By Mark R. Smith, Contributing Writer
When people discuss logistics and infrastructure, it’s hardly unusual for the talk to wind its way back to COVID-19 and how it changed the game for warehousing and distribution.
The pandemic-inspired market, for instance, sparked the obvious increase in online shopping that “required a significant change in the location of warehouses and distribution points,” said Tom Corsi, professor of logistics at the Robert H. Smith School of Business at the University of Maryland College Park.
That’s for sure, but what wasn’t as often part of the conversation was just how that would happen, how it would look and how long it would take; it’s a transformation that’s very much in progress, with much activity still in the pipeline and newer structures having been unveiled. Before that world-shaking event, siting warehouse parks was easy, said Corsi. “Distribution areas would be located on fringes of urban areas” that could be called exurbs.
“For instance, in Washington, D.C., they would initially be found in the outskirts of Northern Virginia and Frederick, Md.; Frederick would also serve Baltimore, as would Harford County, which lies northeast of the city,” he said.
While many of those exurban locations are still key in the overall mix, so are other now more convenient spots. “Today, you see the big boxes that need warehouses located in better proximity to major ports,” he said, “because that’s where the merchandise is coming in.”
To shed light on the newer approaches of doing business, Corsi took his students to Charleston, S.C., to get a first-hand look at the nearly three million-square-foot Walmart distribution center that, when it opened, was its second largest warehouse in the country (after its Dallas facility).
“It receives goods from overseas that are, in turn, sent to about 15 regional warehouses and are eventually trucked to about 100 stores,” he said.
That’s just one example of what happened after the worst of COVID-19 to serve the new market. “Target and Amazon have similar facilities, too,” said Corsi. “The discussions on reshoring and onshoring are interesting. Yet, importing goods from China, for instance, has not changed significantly, though the federal government and business communities are making efforts to manufacture computer chips domestically” to expedite service for a market that’s in dire need.
Then come the other labor and market concerns that can arise in any industry. “The recent issue with the labor contract on the West Coast resulted in more traffic coming to the East Coast ports, though that situation has improved since the new deal was signed last year. But now,” he said, “the labor contract for the East Coast is up, so hopefully, negotiations will go smoothly and there will not be a similar issue this year.”
Another big concern is the Suez Canal, which is an important route for the import of goods to the U.S. from Asian countries and India. The Canal also provides the major route for goods imported to Europe from China and other Asian countries.
In recent days, Houthi rebels have been attacking and sinking commercial ships headed for the Suez Canal. As a result, the major shipping carriers have been diverting their ships around the Cape of Good Hope, which means a significantly longer journey from Asia to either Europe or the U.S.
In addition, movements from China to East Coast ports through the Panama Canal have been negatively impacted by restrictions in the depth of ships that can pass through the Canal as a result of severe droughts. The restrictions have forced shipping carriers to unload some containers at one end of the Canal to lessen their weight so they can pass through it and truck those containers overland to meet up with the ship on the other side.
“Both of these issues result in the addition of time and cost to the transportation of imported goods,” said Corsi, “that will negatively impact U.S. consumers.”
Another concern circles back to the heightened demand for domestic distribution, notably around urban areas.
“This trend has also increased traffic and accidents,” said Corsi. “Amazon is using anyone and everyone to deliver goods” and, of course, on time. “That pushes drivers to take risks they normally wouldn’t. That problem has become severe enough that it’s being addressed by government entities, such as the Federal Motor Carrier Safety Administration.”
As Corsi pointed out, while supply chain issues and access to materials became a new emphasis during the pandemic in many industries, it also became one with the government, notably within the National Science Foundation, a federal agency that supports scientific and engineering research.
Since, a key focus at NSF “has been visibility into supply networks,” said Georgia-Ann Klutke, program director for operations engineering. “There are many, many layers of suppliers and suppliers to suppliers, and they have to work efficiently to be resilient and cost-effective.”
“Companies have to have control over their supply chains so they are not knocked out” by not only public health problems, “but global and political issues, obtaining materials for manufacturing,” etc.; and Klutke said, four years after the start of the pandemic, there is still not much visibility for producers beyond their initial layer of suppliers.
“Car companies, for instance, know [the particulars] about that first layer, but not necessarily the second, third or fourth layers. However, they know that their suppliers have suppliers,” she said, “and therefore, it’s valuable to know who they are in regards to getting what they need, when they need it. On the research end, we’re really pursuing this.”
Another key point in the logistics industry that’s come into tighter focus is the rise in the amount of counterfeit products on the market.
“We have almost zero visibility concerning how these producers operate and want to learn more about how they work and what they sell into supply chains, as well as their financial and social impacts,” Klutke said. “They have to transport and distribute products, just like any company in the commercial world.”
And despite upgrades in the shipping system in the Suez Canal and Red Sea, for instance, as well as updates at terminals around the country, NSF is also supporting research to analyze the problem of bottlenecks at ports. “There are other global players who do better in managing ports than we do,” she said, “and our researchers are looking at what they do to improve port efficiency.”
