Logistics Industry Focus: Rethinking The Global Supply Chain

The coronavirus pandemic has forced industry leaders to rethink their supply chain and logistics strategies. The crisis may accelerate a trend toward localization, with industries choosing to go local for local.


https://businessfacilities.com/2020/06/logistics-industry-focus-rethinking-the-global-supply-chain/
The coronavirus pandemic has forced industry leaders to rethink their supply chain and logistics strategies. The crisis may accelerate a trend toward localization, with industries choosing to go local for local.
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Logistics Industry Focus: Rethinking The Global Supply Chain

The coronavirus pandemic has forced industry leaders to rethink their supply chain and logistics strategies. The crisis may accelerate a trend toward localization, with industries choosing to go local for local.

Logistics Industry Focus: Rethinking The Global Supply Chain

From the May/June 2020 Issue
By the BF Staff

During the COVID-19 pandemic, the United States has experienced shortages of medicine and critical medical equipment due to the disruption of raw materials and production facilities in India and China.

Supply chains closer to home also have experienced disruptions: in April, hog farmers in North Carolina had no place to ship their animals because the U.S. food processing supply chain was sputtering, due to the closure of meatpacking plants that became hot zones in the heartland of America. As the pigs piled up in their pens and bacon began to disappear from supermarket shelves, President Trump invoked the rarely used Defense Production Act to order the nation’s meatpacking plants to stay open. At least 17 major U.S. meatpacking facilities for food giants like Tyson, Smithfield and Cargill had been closed in the face of an onslaught of COVID-19 cases.

According to the United Food and Commercial Workers union, as of the beginning of this month, COVID-19 had sidelined more than 10,000 meatpacking workers, who have either tested positive or gone into isolation due to contact with infected people; dozens of these workers have died. The food giants are scrambling to come up with floor plans that will mitigate the congestion on the meatpacking lines, and safety equipment for a dwindling workforce.

The disruption of the global supply chain has crippled industrial manufacturing around the world. The pandemic has forced industry leaders to rethink their supply chain and logistics strategies; it may accelerate a trend toward localization, referred to in logistics industry-speak as “local for local.”

Last month, Business Facilities launched its COVID 19: Response and Recovery webinar series. Our first guest was Rosemary Coates, Executive Director of the Reshoring Institute and the author of five best-selling books on supply chain strategies. Rosemary’s session, Rethinking the Global Supply Chain, drew a large audience eager to hear this expert’s take on what the post-COVID-19 supply chain might look like.

Before she offered her analysis, Coates reminded our audience of the scope of the unprecedented economic disaster that is unfolding all over the world. Coates said she’s been organizing workshops to discuss forward strategy with clients, but most companies are still coping day-to-day like the rest of us.

“Right now, an awful lot of companies are just trying to survive, they’re trying to figure out how they get through this period and reduce costs enough so they can in fact survive through this period and come out the other end with some kind of operation,” she said.

“Some of them have spoken a little bit about forward strategy, but I think it’s going to take a few weeks before they’re really there yet, because this is really painful for all of us to get through,” Coates added.

The shortages of critical medical equipment, including personal protection gear and ventilators, has generated momentum for reshoring of manufacturing of this equipment. Coates cautioned that the repatriation of the raw materials and manufacturing supply chain for pharmaceuticals could take several years to play out.

“The repatriation of drug manufacturing and the development of [a local supply chain for] the basic raw materials for drugs is a longer-term development,” she said. “The [shortages of medicine] have been quite worrisome to most Americans, so that’s going to change. But it’s a long, hard road to get to that place.”

A webinar attendee asked Coates whether the manufacturing of rare earths for high-tech electronic components that have military applications may be repatriated from China due to national security concerns. Coates, who is based in Silicon Valley, called rare earth mining and manufacturing “an Achilles heel” for the U.S., but warned that significant obstacles stand in the way of reshoring the production of these vital materials.

“About 90 percent of rare earth mining and manufacturing is done in China, which uses [lower cost] dirty mining techniques. It’s hard to develop the economics and the environmental profile to manufacture rare earths in places other than China,” Coates said.

Coates predicted that the U.S. government would use a carrot rather than a stick to try to move manufacturing deemed critical to national security back to America. “There probably will be incentives like long-term tax breaks,” she said, with drug manufacturing a likely target of the first batch of incentives.

“But if China decides to shut off the spigot for rare earths, we’ll be in big trouble,” she noted.

