Logical Solutions for the Logistics Industry

As the economy slowly rebounds, businesses will need to restructure their distribution networks to maximize efficiency and minimize miles to capitalize on the recovery when it occurs.

According to the International Warehouse Logistics Association, 95 percent of the chief executives in the U.S. believe they should have some form of logistics strategy, and nearly 50 percent of the nation’s CEOs currently are incorporating supply chain planning into their overall business strategies. And with good reason: since logistics costs accounted for about $1.3 trillion or more than 9 percent of U.S. GDP. Here are some specific figures for the industry from Logistics: United States Industry Guide as compiled by Laura Wood, Senior Manager at Research and Markets:

• The U.S. marine sector generated total revenues of $41 billion in 2009, representing a compound annual growth rate
(CAGR) of 1.1 percent for the period spanning 2005-2009.

• The U.S. rail freight sector generated total revenues of $56.3 billion in 2008, representing a compound annual growth
rate (CAGR) of 5.2 percent for the period spanning 2004-2008.

• The U.S. road freight sector generated total revenues of $704.9 billion in 2008, representing a compound annual
growth rate (CAGR) of 4.3 percent for the period spanning 2004-2008.

• The U.S. airfreight sector generated total revenues of $41.7 billion in 2008, representing a compound annual growth
rate (CAGR) of 6.1 percent for the period spanning 2004-2008.

• The U.S. express market generated total revenues of $77 billion in 2009, a compound annual growth rate (CAGR) of
3.8 percent for the period spanning 2005-2009.

Globalization and outsourcing of logistics services created double digit revenue growth in the industry in the early part of the 21st century, however the economic downturn which made itself felt across the world in 2008 has resulted in a dramatic drop in the sector’s growth in 2009. A benchmarking report, The 20th Annual State of Logistics Report from the Council of Supply Chain Management Professionals (CSCMP), also showed that the 2008 U.S. logistics industry costs dropped for the first time in six years, at least in the transportation sector. Warehousing costs, however, rose 9.5 percent with warehouse managers reporting that inventory turns were down substantially from earlier years as stock spends more time in warehouses now.

“The research in our report details ways that company leaders can capitalize on the recovery when it occurs,” says Rick Blasgen, CSCMP president and CEO, “such as restructuring their distribution networks to maximize efficiency and minimize miles, investing in technologies to facilitate ‘green’ transportation, and improving real-time data flows to increase visibility and enhance productivity.”

Analysts at PricewaterhouseCooper agree with Blasgen’s outlook and say that companies looking to build a durable business need to continuously offer added value. As business models change in the industry, many companies are evolving from forwarding and warehouse managing companies to highly industrialized IT driven supply chain providers. PricewaterhouseCooper says there are two key factors to logistics success, one is to take advantage of the potential of logistics clusters and the other is focusing more on integrating digital infrastructure. This will need to involve close collaboration between industry, academia and government as trade routes shift and logistics networks become increasingly complex.

As you look at new locations to take advantage of industry clusters and create collaboration with local governments, here are some regions that are well prepared to partner with your company.

Topeka, KS: In the Middle of Everything

In the July 2010 edition of Kiplinger’s Personal Finance, Topeka, KS was recognized as one of the “Top Ten Cities for the Next Decade”, a recognition that summarizes what is happening in the community… business growth, civic engagement, and an energetic, dynamic focus on the future.

Even during the low point of the Great Recession, Topeka and Shawnee County experienced stellar economic growth. In 2009, GO Topeka, the economic development organization for the community, announced five major projects involving 2,000 jobs and $352.5 million in capital investment.

For more than 150 years, Topeka has been in the middle of everything, right in the nation’s heartland. With its centralized location, Topeka is a perfect place for transport with access to major Interstates (I-70 and I-35) and railroad arteries that allow for inexpensive shipment and delivery for business sites. Topeka’s close proximity to the intramodal facilities in Kansas City enhances its position as a logistics and distribution center and Topeka ranks with New York City and San Francisco for fiber optic cable per square mile.

