- THE MAGAZINE
During the next five years, more than 28 percent of U.S. population growth is projected to come from southwest and mountain states — Arizona, California, Colorado, New Mexico, Oklahoma, Texas, Utah and Nevada.
Manufacturers and retailers are aiming to take advantage of this growing market. These companies are expanding their warehouse and distribution presence in the Southwest United States. Their efforts are being helped by a number of logistical upgrades to help product get into the U.S. more quickly, either from across the Mexican border or from overseas locations.
And from the Southwest, manufacturers and retailers will be able to use these logistical upgrades to have a direct route to other big domestic markets, such as the Midwest.
“We’re seeing major infrastructure investments to improve the logistics capabilities in the Southwest,” says Bob Cook, vice president of The Borderplex Alliance, a binational economic organization that encompasses three states in two countries (Texas, New Mexico and the Mexican state of Chihuahua).
Companies view the Southwest as a high-quality region for labor, material availability and logistics, with substantial transportation and warehousing capabilities. Plus, being on the border with Mexico is a selling point.
“All of this enters into the strength of the Southwest,” says Claudia Knowlton-Chike, general manager for global logistics for GE Healthcare. The UK-based manufacturer of medical devices has consolidated 118 warehouses around the world during the past four years. When the decision to consolidate was made, executives knew the company needed a distribution presence in the Southwest.
“Speed and cost, and quality and agility, are key parameters,” Knowlton-Chike says. “Having an operation in the Southwest clearly makes the speed-cost element very viable, especially for the customers we serve from this area.”
GE Healthcare operates a 100,000-square-foot distribution center in El Paso, Texas. For decades, the company has had a strong manufacturing presence in Mexico, as well as China. Some of its manufacturing has returned to Mexico and the U.S. from China, adding to the advantage of a distribution operation in the Southwest.
“Our current distribution location [in the Southwest] is connected to our manufacturing operation in Mexico,” says Esteban Guerrero, global network design and optimization director for GE Healthcare. “As we see the market grow, or see a need for more products being manufactured in Mexico, we’re ready for that growth by having a distribution operation in the region.”
Knowlton-Chike adds there are opportunities to grow operations in the Southwest, both within GE Healthcare and through third-party logistics providers.
“Capacity is available in many different areas of the Southwest,” she says.
Thanks to its proximity to the Mexican border, the El Paso-Las Cruces (N.M.) metro area has a large logistics presence. More than 900 companies involved in transportation and logistics operate in the metro, almost double the number one might expect to find in similar-sized metro areas, Cook says.
The logistics industry employs about 12,000 workers in the metro area, almost 20 percent more than the national average based on population.
“Given the nature of business and industry in the region, a significant portion of this workforce is skilled at dealing with import-export issues,” Cook says.
Seamless cross-border movement is essential; it means money and jobs, not only for the Southwest United States, but for the rest of the country. In 2012, 1.07 million U.S. jobs were directly tied to trade with Mexico. Nineteen states have at least 10,000 jobs related to trade with Mexico.
“All U.S. citizens have a vested interest in the efficient movement of goods across the border,” Cook says.
El Paso’s sister city just across the border, Ciudad Juárez, Chihuahua, has a major manufacturing sector with a large workforce numbering more than 230,000. In 2012, more than $87 billion in trade volume passed between El Paso and Juárez, most of it related to manufactured products in industries such as automotive/aerospace, consumer electronics and medical devices.
Companies manufacture their product in Ciudad Juárez and ship it to distribution facilities across the border in El Paso. From El Paso-Juárez, companies can ship product to North American markets by truck, reaching about 110 million consumers within 24 hours, Cook says.
There is about 57 million square feet of industrial space in El Paso, much of which is related to Mexico, Cook says.
“The lion’s share of warehouse and distribution space in El Paso directly relates to trade with Mexico,” Cook says. “About one-third of the companies with manufacturing operations in the state of Chihuahua also have a facility in El Paso, and a significant portion of the industrial market in El Paso is comprised of third-party logistics providers.”
The air cargo center at El Paso International Airport is one of the largest and most modern complexes on the border. Two existing facilities total almost 300,000 square feet, and Cook says there is adjacent land space with direct runway access to double that capacity.
The Southwest’s logistical strengths are being upgraded thanks to Union Pacific, which is in the process of double-tracking its rail line from the Port of Long Beach to El Paso. Double-tracking is complete between Long Beach and Tucson, Ariz., and about 60 percent complete between Tucson and El Paso, with completion expected by 2018.
