By Business Facilities Staff
From the May/June 2013 issue
The key to replacing lost manufacturing jobs in advanced economies may be found in the emergence of “logistics clusters.”
According to site selection experts, logistics clusters are defined as an agglomeration of logistics activities in one geographic location. These include transportation carriers of all kinds, as well as warehousing, distribution, third-party logistics services, manufacturers’ operations, retailers and distributers who may have their own distribution centers.
Examples of major logistics clusters include Memphis, home to hundreds of distribution centers and a major air freight hub with impressive land, water and rail logistics assets as well. Overseas, Singapore currently handles a fifth of the world’s maritime containers; half of the world’s annual supply of crude oil passes through the tiny island-nation.
MIT professor Yossi Sheffi, author of Logistics Clusters: Delivery Value and Driving Growth, recently explained the logistics cluster phenomenon in an interview with Access, a logistics-oriented publication sponsored by FedEx, which has its global hub in Memphis. Sheffi is a professor of Engineering Systems and director of the MIT Center for Transportation and Logistics (CTL). He is an expert in systems optimization, risk analysis and supply chain management.
According to Sheffi, logistics clusters are “huge employment engines.”
“People underestimate the degree to which logistics itself provides jobs since it is accomplished on three levels,” says Sheffi.
“The first is in the classic supply chain management activities: blue-collar jobs, like running warehouses and driving trucks. But logistics activities also include information technology jobs, operating global supply chains, tracking everything and optimizing freight movements globally, in addition to jobs in customer service and management.”
The second level of job creation in logistics clusters is the value-added activities like preparing promotional tagging for a retail display or repackaging inside a distribution center for efficiency. “The product is already there, on the shelf in the distribution center,” Sheffi notes.
Distribution centers also are the ideal place to do so-called postponement operations, he says, because “that’s the point [in the supply chain] when you know what customer demand is. You know if the white shirt should go to Kansas and the blue shirt should go to Chicago or the other way around.”
The third level of job creation in logistics clusters is the attraction to manufacturing. Since these clusters enjoy low transportation costs coupled with high level of service, manufacturing plants located in the area can enjoy efficient movement of inbound material and parts as well as distribution of the finished product.
Sheffi cites two examples of Memphis companies leveraging the area’s logistics cluster to gain a competitive advantage. Flextronics has a large computer repair facility in Memphis; the company is able to receive, repair and return laptops and other devices to customers in less than 48 hours. Medtronic, which produces surgical implants and other medical devices in Memphis, is able to guarantee just-in-time delivery to hospitals that order surgical kits the day before operations.
Sheffi anticipates that the trend of service businesses partnering with logistics providers will continue to grow as more businesses understand the advantages of near-instant access to their markets.
“More companies are going to be taking closer looks at logistics clusters,” he says. “And increasingly there are going to be public-private partnerships to make this happen, whether it’s through tax incentives or just overall competence of government.”
Logistics clusters create a “positive feedback loop” because, as each cluster grows, transportation in and out becomes more efficient thanks to ever larger airplanes, ships and trucks. So transportation costs go down even as the level of service and shipping frequency goes up, inducing more companies to join the cluster, which in turn leads to more improvements in services and costs.
The other “self-reinforcing mechanism” driving the growth of logistics clusters is global supply chain and trade, Sheffi says.
“The biggest nodes in the global supply chain—Singapore, Rotterdam, L.A., Memphis, Panama, Chicago—are so efficient that they make globalization and trade easier virtually everywhere around the world. Growing trade volume feed these clusters which are becoming more efficient, in turn, and grow even further,” the MIT professor says.
Not only do logistics clusters have huge potential for jobs creation, they also are hubs of innovation of environmental sustainability.
“This is where you see development of hybrid trucks, electric trucks and hybrid cranes. In L.A., Singapore, Rotterdam—the big clusters—this is where you see rapid environmental innovation,” notes Sheffi.
I-69: Logistics Cluster in the Heart of Michigan
The I-69 International Trade Corridor, which spans four counties in eastern Michigan, serves as a strategic commercial gateway between the midwestern U.S. and Ontario, Canada, with multi-modal transportation infrastructure that offers a wide range of distribution options.