Having capitalized on its location, Topeka developed Central Crossing Commerce Park, 500 acres of shovel-ready sites featuring in place water, sewer, natural gas and electric. Its mixed-use land parcels are ideal for manufacturing and distribution with developed entryway and roads throughout the park. Already home to Target, Frito Lay, and the Home Depot distribution centers, Central Crossing is at the linkage of Hwy 75 and I-70 and offers direct rail connection with major rail service. It is also adjacent to Forbes Field Airport, a 2000-acre foreign trade zone, and 50 minutes from Kansas City International Airport.

To complement Central Crossing Commerce Park, GO Topeka has started expansion of Kanza Fire Commerce Park, a 1,018-acre business and industrial megapark. Bisected by US-75—a four-lane, interstate grade, divided highway—with access on site, the new mixed-use park features easy access to I-70 and I-335, 6,000 feet of rail frontage (BNSF) and close proximity to Forbes Field that has a 12,000-foot runway for airfreight transport. This park is built to be smart with a sustainable design, energy efficiency, walking trails, water features, 130 acres of green space and shared renewable energy sources.

Topeka is an easy place to relocate and an affordable place to do business. The Topeka/Shawnee County area has a cost of doing business 15 percent lower than the national average, with an index of 85 according to Moody’s Economy.com, and a cost of living 10 percent lower than the national average (ACCRA). And because all machinery and equipment in Topeka is exempt from personal property taxes, Topeka is a less expensive to operate a business. Topeka also has the ability to offer incoming companies the most aggressive, flexible local incentive package in the Central United States, including free land and cash incentives for each job created supported by a sales tax for economic development.

Topeka and Shawnee County are also proud of the workforce available to incoming businesses. The community is located in the heart of the Kansas “knowledge corridor”, with four universities in a 60-mile radius—The University of Kansas, Kansas State University, Washburn University and Emporia State University. These universities have a combined enrollment of approximately 60,000 and an average graduation rate of more than 12,000 students per year. 36 percent of the region’s population age 25 or older hold a bachelor’s degree or higher (compared to 27.5 percent nationally).

Caledon, Ontario: Natural Location for Success

Nestled in Southern Ontario’s beautiful Hills of Headwaters region, the Town of Caledon, Ontario offers the best of all worlds for its residents and its corporate citizens.

Located within the Greater Toronto Area (GTA), just minutes from downtown Toronto, Canada’s largest city and financial and transportation hub, Caledon offers a unique mixture of bustling urban and industrial centre surrounded by a calm rural environment characterized by beautiful rolling hills, valleys and vast open spaces.

Caledon’s residents enjoy a very high quality of life—with access to high-quality health care, and a diverse range of cultural and recreational activities and facilities—and boast one of the highest per-capita household incomes in Canada.

This town of 57,000 has also earned a reputation of providing a safe, stable and sustainable environment for its private and corporate residents. This is evidenced by its selection as “Ontario’s Greenest Community” and “Canada’s Safest Community”—titles bestowed by independent media outlets on multiple occasions.

And with Caledon’s close proximity to Canada’s largest and most diverse labor pool, highway and railway systems with multiple connections to the United States, and Pearson International Airport, Caledon-based companies enjoy efficient access to local, national and international markets—while paying amongst the lowest development fees and municipal taxes in the GTA.

Caledon’s appeal as a warehousing and distribution center location is illustrated by the many companies that have established themselves in the municipality.

For example, the Canadian arm of international food and beverage juggernaut PepsiCo opened its newest distribution centre in January 2009. The 591,000 square foot facility manages the distribution of products from several PepsiCo manufacturing plants throughout North America and services PepsiCo’s customers across Canada. According to Sheri Morgan, Manager of PepsiCo Foods Canada Communications & Community Relations, the company’s decision to locate in Caledon was driven by “excellent access to Toronto’s Pearson International Airport as well as its major highway and railway systems.” She also states that “proximity to major PepsiCo Canada customers and the abundance of local skilled labor” were also key factors that made Caledon an attractive hub for PepsiCo’s distribution and logistical operations.