As the head of the Reshoring Institute, Coates said she was hoping for more reshoring of manufacturing, which she called a key to growth of the middle class in the U.S. However, she emphasized that reshoring is not always the right strategy, particularly for companies that have been tapping into the huge markets in Asia that (pre-pandemic) have produced growth rates as high as 14 percent.

“The bottom line is that reshoring is an economic decision. In order to make that decision work, you have to make the economics work. You have to evaluate how you take the cost out of your supply chain manufacturing sites to be able to make the economics work,” Coates explained.

Pulling manufacturing out of China “is not like flipping a switch,” she warned.

“The dependency on supply chains in China is deep and wide. It’s the wrong idea to think of it as a choice between source from there or bring everything back,” Coates said. “We’re part of the global economy now, and while I agree we shouldn’t be overly dependent on China or any other country, we also don’t want to shut off some of those relationships either.”

[Rosemary Coates will be the Keynote speaker at BF’s 2020 LiveXchange event, which has been rescheduled for Sept. 27-29 at the Ballantyne Hotel in Charlotte, NC.]

KENTUCKY IS READY TO ANCHOR POST-COVID SUPPLY CHAIN

The past few months challenged companies in ways they likely never endured before. The COVID-19 outbreak created work stoppages, cash-flow concerns, supply issues, canceled orders, uncertainty and other problems in abundance. One industry that stepped up in a major way has been distribution and logistics, and Kentucky has been at the center of those efforts.

logistics and supply chain strategies
Amazon’s $1.5 billion air hub at the Cincinnati/Northern Kentucky International Airport, pictured above, will create 2,700 jobs and is scheduled for completion in 2021. (Rendering: Amazon)

For consumers, online ordering and home delivery quickly became the go-to method during this crisis, both in terms of usage frequency and for a broader range of goods. That appears likely to continue post-COVID as part of the new normal. E-commerce has been a major factor in the industry’s growth for the past 20 years, as online shopping became an integral part modern life. In 2000, e-commerce accounted for less than 1 percent of all retail sales. Fast forward to 2019 and that number climbed to more than 11 percent. As more consumers relied on online ordering out of necessity in recent months, e-commerce’s share of the market has risen to unprecedented levels.

For Kentucky, with more than 540 logistics and distribution facilities and about 75,000 full-time jobs in the industry, that creates both near- and longer-term opportunities.

Near term, as logistics and distribution companies reorient to ensure worker safety, they are both paying more and seeking new employees. Recent corporate announcements serve as evidence.

In the longer term, a growing reliance on overnight shipping and an increased role for the industry overall could further help Kentucky compete for manufacturers looking to onshore.

Kentucky’s logistics and distribution industry has long served as an economic development lighthouse—particularly in recruiting manufacturing and service-related businesses reliant on global overnight shipping. As well, the industry long stood as a major factor in decisions by many existing companies to expand in Kentucky.

Thanks to UPS, DHL and Amazon Air shipping hubs, Kentucky is fast becoming the nation’s No. 1 air cargo state. Amazon itself operates nearly a dozen fulfillment centers throughout the central part of the state and Kentucky has more Amazon employees than any other state save the company’s home state of Washington.

And, Kentucky is home to hundreds of small and mid-size logistics companies that are by nature nimble and responsive to market and demand shifts. Given those strengths and foreseeable post-pandemic changes in both consumer behavior and how businesses operate, the industry in Kentucky is well-positioned for success.

Long before the industry was thrust to the forefront by the recent global crisis, the Commonwealth of Kentucky recognized the importance of logistics and its role in keeping the country connected.

Since 2014, distribution and logistics companies alone have announced plans to invest more than $4.7 billion and create nearly 15,000 full-time jobs. Those numbers trended upwards in recent years, as companies announced over $3.2 billion in investment and more than 9,000 new jobs since the start of 2017.

Consider the exponential impact distribution growth has had on the expansion of manufacturing across the state, and it’s easy to see the industry is a significant factor in the $31.6 billion invested and 89,000 jobs announced across all industries since 2014.

Kentucky is an ideal location for logistics companies of any size, as highlighted by a number of recent announcements.

Amazon’s announcement of its air hub in January 2017 gets much of the attention, and understandably so with an investment of nearly $1.5 billion expected to create 2,700 full-time jobs at the Cincinnati/Northern Kentucky International Airport in Hebron. Many attuned in to the industry likely also recall the September 2019 announcement that UPS will invest $750 million and create 1,000 full-time jobs in support of its Worldport air cargo hub and Centennial Ground hub in Louisville.