As part of its strategy, Union Pacific is building a $400 million intermodal facility in Santa Teresa, N.M., in the El Paso-Las Cruces metro area.
Logistics upgrades are also happening at Port of Los Angeles in an effort to ensure it remains the busiest port in the U.S. Paralleling that effort is additional warehouse and distribution facilities in a 90-mile radius around the port, which already includes the largest amount of warehouse and distribution space in the U.S.
“We’re working to have the greatest concentration of distribution centers in the country,” says Jim MacLellan, director of trade development for Port of Los Angeles. “It creates economies of scale for shippers.”
The port has a $236 million expansion plan for fiscal year 2013-14 (which began July 1). The plan includes back land improvements to support future automation and provide on-dock rail capacity at the TraPac container terminal, completion of a 375 linear feet expansion of the wharf and back land areas of China Shipping Terminal, and the installation of alternative maritime power stations at major container terminals to help reduce emissions from container vessels.
When Port of Los Angles faced capacity issues in 2006, a decision was made to incentivize shippers to shift some cargo handling to the night shift. MacLellan describes the decision as a major success, giving the port breathing space in terms of capacity.
“Our new investments will help improve our terminals in terms of efficiency and capacity that builds on the shifting of cargo away from daytime,” he says. “We have sufficient capacity to handle growth by balancing the cargo over day and night shifts.”
Separately, BNSF Railway is committed to building a near-dock rail yard to enhance competitiveness and capacity. Both the ports of Los Angeles and Long Beach will utilize the $500 million investment, which has been approved by the Harbor Commission and Los Angeles City Council.
Long term, Port of Los Angeles has a $1.3-billion, five-year capital program aimed at keeping its infrastructure up to date as it faces increasing competition from other U.S. West Coast ports, as well as those in Mexico and Canada.
“It’s a competitive issue,” MacLellan says. “The upgrades and expansions are aimed at retaining the cargo we already have and make sure we have room to grow.”
Serving the Customer
One of those competing ports is Mexico’s Port of Lazaro Cardenas. There are a growing number of manufacturers and retailers that ship cargo from China to Port of Lazaro Cardenas, and then bring it to San Antonio by rail for distribution. This allows for quicker service, says Mario Hernandez, president of San Antonio Economic Development Foundation.
Companies also use San Antonio as a distribution point for cargo that comes from Mexico through Laredo, Texas, about 150 miles away, and the largest land port where most cargo crosses the U.S.-Mexican border.
Manufacturing and energy are helping to change logistics in the Southwest, Hernandez says.
The Toyota manufacturing plant in the San Antonio metro area is producing more than 200,000 vehicles a year, the majority of which are being shipped throughout the country. South of San Antonio, the Eagle Ford Shale Formation is estimated to have 20.81 trillion cubic feet of natural gas and 3.351 billion barrels of oil. Sand used in the fracing process is brought to the region from the Midwest by rail and transferred onto trucks to be taken to Eagle Ford.
San Antonio is the crossroads of two major interstates — 35 (north-south) and 10 (east-west). From San Antonio, a company can move its product to either coast, or from Mexico to Canada.
“Our internal system has been built very well to mesh with that interstate connection,” Hernandez says.
A major logistical asset in the metro area is Port San Antonio, a former U.S. Air Force base. The complex has a 2-mile-long runway, meaning a company can fly anything into San Antonio from every part of the world in any size aircraft. There is nearly 2,000 acres of property and 2 million square feet of distribution space, plus an on-site rail yard. From Port San Antonio, companies can transport product via rail or truck.
“It is the perfect logistics and distribution multimodal site,” Hernandez says.
Hernandez expects two new rail-served industrial parks and an additional distribution facility of more than 1 million square feet to be announced by the end of the year.
“There are tremendous opportunities [in San Antonio],” he says. “A company can be close to their markets and customer base.”
As GE Healthcare’s Knowlton-Chike says, “At the end of the day, it’s all about serving our customers.”
Manufacturers and retailers need their supply chains to be nimble and flexible to better serve their customer base. They need a supply chain strategy that makes the most use of multimodal capabilities.
From a cost perspective, every dollar that can be taken out of the supply chain by designing the right footprint, packaging, and transportation modes and service levels can be put into new product design and development.
The Southwest United States is giving manufacturers and retailers the logistical infrastructure that allows them to efficiently transport their product. This contributes to the bottom line — both financially and in terms of customer service.
“It allows us to bring more, better products to market,” Knowlton-Chike says.