Vitran Corporation is a leading provider of freight services and distribution solutions throughout North America. In 2007 it moved into a 530,000 square foot distribution centre in Caledon, which is now a major hub in its logistical operations. This site utilizes multiple distribution and fulfillment methods to satisfy client requirements and get the right product, in the right store, at the right time. The Caledon site is strategically located next to major population centers in Ontario and is within excellent proximity to inter-modal rail yards, as well as Toronto’s high-volume 400-series highways. When this distribution centre was opened back in 2007, Mike Glodziak, President of Canadian and US Logistics, noted that “Vitran was attracted to Caledon’s central location and its access to nearby major transportation nodes. Additionally, the facility meets our requirements for superior functional design, security and operational efficiency, as well as proximity to an excellent labor pool.”

Other notable corporations that have established distribution operations in Caledon include Mars, Colgate-Palmolive and Gap Inc.

In many ways, Caledon is just establishing itself as one of Canada’s most desirable sites for warehousing and distribution operations, and is poised for tremendous industrial growth. Its Municipal Council is pro-business, and the Town’s Economic Development Department is actively involved in facilitating the establishment, retention and expansion of business operations within the Town’s borders.

Caledon has also successfully developed and launched incentive programs designed to encourage eco-friendly and sustainable development and business practices, including its Green Development Program—the first and only program of its kind in the province of Ontario.

As well, the Town currently boasts an inventory of completed—and soon to be completed—industrial properties, including more than 2.1 million square feet of new warehousing facilities such as those built and/or managed by:

• Panattoni Development Company: 231,000 sq.ft. (Single building; divisible)

• ProLogis: 1,800,000 sq.ft. (Three buildings; divisible)

• MJJJ Developments: 94,000 sq. ft. (Single building)

There are also several proposed properties, representing millions more square feet of warehouse space, which are slated for development in the near future.

With its enviable proximity to Canada’s largest market, labor pool, and one of North America’s busiest international trade and transportation hubs, the Town of Caledon offers all the logistical benefits of its much larger urban neighbors throughout the GTA. However, given that it is able to do this while maintaining its small town ambiance, commitment to sustainable development, and relatively low costs of doing business, Caledon is well-positioned to become one of the most desirable industrial locations in North America.

Wheeling: Heart of Chicagoland

Located in Chicago’s prestigious north suburban market, Wheeling, IL continues to enhance its standing as one of the region’s hottest business centers. Wheeling is in the heart of the Chicagoland area, a region companies value for its central location to markets across the nation. Within 19 miles of downtown Chicago and nine miles north of O’Hare International Airport, Wheeling’s position in the region makes it a natural location for business and industry. Wheeling has successfully leveraged its transportation amenities to become a magnet for corporate, hospitality, and manufacturing industries. With two interchanges and direct access to I-294 (Tri-State Tollway) and Illinois Route 53, Wheeling businesses enjoy easy roadway access to and from destinations throughout the Midwest. Rail service in the community provides freight service to its business parks, and commuter service to the Wheeling Metra train station, offering convenient transit options for the region’s workforce.

In addition, Wheeling is co-owner of neighboring Chicago Executive Airport, which handles nearly 200,000 private and corporate flights each year. The airport offers a flight training school and an additional transportation option for executives in the region. Airport modernization continued through 2010 and included approximately $10 million in new taxiway and hangar construction. Implementation of an EMAS safety system will be completed in 2011, making Chicago Executive Airport an industry leader in business aviation.

Wheeling is an entertainment destination for diners and shoppers in the area. Home to the renowned ‘Restaurant Row’ along the Milwaukee Avenue corridor, Wheeling offers dozens of opportunities for unique, upscale dining. New entertainment businesses plan to join the restaurant community in this lively district next year.

Community educational institutions include National Louis University, Harper College, and Solex College, which complement the acclaimed educational opportunities the Chicagoland area is known for. Nursing and technical academies are opening new facilities in the community this year. Additionally, the relocation of the Korean Cultural Center of Chicago into an expanded Wheeling office complex is anticipated to spur an additional cycle of business investment within the community.

The Village’s Economic Development Department regularly monitors local real estate conditions and maintains an updated list of available buildings and land development opportunities. The Village encourages inquiries about site availability, with professional staff to assist your company in finding a home for your business in Wheeling. www.wheelingil.gov.