But the commonwealth’s logistics prowess extends far beyond those global shipping giants. In 2018, ecommerce company Jet.com announced a 400-job project in Shepherdsville while Kroger made its intentions known to create almost 200 distribution positions in Northern Kentucky.

From Taz Trucking, a family owned company that announced 25 new jobs in late 2018, to PACCAR Inc., a Fortune 500 company that in 2019 announced 82 new jobs with a $52 million investment in Louisville, distribution and logistics companies continue to find success throughout the commonwealth.

Kentucky’s role as a major national player in the distribution and logistics industry stems from its ideal geographic location. Kentucky’s borders lie within 600 miles/1000 km of more than two-thirds of the nation’s population, personal income and manufacturing operations. That’s less than a day’s drive. At the center of a 34-state distribution area in the eastern U.S., businesses that currently ship from Kentucky are well aware the state’s geographic advantages can’t be matched.

In Kentucky, 20 interstates and controlled-access parkways provide effective and efficient highway infrastructure. With 2,760 rail miles, Kentucky is a main-line center for CSX, Canadian National and Norfolk Southern, as well as for regional and local networks of shortline railroads and intermodal freight facilities. Kentucky boasts 11 active or developing riverports and 1,600-plus miles of commercially navigable waterways.

POLK COUNTY: LOGISTICS & DISTRIBUTION CENTER IN FLORIDA

Being located in the center of one of the longest and most populous states in the country—Florida—has its advantages: Businesses like to locate here. That’s why Fortune 500 logistics, e-commerce, fulfillment and distribution companies are flocking to Polk County, bringing thousands of jobs with them.

Being a logistics hub in Florida has attracted some of the nation’s biggest companies. Newcomers like Amazon Air and O’Reilly Auto Parts are joining businesses that started here decades ago, like Publix Super Markets, Saddle Creek Logistics Services and The Ruthvens.

The Central Florida Development Council (CFDC), designated by the Polk County Commission as the economic development agency for the county, works with its partners—the state, county, its 17 cities, business men and women, landowners and more—to attract new companies to the Central Florida region and help local ones expand. Together, they offer incentives like property tax exemptions, grants and tax rebates.

In the past two years, the CFDC has helped to lure more than $942.5 million in new capital investment that has added 4,453 jobs to the economy in a county of more than 700,000 people.

Businesses know Polk County is the place to be. Along with one of the lowest tax rates in the state and access to over 10 million people within a 100-mile radius, businesses that locate here also have access to:

  • Six airports within 60 miles, including three international airports.
  • Three deep-water international sea ports—Tampa, Manatee and Port Canaveral.
  • More than 3,000 miles of freight rail.
  • About 122,000 miles of highway, including the all-important Interstate 4, a 333-mile road that runs from Tampa to Daytona Beach and crosses all of Central Florida’s major toll roads, and the 671-mile U.S. 98, which extends from the Panhandle to Palm Beach in southeast Florida.

Add to that Polk County’s CSX Intermodal Logistics Center in Winter Haven, a state-of-the-art facility that brings trucks and rail together, and Polk County offers fulfillment and distribution centers even more options to place their products in the hands of Florida’s 22 million residents within a day.

As the nation’s e-commerce and delivery options continue to grow—more than 1 million jobs are expected to be added to logistics—Polk County plays a major role. We support the companies that started—and continued to grow—their businesses here. Companies like Saddle Creek Logistics Services, a family-owned company that has served Polk County and Central Florida for 52 years. Headquartered in Lakeland, the company offers transportation, warehousing, omnichannel fulfillment and supply-chain services from California to the East Coast. Its chief financial officer believes the Interstate 4 corridor, with Polk County at its center, is the perfect location for manufacturers to distribute their products throughout the state.

The Ruthvens is another family-owned business that’s still going strong after 63 years. Known as warehouse specialists, The Ruthvens continue to build warehouses along the I-4 corridor, specializing in industrial, manufacturing and distribution space. Its operations include more than 3.5 million square feet in 85 buildings. And it’s still growing.

Then there are the newcomers like Amazon Air, building a $100 million air cargo hub at Lakeland Linder International Airport to open the summer of 2020. The company will work out of a 223,000-square-foot building and two more that will total 60,000 square feet on 47 acres, ensuring quicker deliveries to consumers and faster movement of freight throughout the state.