The overall demand for goods during the pandemic has also inspired NSF to analyze the needs of the trucking industry, notably workforce and how to address the lack of it. “We’re researching driverless trucking,” said Klutke. “It’s not here yet, but it will eventually change much of the industry’s dynamics,” especially when coupling the labor issue with the prolonged periods of sitting drivers endure. “It’s not an easy way to work.”
Of course, the specter of AI is also looming and Klutke said it will change the way facilities are managed and improve supply chain issues.
“We’ll be able to better understand what supply and demand looks like when it becomes less about guessing the market’s needs,” she said. “It should become easier to find and analyze how much product to order and how much needs to be stored in a warehouse.”
Heightened use of analytics is a strong part of this equation, too. “This issue is about managing inventories,” she said. “Availability of data is important, but you need engineers who can use it, interpret it, obtain materials, and manufacture and distribute products,” etc.
The key word here is digitalization. “I think there will be major improvements that result in greater on-time delivery,” said Klutke. “Amazon started this approach and built from the ground up. The fact that they digitized everything has made a big difference in being able to manage how much product they warehouse, distribute, etc.
There’s good news for old-school shoppers, too. “I also think,” she said, “that the brick-and-mortar retailers are coming up to speed.”
Coming in 2025
This topic is all about access to product and from a site selection standpoint, there is still much interest in “onshoring to bring more manufacturing capacity to North America,” said Michelle Comerford, industrial and supply chain practice leader based in Cleveland, Ohio, for Biggins Lacy Shapiro & Co.
As Corsi noted, getting up to full production capacity requires years of planning, construction and setup, but “the U.S. manufacturing shift has been in full swing over the past few years and we’ll start to see some of its impact beginning in 2025,” said Comerford.
Following the impacts of the pandemic, the emphasis on supply chain risk reduction remains strong. “So depending on the company and their existing footprint, that could mean investing in more manufacturing capacity in North America, for North America,” said Comerford, who added that an increase domestically may also be positioned to serve the European market as well.
Reaching the Pacific Rim, however, is typically not part of that equation because shipping from the U.S. to Asia “defeats the purpose of onshoring, which is lowering supply chain and transportation risk,” she said. “So if a company has manufacturing capacity in Asia, most likely they will maintain that capacity to serve the Asian market.”
However, where that operation is located in Asia may shift. “There is certainly some interest to diversify manufacturing capacity outside of China, to locations such as Vietnam, due to geopolitical and supply chain risks,” said Comerford.
Back to North America, some of those companies ― even if they’re onshoring manufacturing capacity here ― “will likely have to import some parts, supplies, ingredients, etc., so port access continues to an important location consideration for many,” she said.
Concerning modes of transport, trucking remains the dominant mode for most operations, though as Klutke discussed, there are issues impacting that industry, too. “The driver shortages are continuing to affect the trucking industry although they are working hard to recruit new drivers,” Comerford said. “Rail is continuing to gain in interest and use where possible, particularly for long-haul shipments that are more costly to ship via truck.”
In addition to that, rail provides an opportunity to reduce truck road miles. “For companies with sustainability metrics, rail is becoming of increased interest to help improve carbon footprints,” she said.
A Market Profiled
Discussing the topic of logistics inspires Owen Rouse, senior vice president, brokerage with MacKenzie Commercial Real Estate Services, in Baltimore, to think of ideal locales for the industry. An early stint in his career took him through Memphis and he realized what made even a smaller metro in the northern part of the south stand out.
“It’s not a gigantic market, but it’s an important one, logistically,” said Rouse. “Imagine having not only air service; five class one railroads; and the International Port of Memphis, which is the second largest along the Mississippi, in a place that’s served by seven major U.S. interstates.
“And in addition,” he said, “it’s the headquarters of FedEx.”
All of the activity in Memphis means that businesses and their employees need a vast array of services. “You need to feed truck drivers and repair trucks,” he said. “Many, many services are offered in that vapor trail simply because some businesses have to have a presence there, so they provide even more jobs to the market.”
Rouse offered a for instance that was inspired by FedEx. “It has several different offshoot businesses, including one called FedEx Custom Critical, which ships items that are needed quickly, such as medical classified or sensitive products, all classes of explosives, electronics,” etc., he said, “so FedEx offer services, but they also hire subcontractors to assist in the overall effort.”
Memphis’s location in the central U.S. is yet another strong point. “It’s a microcosm of an ideal market and relatively unique,” he said. “What other city can offer such a variety of advantages?”
Rouse then turned his focus toward the ample industry buzz about the expansion of shipping lanes in the Red Sea and the Suez Canal, but the added element of how many concerns don’t want to use those channels due to political issues and the possibility of endangering crew and shipments.