Philadelphia Port: Investments Humming

Less than three months after seeking proposals from interested parties to design, operate and maintain a major new marine terminal in South Philadelphia, Gov. Ed. Rendell has announced the shortlist of the teams that will continue in the solicitation process in developing a public-private partnership that is expected to bring millions of dollars of investment to the region.

One of the teams selected was a consortium comprising Delaware River Stevedores (DRS) and Hyundai Merchant Marine America (“HMMA”). DRS is a joint venture between Carrix, Inc., and Ports America Group, the two largest independent terminal operating companies in the United States. DRS has vast stevedoring experience at several major U.S. ports, including the Port of Philadelphia. HMMA, a wholly owned subsidiary of Hyundai Merchant Marine Co., Ltd., is a major Asian carrier growing by leaps and bounds in both worldwide trade lanes and in the U.S. port industry.

The other team selected was SMT Development Partners, principally comprised of the Spanish-based Obrascon Huarte Lain, S.A. (OHL), with support by worldwide port engineering firm CH2M Hill. OHL is responsible for many successful capital construction projects in the international port industry. The Judlau and Jay Cashman firms, representing construction and finance aspects of the proposal, are also components of this proposal.

The above-listed teams will be great assets to the Commonwealth’s port industrial plans for the area in South Philadelphia designated for Southport Marine Terminal, a facility strategically positioned to handle growing international trade volumes.

“We are pleased by the response to the SFP, and excited by the prospects the Southport project brings to the region,” Governor Rendell said. “These companies that have expressed interest in Southport have solid track records in terminal development, and we look forward to working with them as this process continues.”

The Southport Marine Terminal project represents the first major expansion of the Port of Philadelphia in 50 years. Located to the south of the Packer Avenue Marine Terminal, it will be supported by three Class One railroads and a network of highways to enhance intermodal opportunities. In addition, the acreage on the site offers excellent potential for future growth and expansion.

“As the nation’s economy slowly emerges from the recession, we are poised to capture a substantial amount of the increasing cargo volumes that will be coming,” said John H. Estey, chairman of the Philadelphia Regional Port Authority. “The Southport project offers us not only the opportunity to maintain our competitive edge, but allows us to seek new opportunities and attract new cargo and thousands of family-sustaining jobs.”

The next step in the selection process, Chairman Estey said, is an intensive is the development of the phase two submissions by the short listed bidders. Based upon the phase two submissions, DGS plans to announce the preferred bidder in September and reach commercial close in November.

Gov. Rendell has made development and expansion of the Port of Philadelphia a cornerstone of his administration, recognizing the great economic benefits of this thriving seaport to the citizens of the Philadelphia region and throughout the Commonwealth. He was instrumental in seeing that the long-envisioned Delaware River Channel Deepening Project finally began earlier this year.

Riverside County, CA: Magnet for Logistics Leaders

Centrally located in the heart of Southern California, Riverside County is in close proximity to San Bernardino, Orange, San Diego, and Los Angeles Counties as well as the state of Arizona. It offers freeway access via I-10, I-15 and I-215 and Highways 60, 91, 74, 371 and 111. Rail service connects Riverside County businesses with important markets, ports of entry and airports to expedite major domestic and international commerce transactions and the area is served by a number of airports including Ontario International and Palm Springs Regional (designated foreign trade zone location). Shipping into and out of the Ports of Los Angeles, Long Beach and San Diego is also easy from Riverside and the County offers a customs port of entry in Palm Springs as well as access to customs facilities in the greater Los Angeles area.

The North American operational headquarters for Skechers USA may be up and running in Riverside County by April of 2011. The company signed a 20-year, $225 million dollar lease for the 1.8-million-square-foot distribution facility that broke ground in March. The project will create 1100 construction jobs and 3000 permanent jobs in the local area, generating more than $1.4 million in tax revenue. The footwear firm is set to become the largest employer in Moreno Valley.

Skechers is the first tenant of Highland Fairview Corporate Park, a 160-acre corporate park located next to the Moreno Valley Freeway. It will eventually contain over 30 million square feet of buildings and the first phase of the facility is projected to provide an annual economic benefit of approximately $200 million to the region.