Businesses have many other reasons to locate here beyond the infrastructure already in place. Polk County has a low tax base, a favorable climate, competitively priced available land and amenities to attract employees and their families. It also offers a talented workforce and an education pipeline that produces even more.

Polk County’s seven institutions of higher education constantly update curriculum and majors to keep pace with an evolving workforce, and offer several focuses on logistics and fulfillment.

Polk State College offers an associate of science degree in supply chain management, incorporating new technology and state-of-the-art equipment to prepare students to enter this field. Its Corporate College hosts the Supply Chain Management Institute, where students can earn various certifications or an Associate in Applied Science (AAS) degree, setting them up to be competitive in the pool of well-trained and highly skilled employees.

Florida’s newest state university, Florida Polytechnic University, offers a concentration in logistics and supply chain management under its Business Analytics degree program to prepare students to manage large-scale delivery operations, ensuring efficiency and satisfaction.

Polk County’s oldest private college, Florida Southern, offers a graduate certificate program in Supply Chain Management to prepare students to be the leaders of tomorrow. FSC’s certification program offers classes in such areas as operations management and Six Sigma certification preparation so students are ready to thrive in one of the fastest-growing fields in the U.S.

In addition, Keiser University offers a bachelor of arts degree in business administration with a concentration in Transportation and Logistics.

With reasonably priced land available along one of the country’s busiest interstates, a workforce at the ready, customers, incentives and more, Polk County is Florida’s premier location for business and the heart of logistics and distribution.

For a confidential consultation for your next expansion or relocation project, contact Jennifer Taylor, CFDC’s Vice President of Business Development, at (863) 937-4430 or [email protected]

RACE TO THE FINISH IN INDIANA

Indiana has long been known as the Crossroads of America. And it’s no wonder. Since 1937 when the state adopted its official motto, numerous highways and byways have connected this strategically located Midwest state to the rest of the nation.

The Hoosier State proudly ranks as a national leader in pass-through interstates. And now, it’s on the move to complete the final leg of a 142-mile project to connect Interstate 69 from Evansville to Indianapolis.

logistics and supply chain strategies
Indiana is completing the final leg of a 142-mile highway project connecting I-69 from Evansville to Indianapolis. (Photo: Hoosier Energy)

More than 15 years in the making, the project’s sixth and final section, which begins in Martinsville and connects with I-465 in Indianapolis, is well underway.

Gov. Eric Holcomb’s Next Level Connections program fully funded the $1.5 billion Section 6 project. The last leg of the project, known as the I-69 Finish Line, includes more than 26 miles of new interstate highway, more than 35 lane-miles of new local access roads, 39 new bridges and 35 existing bridges that will be rehabilitated or replaced, according to the Indiana Department of Transportation (INDOT). The state considers completion of the I-69 corridor critical to the economic vitality of southwestern Indiana.

“One of our goals is to connect southwest Indiana to Indianapolis and points beyond to provide greater access for business, education and health care, and to foster economic growth,” said Natalie Garrett, Public Relations Director of the INDOT, Southeast District. When work is complete, I-69 will run continuously from the Canadian border at Port Sarnia, MI to Evansville, IN, with Indiana an important piece of the planned national corridor, she said.

The three counties touched by the I-69 Finish Line project include Marion County, home to Indianapolis, the state capital, as well as Morgan and Johnson counties that sit on the southern edge of the capital. INDOT says I-69 Finish Line is expected to generate $4.1 billion in positive regional economic impact over 20 years. What’s more, I-69 Finish Line is on track to be open to traffic by the end of 2024, three years ahead of schedule, according to INDOT.

The area is already seeing positive results, and site selection consultants are taking note, said Mike Dellinger, Executive Director of the Morgan County Economic Development Corporation.

“This is having a positive impact on our workforce, on real estate development and on our ability to attract new business,” he said. “When we have hundreds of acres opening up, it’s exciting to see new capacity enabling cities and counties to plan the highest and best opportunity for their areas. On the local level, it creates opportunity for local companies to expand in addition to attracting new investment into the region.”

Development sites are popping up that weren’t there even a year ago, Dellinger added. The 100-acre Mooresville Industrial Park, for example, started as a spec site in 2019. Now, it’s nearly sold out.

“When we create capacity, local communities have the opportunity to grow.”

A new $6.6 million wastewater treatment plant in Waverly will help meet demand for increased housing needs in Morgan County and neighboring Johnson County, he said, as more and more companies take advantage of the state’s improved interstate access.