The I-69 Corridor serves industry clusters including automotive, defense, aerospace, medical devices and green technology.
The Corridor is home to a Next Michigan Development Corporation (NMDC), a state designation from the Michigan Economic Development Corporation. The NMDC offers economic incentives to businesses that qualify by showing that they utilize two or more forms of transportation to move their products. Qualifying businesses in the corridor can apply for Next Michigan real and personal property tax abatements and tax-free Renaissance Zones.
Additionally, the four county-wide economic development partners can assist companies not eligible for Next Michigan with other incentives, financing, workforce hiring and training, site selection, lean implementation, and marketing including government procurement.
The Corridor offers export assistance and Foreign Trade Zones. Both create opportunity to support expanded export and import activity. The four county-wide economic development organizations that support the corridor are the Shiawassee Economic Development Partnership, Flint & Genesee Chamber of Commerce, Lapeer Development Corporation, and the Economic Development Alliance of St. Clair County.
The Corridor is home to major multi-modal sites and industrial parks offering high quality/high value industrial buildings and acreage. There are nearly 750,000 residents in the Corridor and it covers more than 2,500 square miles. As a “high traffic-low congestion” thoroughfare, the Corridor provides a multitude of transportation advantages.
The corridor’s multi-modal transportation infrastructure offers a wide range of distribution options:
- Flint’s Bishop International Airport is at its core, offering continental and international flights
- Access to major freeways – including I-69, I-75, I-475, US-23 and I-94
- The Blue Water Bridge connecting Port Huron to Sarnia, Ontario, Canada
- Multiple rail providers, including CSX and Canadian National
Exports are Driving Growth of Inland Ports
The growth of U.S. exports, especially to countries such as China, has put a spotlight on the need for strategic inland ports across the United States, according to Jones Lang LaSalle in a new white paper exploring supply chain dynamics. Inland ports, which traditionally focus on moving and handling imports, are also facilitating the effective movement of goods outside the U.S.
The three factors driving inland port demand include:
- Exports riding high: shipments to emerging markets continue to rise; U.S. agricultural products are in high demand from China.
- Rising fuel costs driving rail and intermodal: inland ports offer cost-effective intermodal access and are critical components in the rapid movement of goods to and from seaports.
- Growth in global containerized shipping—Savvy shippers make use of import containers arriving at inland ports to export goods back overseas.
“Inland ports are becoming a critical part of the nation’s import/export cycle and the country’s competitive position on the world stage,” said John Carver, head of Jones Lang LaSalle Ports Airports and Global Infrastructure (PAGI) group.
Inland ports are hubs designed to move international shipments more effectively between maritime ports and locations throughout the U.S. interior. They are connected by dedicated rail lines to one or more seaports.
“Shippers are using inland ports to move their goods to market as efficiently as possible, and with fuel costs rising, they provide intermodal and rail options to bypass expensive and costly trucking methods,” said Carver. “Given the rise in containerized shipping methods, inland port shippers are also re-using overseas containers after they are emptied, as another method of supply chain optimization.”
This trend is being seen in one of the country’s fastest growing export industries, agriculture. The last two years have been the strongest for U.S. agricultural exports in history. China has a growing appetite for raw agricultural products such as wheat, soybeans, corn and hay.
“The current challenge for U.S. producers and suppliers is to have an effective supply chain infrastructure in place to manage the growth in export volume, both in the near future and for the long run,” said Rohan àBeckett, Vice President, PAGI. “Shippers are beginning to take advantage of this glut of empty containers in the U.S. as a low-cost solution for shipping exports to China. Not only does this contribute to economic growth by helping close the trade gap with China, but it will boost industrial real estate prospects as demand for storage and distribution space will rise.”
The agriculture industry will continue to be a major contributor to overall export volume from the U.S., thereby providing a long-term user base for inland ports and their outbound containers.
Critical to their success is their connectivity to rail and seaports and being able to provide manufacturers with smooth and quick intermodal trans-loading. Their location is vital. Many of the country’s inland ports are located in the Midwest, including Chicago, Memphis, St. Louis and Kansas City. There are a number of new locations under development such as the 2,300-acre Florida Inland Port in St. Lucie, FL., and the 580-acre Inland Port Arizona in Casa Grande, AZ., which will become the first inland port to serve the ports of Los Angeles and Long Beach.
