Houston to Benefit From China Plus One Supply Chain Restructuring
US supply chains will shift away from an over-reliance on China to include more expanding Asian and European markets, which will establish new national distribution models that will particularly benefit regions such as Houston.
HOUSTON—In response to both recent trade wars and COVID-19, US supply chains will shift away from an over-reliance on China to include more expanding Asian and European markets. This shift will establish new national distribution models that will particularly benefit regions such as Houston and the Southeast, according to CBRE’s international trade report.
China is and will remain one of the largest US trade partners. However, amid recent disruptions of supply chains, many companies will adopt a more diversified “China Plus One” strategy, an increasingly common strategy for manufacturers that have the bulk of Asian operations in China but want to reduce dependency on the manufacturing giant, in large part to limit the impacts of tariffs.
This trend has already started, as China-to-US exports decreased 12.7% in 2019 and total trade between the countries was down $100 billion year-over-year. Countries that have benefited from this shift include Taiwan and Vietnam, the US’ fastest-growing trade partners. Total trade between the US and the Southeast Asian nations increased in 2019 by $18.7 billion and $9.1 billion respectively, says CBRE. Countries outside of Asia such as Belgium, the Netherlands and France have seen increased activity as well.
The Gulf and Southeast regions are best positioned to capture this industrial demand, boosted by growth in trade with Europe and parts of Asia that access the United States through the Suez Canal. The Port of Houston, the dominant global center of the Gulf region, will continue to grow and benefit from its strategic location, favorable real estate conditions and established worldwide trade partnerships, says the report.
But perhaps its most compelling attribute may be the fact that it is the gateway to Texas with more than 29 million people, the second most populated and fastest growing state. Companies will ship goods, whether from East Asia through the Pacific and Panama Canal, or from the Western Hemisphere by way of the Atlantic to keep robust inventories in the Texas region, CBRE points out.
“For companies shipping into the Port of Houston, it’s about reaching a significant growing population and at the same time, cutting back on truck and rail transportation costs from the East and West Coast,” said Michael Valleskey, associate research director for CBRE. “Houston has a prime trading location with the ability to efficiently reach all directions on the globe. It also has significant logistics capacity, available land and lower asking rents. These fundamentals, along with access to a growing population, will help drive Port growth and capitalize on select shifts in supply chains.”
The Port of Houston’s location and global access is obvious when looking at its top trading partners:
- Asia–China, South Korea, Japan, India
- Central and South America–Mexico, Brazil, Columbia, Chile
- Europe–Germany, The Netherlands, UK, Italy
- Mideast–Saudi Arabia, UAE
“The Port of Houston is ranked first in the United States in foreign waterborne tonnage, first in US imports and first in US export tonnage,” Valleskey tells GlobeSt.com. “The Houston region has more than 200 international trade partners and 45 countries logged more than $1 billion in trade through the Houston-Galveston customs district in 2019. The Port is home to the largest petrochemical industry in the US and second largest in the world.”
Moreover, the Port refines 35% of the US gasoline supply, has a 59% share of US total waterborne export of resin, the core ingredient for all plastic products; and 91 countries have official government representation in Houston.
Houston has a racial diversity that’s 37% Caucasian, 37% Hispanic, 17% black and 8% Asian. The city has no ethnic majority and nearly one in four residents are foreign born, according to CBRE research.
Another impending change: Domestic manufacturing is likely to increase and consequently, some real estate markets may see near-term demand bolstered as supply chains are adjusted and more parts are sourced from North America to meet new requirements. Recent disruptions have caused retailers and manufacturers to become more flexible and nimble, and many may opt to locate operations or a portion much closer to consumer bases. This will be more prevalent for smaller manufacturers, says CBRE.
The recent United States-Mexico-Canada Agreement will likely drive more reshoring and increased industrial demand as well, especially in the automotive industry. A provision in the agreement mandates a higher percentage of North American-sourced materials in the assembly of autos.