When opened to traffic in late 2024, the I-69 Finish Line project is expected to cut travel time from Martinsville to Indianapolis by 11 minutes. That may not sound like much, said Garrett, but for daily commuters, it’s a much-anticipated change. “For someone who makes that drive twice a day, five days a week, it’s significant,” she said.

“Certainly expediting the time it takes to travel from southern Indiana to Indianapolis creates efficiencies for the region both in terms of workforce and commerce,” agreed Dellinger.

“Forty percent of our workforce leaves our county every day to go to work.” Conversely, he said, as I-69 opens up capacity for growth locally, the opportunity for residents to work closer to home becomes an even greater advantage for this bucolic area with rolling hills, rich farmland and an abundance of forestry.

“While we’ve enjoyed the proximity to Indianapolis and are willing to commute for higher wages, we now we have a wealth of opportunity for our largest industries to grow economically and employ a workforce that lives here and works here,” Dellinger said.

The project is progressing as planned, said Garrett. Work to prepare and upgrade detour routes and east-west connectivity is underway, including construction of overpasses and relocation of utility lines, with much of the access improvements expected to wrap up this summer. Mainline work to turn State Road 37 into Interstate 69 has begun, she said, with full closure in Martinsville expected in early 2021.

Crews will continue to work to maintain access for residents and businesses as new traffic patterns are put in place, an ongoing concern for residents and essential service providers.

South Central Indiana REMC, one of the largest local electric utilities in the area, has been working closely with the state to ensure business continuity. “When they close S.R. 37 down, that is the part we’re nervous about,” said James Tanneberger, President and CEO of SCI REMC. “For us, the biggest unknown is the logistics—how to get north and south on the system with one of the primary arteries blocked off completely at times.”

Contingency plans are underway, he said, and communication with INDOT ongoing. “INDOT has done a good job of planning. They have been very good at communicating with us so we can prepare contingency plans. If we do find this has an impact on our ability to do business day-to-day, we have plans in place to adjust.”

With the finish line in sight, state and local officials are optimistic about what the future holds. “This last leg in Indiana helps connect a major national commerce corridor,” Dellinger said. “We’re proud of that.” [This section was written by Mary Lynn Beaver.]

PORT OF SAVANNAH SETS RECORD

The Port of Savannah moved 4.6 million twenty-foot equivalent container units in 2019, an increase of nearly 250,000 TEUs (5.6 percent) compared to the previous year, Georgia Ports Authority (GPA) Executive Director Griff Lynch recently announced. In Roll-on/Roll-off trade, GPA handled 657,685 units of cars, trucks and tractors in 2019, an increase of 12,167 units, or 2 percent.

“Both Savannah and Brunswick are outperforming the market, with Garden City container trade growing at a rate three times faster than the U.S. total, and Brunswick Ro/Ro units increasing despite a drop in U.S. vehicle sales in 2019,” said GPA Board Chairman Will McKnight.

Ocean Terminal picked up two new customers in 2019—GM and Volvo—with both carmakers exporting vehicles to Australia and New Zealand via Savannah. Volvo also began exporting cars to South American markets via Brunswick.

Total tons crossing all GPA terminals reached 38.5 million, up from 36.9 million tons in 2018, an increase of 4.3 percent. Lynch credited steady volumes in breakbulk cargo, combined with growth in tonnage for both bulk and containerized goods.

Highlights of the year included a burst of new cargo handled via the Appalachian Regional Port, totaling approximately 36,000 TEUs, and the announcement of two new resin-handling facilities near Savannah, which are expected to increase export totals by around 90,000 TEUs per year.

Lynch said the Authority is building the infrastructure necessary to take on new business; he said an ambitious infrastructure plan will double annual rail capacity at the Port of Savannah to 2 million TEUs, expand berth capacity to handle up to six 14,000-TEU vessels by 2026, and develop another 400 acres on Colonel’s Island, enough to nearly double the autoport’s annual capacity from 800,000 vehicles to 1.5 million/year.

Georgia’s deepwater ports and inland barge terminals support more than 439,000 jobs throughout the state annually and contribute $25 billion in income, $106 billion in revenue and $2.9 billion in state and local taxes to Georgia’s economy.

With the first phase of GPA’s Mason Mega Rail project opening this spring, cargo moved by rail has grown twice as fast as GPA’s overall three-year growth rate in container trade. The new Mason Mega Rail terminal will double Savannah’s on-port rail capacity to 1 million containers/year.

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