“There are multiple real estate prospects as the logistics industry and exporters focus on hubs with immediate proximity to empty import containers, and to distribution hubs for shipment by rail to deep-water ports,” said àBeckett. “The trend toward establishing and expanding inland ports will continue, and there are major opportunities for private-sector development and investment to support the country’s growing export trade.”
Unusual for a Florida region, the Treasure Coast has two sites vying to capitalize on the needs of hemmed-in ports trying to increase the volume of goods they handle as larger and larger cargo ships come to call. The payoffs at the two proposed freight hubs include jobs and real estate revenue.
There are a half-dozen proposed sites across Florida for inland port logistics clusters which would allow major retailers and freight shippers to move cargo inland from expensive port real estate to low-cost real estate in the hinterlands. There, it can be broken up and repackaged for movement by truck or rail to its next destination. The reverse happens for export loads.
In western Palm Beach County, Florida Crystals, the sugar giant owned by the Fanjul family, has an 850-acre site that can hold up to 10 million square feet of warehouse space. Farther north, in St. Lucie County, Kennedy Groves and Pineloch Management are working on Florida Inland Port, a site with 2,300 acres that can be developed, including a 350-acre rail freight hub, and room for more than 20 million square feet of warehouses and industrial space. Florida Crystals Vice President Gaston Cantens says his company’s site has governmental approvals and is working with Atlanta-based IDI to recruit tenants.
Florida Inland Port, meanwhile, is represented by Jones Lang LaSalle in its tenant hunt. “Every successful port in the country has an inland port,” says Jones Lang LaSalle’s Carver.
Are Global Supply Chains Shrinking?
The shrinking distance between demand and supply is triggering a trend toward inter-regional supply chains and creating a globalization “tipping point,” according to research by Philadelphia-based third-party logistics provider BDP International, its Centrix consulting unit, and Temple University’s Fox School of Business.
Real-time communication technology has greatly increased global connectivity exponentially. The Internet, e-commerce, social media, and other technologies have opened new doors for companies to source and sell seamlessly across borders. But, according to BDP, there’s reason to believe globalization may be beginning to reverse course—and that some companies are reining in their supply chains to reduce costs, avert risk, and increase demand responsiveness.
Global trade flows from Eastern manufacturers to Western consumers are shifting to shorter inter-regional routes as companies seek to reduce the distance between production and consumption, reports the study.
BDP’s research surveyed more than 200 companies around the world with annual revenues ranging from $100 million to more than $10 billion. Of the supply chain executives polled, 87 percent indicate their companies are considering, or have already begun, moving production closer to end markets, sourcing and selling goods within the same hemisphere.
Out of 12 different priorities listed in the survey, costs were among the highest considerations—especially those related to total landed costs, longer transit times, and rising wages in traditional sourcing countries.
This trend may be speeding up plans of some U.S. companies to bring manufacturing back from China. In 2012, Boston Consulting Group found that more than one-third of U.S.-based manufacturing executives at companies with sales greater than $1 billion are planning to bring production back to the United States from China. Labor costs, product quality, ease of doing business and proximity to customers were factors cited as influencing this move.
The big-supply chain shift is taking place as emerging countries are starting to trade with one another, shortening world trade flows; a growing middle class in Asia, Latin America, and the Middle East is driving demand for consumer goods; in short, it makes operational and economic sense to maintain shorter supply chains, BDP found.
One in five survey respondents representing companies with revenues of more than $10 billion do not see this inter-regional shift occurring, according to BDP’s research.
Hoosier Energy and Logistics: Perfect Together
The Hoosier Energy service region is so well suited to the logistics industry that in just the last six months of 2011 five logistics projects in the areas around Indianapolis, Louisville and Greensburg (home of Honda’s auto assembly plant) were announced, as new and existing facilities grew to take advantage of the many favorable factors that southern and central Indiana and southeastern Illinois offer to logistics and distribution companies.
