beholden to one shipping line or route,” said Chris Brown, senior vice president of Duke Realty (NYSE: DRE), an Indianapolis-based real estate investment trust (REIT) that specializes in logistics properties.

In an article posted by Bisnow in the middle of the six-day tie-up, Brown and several other stakeholders provided some insight on the lessons for CRE presented by the big pileup.

The biggest takeaway for many: storage, extra storage. For instance, the canal is a major highway for much of the bulk material used to make toilet paper, and there was talk of another shortage just a year after the pandemic forced panic buying of that commodity here in the U.S.

Jake Fraker, managing director of capital markets at CBRE Group (NYSE: CBRE), told Bisnow that in fact, last year’s experience made this year’s America more resistant to such effects.

“Most major occupiers have built in what they call safety stock into their warehouse requirements, and we have noticed it is about 5% safety stock that’s being programmed into warehouse requirements by the occupiers,” Fraker says.

The Millionacres bottom line

So, what does all this mean for Millionacres readers? Think about how to capitalize on the focus on warehouse expansion and agility that’s already been growing during the pandemic. Industrial REITs that specialize in warehouses and logistics, for example, can stand to benefit from the resilience being built into the system, and the right investment in the right place can help your portfolio bring some steady profits into port.