“Companies pay attention to global events (like attacks by Houthi rebels and droughts) and may reroute their ships because some people don’t want to go over there,” he said. As for the eventual arrival of those ships, Rouse discussed the big battle on the East Coast concerning channel depth. “The magic number seems to be about 52 feet at major ports,” such as Baltimore, New York, Charleston, Savannah and Norfolk.
“That [number is] critical because the ships have gotten bigger, wider and longer. The ships that can now come through the canals may or may not be able to get into one of the U.S. East Coast ports,” he said. “Ships need to be able to access more than one port and the business is very competitive.”
Rouse offered the example of the Port of Baltimore, which features four gigantic rubber-tired gantry cranes, “which was [an important addition], because it meant that certain single-service container ships would not have to be spun around by a tugboat to complete an offload.”
In general, the U.S. infrastructure “is improving because of double-stacking, which is in the works at the Howard Street Tunnel in Baltimore. Baltimore’s main competitors are already double-stacked, so this critical upgrade will have major implications for its competitiveness in not only in the region,” said Rouse, “but at the 3,300-acre Tradepoint Atlantic industrial project in the southeast section of the metro Baltimore,” which is also the home of 100 miles of rail.
“At some point, there will be a third marine terminal at Tradepoint Atlantic in addition to Dundalk and Seagirt,” he said, which will be spurred by the economics of shipping. “Shipping by water is the least expensive and by air is the most expensive,” he said, “so the longer you can stay on the water, the more economical the process is.”
While its location means it’s tough to pass Norfolk and travel further north the Chesapeake Bay, Baltimore, like Memphis, has an advantage no other market can offer: terrific access. “Once you’re there, you’re farther west than any other port for the next leg of the journey, with ground, rail and BWI Thurgood Marshall Airport all right at your front door.”
When it comes to economic development, major and mid-market cities all have their attractions, but smaller markets, which often lack ports, must take a different approach than their larger metropolitan counterparts.
Take, for instance, the greater Cheyenne, Wyoming, area, which has a population of just more than 100,000 in a state with a population of only 576,000. That means the local economic development office has to work harder for recognition, though its potential impact can be deceptive to the passive observer.
Markets like Cheyenne, which is located 90 minutes north of Denver, may have an advantage like being located at the intersection of Interstate 80 (running north-south) and Interstate 25 (east-west) and “offer the shortest route between Mexico and Canada” as well as providing a hub on “the busiest east-west interstate in the country,” said Cheyenne LEADS CEO Betsey Hale.
“We have land and services available, and Cheyenne is served by both Union Pacific Railroad and BNSF, so getting cargo in and out is easy,” said Hale.
While it obviously lacks a port, Cheyenne features a large shovel-ready, rail-served industrial park, the Cheyenne Logistics Hub. It has 1,500 acres available for development and currently serves companies like Dr. Elsey’s, Precious Cat Kitty Litter; Searing Industries, a steel fabricator; and Liberty Energy.
In addition to the Hub, multiple industrial business parks are available on the east and west sides of Cheyenne “that also offer direct access to major interstates. Available lots from three to several hundred acres are shovel-ready and waiting for a company looking for everything this community offers,” said Hale.
What Cheyenne needs now, along with the rest of the country, is workers.
“As available, well-trained workforce continues to be a concern across the country, it’s important to point out that the greater regional population within a 60-mile radius of Cheyenne is about 300,000 people, with a labor shed of 183,000,” said Hale. “That direct interstate access between Wyoming and Colorado benefits Cheyenne employers. It’s an easy shot up I-25, with very little commuter traffic.”
Large companies, like Lowes and Walmart, have distribution and fulfillment centers in Cheyenne “and continue to offer the flexibility of schedule which is not only a great perk, but also solves child care issues because spouses can work different shifts, so that they can keep the money they would have been spending on child care,” she said. “That helps ensure a content workforce.”
It’s all part of the allure, depending on the needs of some companies, that a small market can provide ― which can work well in a market where more, and more accessible, distribution routes are coming into play. The benefits can also extend into the tax structure of a less populated state that’s trying to lure residents as well as businesses.
On that note, Hale pointed out that the Wyoming tax structure “has been ranked no. 1 for overall tax climate and corporate tax structure by the Tax Foundation for 10 years” and that that “is good for everyone.
“Employees keep more of what they make due to the state’s lack of personal income tax,” she said, “while living in a city with the safety and feel of a small town with all the amenities of a large city nearby.”
Bio: Odenton, Maryland-based Mark R. Smith joined Expansion Solutions after having written about site selection among the vast number of topics he has covered in the business universe. That part of his career began in 1993 when he joined The Daily Record, a Baltimore business and legal publication, where he delved into the worlds of economic development and commercial real estate, among numerous other industries; in 2003, he was named editor-in-chief of The Business Monthly, another Maryland publication that covers the scene in the Baltimore-Washington Corridor counties.
Concurrently, he’s written at length about the film and video industry for a variety of publications, and about his other loves, including music, sports and leisure.