Not all economists agree on supply chain trends

A contrarian view of the Panama Canal’s expansion was provided at last week’s Supply Chain Council’s Executive Summit.

Jared Sullivan, economist with CBRE Econometric Advisors, said that whatever freight has been redirected on all-water routes to U.S. east coast ports has already occurred, and that when the canal project is met in 2014, further cargo throughput will be inconsequential.

“We believe the low hanging fruit has already been picked,” he said. “Seaports on the U.S. west coast will continue to be the dominant gateways for Asian imports.”

This conclusion was reached, said Sullivan, because commercial real estate prices in warehouse and distribution zones in the West have stabilized, and are beginning to show signs of rising.

“We see pent up demand in Riverside, California; Salt Lake City; and Dallas Fort Worth,” he said. “All these trends signal more container traffic coming to the Pacific Rim.”

In speaking to “Supply Chain Challenges in the New Global Economy,” Sullivan also noted that U.S. exports are the one bright spot in shipping now, with every other aspect of the supply chain still depressed.

“Manufactured products are not moving inbound at a rate that indicates expansion,” he said. “We would have to say that supply chains are essentially in recovery, and will remain there until consumers start to spend on durable goods.

Sullivan noted that the recession was marked by a severe inventory drawdown not seen in previous economic downturns, followed by heavy allocation in the upturn.

“How are these swings explained, and what should we expect next?” he asked. “We feel that we are on the cusp of new distribution center designs, and rapidly growing internet operations on retailer’s supply chains.”

Meanwhile, U.S. manufacturers will continue to invest in machinery and high-tech, but not necessarily in hiring. Sullivan also sees a revival home building that will “juice” economic growth.

“Distribution markets have benefitted by inventory cutbacks in the past few years,” he said. “Leased real estate is going to bounce back in a few key geographic regions that will – hopefully – serve businesses as they rebuild.”

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