Patrick Beard
In Part 1 of this series, we defined and simplified the makeup of port gateways, to illustrate their roles as vital arteries in the global supply chain and hubs for economic and real estate growth.
This installment will delve into the two port gateway models: industrialized vs. consumer-driven. Understanding whether a port market operates as an industrialized or consumer-driven gateway is critical for stakeholders to see opportunity and risk more clearly as they arise, and to craft effective financial, operational, and political strategies.
These two models differ significantly in their focus, the types of products they handle, and how they shape leasing strategies and stakeholder engagements.
Jacob Crist
The distinction between industrialized and consumer-driven ports shapes transportation networks, stakeholder engagement, and economic impact. Stakeholders who align their strategies to the unique demands of each port model unlock greater opportunities and minimize risks.
Industrialized Port Gateways: Supporting Manufacturing and Raw Materials
Industrialized port gateways are hubs for transporting, storing, and processing raw or unfinished materials and components, often serving as the backbone of industrial supply chains. Examples include Port Houston, Lower Mississippi River – Louisiana, and the Port of Baltimore.
A defining feature is their handling of raw or unfinished goods. Simply put, these cargoes are “anything that is not in a container unit,” the colorful 20- and 40-foot shipping containers commonly seen in transit. These are referred to as breakbulk, bulk, and/or project cargoes. They rely on an extensive transportation network, which integrates rail, barge, vessels, trucks, and pipelines to ensure the efficient movement of raw or unfinished materials to and from integrated sites, often referred to as value-add or manufacturing facilities.
Products handled in these gateways often include:
- Dry bulk and feedstock materials like agricultural goods (grains and oil seeds), aggregates and minerals (limestone and sand), and petrochemical and energy materials (plastic resins and coal)
- Breakbulk materials such as lumber, paper, steel coils, and aluminum
- Liquid bulk items like chemicals, vegetable oils, and renewable fuels
- Project cargo items such as rolling machinery or oversized components for heavy manufacturing
The handling, or stevedoring, of the cargo between transportation types requires purpose-built facilities and equipment, with specifically trained labor. Specialized equipment like conveyors, pumps, cranes, and unique landside improvements play a crucial role in handling, packaging, sorting, and minor processing, ensuring these materials are ready for their next processing stage. Vessels serving these cargoes are in port for many days at a time, and the ocean voyage is between an origin and destination port.
Consumer-Driven Port Gateways: Catering to End Markets
On the other hand, consumer-driven port gateways cater to the distribution of finished goods, meeting the demands of growing regional populations and thriving consumer markets. These gateways, such as Port of Long Beach, are shaped by factors such as population growth, just-in-time inventory strategy, and institutional investments in infrastructure. Additional examples include the Port of Los Angeles, Northwest Seaport Alliance (in Tacoma and Seattle), and the Port Authority of New York and New Jersey.
Unlike industrialized ports, consumer-driven gateways primarily handle cargoes transported within standardized 20- and 40-foot shipping containers, including:
- Finished consumer goods
- Durable items like appliances and furniture
- Wholesale products destined for retail shelves
Transportation within these gateways relies predominantly on trucking, with rail systems used to move products longer distances, such as Long Beach to Memphis or from the Gulf Coast to Chicago.
The infrastructure of these ports is designed to support high-frequency loading and unloading of ships, ensuring goods are efficiently transported to retail hubs, distribution centers, and last-mile delivery points. The shipping containers are designed to fit uniformly on ships, trains, trucks, and barges, and the handling equipment, like cranes and loaders, is standardized globally. This uniformity reduces customization and streamlines investment.
Most containerships are in port for less than twenty-four hours, and except for the largest container ports, most ocean voyages are part of a hub-and-spoke port call schedule that mirrors a connecting flight network.
Differences in Leasing Strategies
In industrialized gateways, leasing strategies are heavily influenced by the need for efficiency and functionality. Facilities near manufacturing hubs with capabilities to handle specialized liquid bulk, breakbulk, bulk, and project cargoes are highly sought after because they are purpose-built and often cannot be replicated. Stakeholders focus on properties that support multiple transportation options catered to industrial uses and offer adaptability for niche operational requirements.
These ports’ ability to cater to complex industrial needs makes them indispensable for such industries. Investments in site-specific specialized assets, such as docks, landside improvements, or cargo handling equipment, typically follow a medium to long-term strategy forecasting consistent customer demand and volume. Consequently, leases are often long-term (30+ years) and feature a combination of base rent and variable payment terms, with the user financing specialty site improvements being common.
On the other hand, leasing strategies in consumer-driven gateways focus on accessibility to densely populated urban areas and proximity to end consumers. Warehouses and distribution centers close to population centers are essential for minimizing delivery times and meeting the expectations of modern e-commerce-driven markets.
Facilities designed for high-speed sorting and packaging, as well as those equipped with advanced technology to handle diverse product categories, are particularly valuable. These gateways prioritize rapid turnover and adaptability to the fast-paced nature of consumer demand. Leases are structured to facilitate annual cargo volume fluctuations and provide the flexibility needed to adapt to just-in-time inventory ebbs and flows, tools like minimum revenue guarantees and public-private partnerships are used to stay ahead of infrastructure investment demands.
Shaping Stakeholder Engagements
The fundamental differences between these two models should influence how stakeholders engage with them, driven by the demands of end consumers that shape timing, risk, opportunity, and trends.
Industrialized gateways emphasize facilitating the movement of raw materials and components. Meanwhile, consumer-driven gateways are integral to the distribution of finished goods, directly serving consumer markets. Recognizing these distinctions allows stakeholders to align their strategies effectively. Often, a Port Gateway comprises both industrial and consumer-driven operations, effectively functioning as two gateways in one.
By tailoring leasing strategies and stakeholder engagements to the unique requirements of each model, businesses can more clearly see opportunity and risk as they arise, and achieve greater efficiency and success in their operations, ensuring they remain competitive in an increasingly interconnected world.
In Part 3 of this series, we will conclude our review of Port Gateways to highlight the landscape’s current challenges and opportunities.
Craig Hurvitz
Justin Smutko
Aaron Jodka