The communities that are served by rural electric cooperatives in this region have the advantage of proximity to the vast majority of the United States population. Within a 900 mile drive of Hoosier Energy services are communities from Dallas to Jacksonville and New York City to Minneapolis. Interstates 64, 65, 70 and 74 all provide access to points along some of the most vital highway corridors east of the Mississippi. In addition, by the end of 2012 a new interstate—I-69—will be open for traffic in southwestern Indiana, a brand new highway that opens up new territory for potential logistics facility sites.
Both Indianapolis and Louisville have established reputations for being communities that logistics projects must examine as potential sites; business parks filled with large distribution centers are available in many communities, and UPS in Louisville and FedEx in Indianapolis are key parts of the air shipping industry. Amazon recently announced that another one of its facilities would spring to life in Indiana as well.
Not only is there a deep pool of existing workers who have experience in the logistics field, but education facilities throughout the Hoosier Energy region also have begun to develop training curriculum materials that are specifically tailored to meet the needs of logistics firms. Six Indiana high schools have started using an Advanced Manufacturing and Logistics (AML) curriculum that is a mixture of hands-on, project-based, and online lessons that will lead to better prepared students who will have logistics training as they enter the work force. Ivy Tech Community College has worked with the AML curricula to position the students for relevant certifications and associate degrees related to logistics.
And the cost of doing business in the communities the Hoosier Energy cooperatives serve is another attractive advantage. According to the Council for Community and Economic Research, all the areas in the Hoosier Energy region have costs that are below the national average composite price index.
The regional business climate is so favorable that businesses of all sorts are expanding in these communities. In the past six years almost 300 business attraction or expansion projects on rural electric served sites led to the announcement of 12,500 new jobs to be created. Automotive parts suppliers, food processing firms and furniture manufacturers—all are flocking to the pro-business region.
Low costs, trained labor, available sites and proximity to interstates and the eastern US population— these are the factors that have made the Hoosier Energy region a powerful magnet for new business.
Joplin is Well Connected to Deliver the Goods
For companies seeking a central location that reaches numerous major metro areas, excellent transportation connections and a capable labor force, Joplin, Missouri is a great place to locate.
The Joplin Metro area in southwest Missouri is in the center of North American markets. Major metros such as Dallas, Kansas City, St. Louis, Tulsa, Little Rock and Memphis are just hours away. Transportation to those markets is efficient thanks to Interstate highways and substantial rail connections. Commercial air service is available at Joplin Regional Airport and three other major airports within 90 minutes drive time.
Companies in the Joplin Metro area benefit from a productive, available labor pool of more than 93,000 people. Missouri Southern State University in Joplin offers a broad range of standard and business-specific classes as well as a strong industrial technology program. Crowder College is a source for customized technical training. Overall, between the Joplin schools and MSSU, more than $100 million has been spent on educational facilities.
Joplin’s quality of living is enhanced with two major regional medical centers, more than 150 restaurants and a wide variety of retail options from locally owned shops to the 114-store Northpark Mall.
With Wal-Mart’s headquarters in nearby Bentonville, AR (just 45 miles away), Joplin is well positioned geographically to serve as a distribution center for suppliers who have a directive to provide just-in-time deliveries. Joplin is located within two hours of six Wal-Mart centers, which gives the region a logistics advantage for supplying the Wal-Mart system, the largest retailer in the U.S.
Joplin is an excellent location for distribution based on the population within 150 and 250 miles. A market of 5.2 million people can be reached within a 150-mile radius of the Joplin area. Among its competitors within that radius, Joplin’s population is the largest. The population in the local market has as much of an influence on distribution costs as the overall population within the distribution radius, as it is far cheaper to distribute to local customers than to customers that are at least two hours from the distribution center.
The Joplin Metro area’s position for serving national markets is nearly as advantageous as Chicago or Kansas City. Interstates 40 and 44 (east-west) and U.S. Highway 71 (north-south) connect to every region in the country. Four airports within 110 miles serve the region, providing commercial and cargo service to markets throughout the world. Two Class 1 and one local railroad are important parts of the transportation system. Both UPS and FedEx offer daily early morning deliveries in Joplin and Neosho through their regional hub in Springfield, MO.
The Joplin area already has several back office operations that have prepared a large pool of full- and part-time workers in this industry. Companies such as La-Z-Boy, General Mills and Owens-Corning transport their finished products from the area across the nation.