Iddo Benzeevi, President and CEO of Highland Fairview Properties plans to pursue the highest level of the United State’s Green Building Council certification for the project, making it as eco-friendly as possible. As it stands, the Skechers property will be the nation’s largest LEED certified building and diesel truck drivers servicing the park must limit engine idling to no longer than three minutes.

Hesperia, CA: Logistics and Distribution Growth Center

Ranked #3 by Business Facilities as a Top Ten Emerging Logistics/Distribution Growth Center, the City of Hesperia, in California’s Inland Empire is conveniently situated within easy access to the logistics network that serves the combined ports of Los Angeles and Long Beach (LA/LGB), the nation’s largest international cargo trade area. Hesperia’s High Desert location along I-15 and U.S. Highway 395 provides an affordable and central location for warehousing, manufacturing, and distribution operations that serve southern California and surrounding states.

Strategically positioned for logistics, business-friendly Hesperia is a leader in supporting the long-term development of the regional economy. Hesperia’s proactive Economic Development Department and its Redevelopment Agency (RDA)—the wealthiest municipal RDA in the High Desert—are two powerhouses fueling Hesperia’s growth.

With two state-authorized pro-business zones, Hesperia is zone-squared. In April 2010 they were successful in attaining final designation as an Enterprise Zone (EZ) from the California Department of Housing and Community Development (HCD)—a designation that will be in effect for 15 years. The Hesperia Enterprise Zone comprises a 30-square mile area within Hesperia’s city limits and includes nearly all of its commercially and industrially zoned areas. Businesses looking to relocate or expand in the Zone may be eligible to take advantage of substantial benefits such as hiring credits, business expense deductions and employee wage credits.

These substantial local incentives and state tax credits and benefits of the Hesperia EZ remain in effect until March 31, 2025, with some benefits extending beyond the life of the zone. Some of these state tax benefits include hiring credits, sales/use credits, business expense deductions, net operating loss and net interest deductions, and employee wage credits.

“For over 18 months, staff worked diligently on the Enterprise Zone application to ensure limited questions or conditions existed after conditional designation,” said Deputy Director Steven J. Lantsberger. “We are now looking ahead at how the EZ will provide businesses with a competitive advantage in respect to a lower cost of doing business in California. Ultimately, the combined benefits of state and city incentives will lead to business growth and job generation.”

To that end, Hesperia has recently added a Recycling Market Development Zone (RMDZ) to its armory of business benefits. As one of 35 California RMDZs, Hesperia’s program combines economic development with recycling to provide financially attractive incentives for new businesses, expansion of existing facilities, job creation, and reduction of the waste stream headed to landfills. The RM DZ provides free market research, technical assistance and below-market rate loans to qualified manufacturing firms. Located in an ideal logistics hub of the Inland Empire, both zones encompass city-owned rail-accessible land.

Having secured $2 million in federal grant funding from the Department of Commerce’s Economic Development Administration, Hesperia is ready to build the ‘G’ Avenue Industrial Rail Lead Track project. Consisting of nearly one mile of new railroad lead track and a parallel runaround track, it will be served by Burlington Northern Santa Fe Railway and accessible from more than 200 acres. Construction is slated to begin Q1 2011, with completion anticipated within one year.

The addition of the rail track, one of the city’s far-reaching industrial development goals, will facilitate operations for a greater number of warehousing and distribution centers near Interstate 15. The new track will offer many opportunities for industrial users to purchase rail-accessible properties.

The rail project is guided by Hesperia’s efforts to create sustainable development that includes locally created partnerships and focuses on regional solutions for economic development. It is closely tied to Hesperia’s strong commitment to grow its economy, attract new businesses and development and provide jobs for its residents.

Completion of this project will stimulate development and indirectly impact the attraction and expansion of other businesses into the 1,300-acre ‘I’ Avenue Industrial area. In addition, the project’s Team Transload facility fosters entrepreneurship by making rail accessible throughout the region to smaller businesses that will now be able to ship and receive goods with the use of a team trans-load facility.

To find out more, contact Steven Lantsberger at (760) 947-1906, by e-mail at econdev@cityofhesperia.us; or visit www.cityofhesperia.us/econdev. For information about rail opportunities, contact Lisa LaMere at (760) 947-1910 or llamere@cityofhesperia.us.