Ground / Ocean

Midwest: Options for Extended Supply Chains

The region’s strengths allow companies to lower their logistics costs

July 28, 2014

As companies examine their end-to-end supply chain — from Asian and other overseas sources to the United States — their thought processes and data analyses look at several issues:

  • The most efficient movement of goods
  • Value-added distribution
  • Light assembly prior to distribution to the final customer

“Companies want the best cost advantage in the most efficient supply chain,” says Chris Gutierrez, president of KC SmartPort Inc.

From the Midwest U.S., companies can find this advantage by establishing a distribution hub in the region, covering a larger footprint at a lower cost in a supply chain that could stretch from Asia to the U.S. East Coast. They can establish a distribution strategy that covers the region, as well as the eastern half of the U.S. and Canada — “still the greatest market in the world,” according to Kenny McDonald, chief economic officer of Columbus 2020.

The strengths of the Midwest have been augmented by Western Class I railroads, which have positioned themselves with infrastructure upgrades beginning at West Coast ports to combat potential competition from ports on the Gulf and East Coast as a result of the Panama Canal expansion. A byproduct of that improvement is efficient and cost-effective transcontinental logistics.

“Companies that ship goods from overseas are looking to transport those products and materials the longest distance without stopping before the cargo gets broken down,” insists Marty Vanags, vice president of regional economic development for Indy Partnership. “The Midwest presents great opportunities for that to occur. We are the place where products stop, get broken down and dispersed to other markets.”

Congestion Avoidance

Major interstate highways crisscross through the Indianapolis metro area. “We are at the crossroads of America,” notes Vanags, pointing to interstates 74, 69 (part of the NAFTA Corridor that will eventually run from the Mexican to Canadian borders), 65 and 70, which come together in Indianapolis. “This makes us a good hub for logistics and warehousing.”

There is also tens of millions of square feet of warehousing and distribution space available, with the potential for much more. Indianapolis is a nine-county region, the largest of which is urban Marion County. The counties surrounding Marion are mostly rural, but with access to the transportation infrastructure.

“There is tremendous room to grow operations in these counties,” Vanags stresses. “Indianapolis represents a good-quality, low-cost option for warehouse and distribution without the difficulties of congestion in Chicago.”

As with Indianapolis, the Kansas City metro is primed to be a logistics hub. Five Class I railroads run through the region, and four of the railroads have established or opened new intermodal facilities. Intermodal is the fastest-growing transportation mode, and significant investment has been made in Kansas City that has the potential for rapid growth during the next five to 10 years, according to Gutierrez.

Norfolk Southern, the most established of the railroads operating in the Kansas City area, is looking at expansion opportunities as its 1,000-plus acre intermodal facility nears capacity. BNSF opened a new intermodal logistics park last year in Edgerton, Kan., which has the potential of up to 20 million square feet of vertical development and gives manufacturers a direct connection between Long Beach, Calif., and Chicago. Kansas City Southern recently opened a 1,000-acre intermodal facility, developed by CenterPoint Properties, which is building an adjacent 300,000-square-foot spec building.

A distribution center located next to an intermodal facility will drive drayage costs down and get product moving through the supply chain more quickly, Gutierrez stresses.

There is nearly 3 million square feet of spec development built or currently under construction in the Kansas City region as developers begin to produce new buildings to keep up with demand.

Value-Added Offerings

Another advantage to Kansas City is the growth of foreign trade zone (FTZ) space. In 2013, FTZ space in the region jumped to more than 8 million square feet from more than 3 million square feet in 2012.

Companies are expanding their facilities within an FTZ with the intent of conducting final assembly there from components sourced in Asia at a lower cost, compared with overseas assembly or assembly at another U.S.-based location.

Value-added assembly is an idea that officials in the St. Louis metro area are exploring. The metro is in the early stages of looking for opportunities that would allow manufacturers to enhance the freight that currently just passes through on its way to its final destination.

“We know that a significant amount of freight that comes to St. Louis doesn’t stop for any type of value-added or further processing,” says Louis Copilevitz, director, logistics and manufacturing, for the St. Louis Regional Chamber. “This would create new job opportunities.”

With its proximity to the geographic and population centers of the U.S., St. Louis is a potentially important site for a distribution hub.

“We have access in all directions and more modes of transportation than most other regions,” Copilevitz notes.

The region is a link between the eastern and western railroads. St. Louis is one of the few metros in North America to have connectivity with six Class 1 railroads: Union Pacific, BNSF, Kansas City Southern, Norfolk Southern, CSX and Canadian National.

Business parks in St. Louis, some of which are focused on large-scale bulk distribution centers, offer shovel-ready sites and existing buildings that are ready for logistics operations. Consumer product companies, including Procter & Gamble and Dial, have large manufacturing and distribution operations in the region.

St. Louis is the northernmost ice-free port on the inland water system, sitting on the convergence of the Mississippi, Missouri and Illinois rivers. And it is at the southernmost point on the lock and dam system that serves the upper Mississippi and Illinois rivers.

“A lot of bulk commodities, such as agricultural products, coal and petroleum, come through the region from the north by rail and are trans-loaded onto barges,” Copilevitz emphasizes.

Barge is the cheapest form of transportation — one barge is equivalent to nearly 60 large semi-trailers or 50 jumbo hopper rail cars.

“After St. Louis, it’s straight down the Mississippi River to the Gulf of Mexico,” Copilevitz points out.

Also in the St. Louis metro area is Scott Air Force Base, which includes U.S. Transportation Command. Global logistics activities are planned and structured from the region. Many military personnel assigned to the base retire to St. Louis, meaning employers have access to a highly skilled work force possessing extensive experience in conducting logistics activities for military and government.

“The talent and ability to coordinate the movement of freight over multiple modes for long distances is [in St. Louis],” Copilevitz insists. “There are a lot of assets, both from a labor and infrastructure point of view, which companies can utilize if they decide to site a distribution facility in St. Louis.”

Offering Distribution Flexibility

For many companies with distribution operations in Columbus, Ohio, logistics is a core competency and a differentiator from their competitors. The metro has evolved into a two-way global gateway. Not only are imports distributed from Columbus to the eastern half of North America, but the metro has also become a growing export location.

 “As we are in the eastern portion of the Midwest, we have a unique value proposition to reach the eastern half of the United States and Canada,” Columbus 2020’s McDonald asserts. “You can land your cargo and have it delivered to the East Coast or other parts of the Midwest faster than some people can get out of their own backyard.”

The Columbus transportation infrastructure includes air cargo and four intermodal yards.

Cargo-dedicated Rickenbacker International Airport is a key component of the supply chain in Columbus, and air cargo users have at their disposal warehouse facilities ready for occupancy. There is access to national trucking operations, as well as numerous third-party logistics providers (3PLs), freight forwarders and less-than-truckload (LTL) companies.

“There is incredible supply chain value in Columbus,” McDonald notes. “Companies can cut and manage their costs. They can find innovation within their supply chain with a Columbus operation.”

Keeping a Competitive Edge

Midwest metro areas consist of workforces that are trained in logistics and supply chain management — and with programs available through community colleges and technical schools to keep the pipeline fresh.

And, in the Kansas City region, business and educational leaders have put together an advisory board to examine the next level of skills that will be needed by potential supply chain employees. They are working to ensure that students — whether they come from high school, community colleges or four-year institutions — are trained and certified in logistics to enter the field and be prepared to contribute to a company’s bottom line on day one.

Indianapolis and Columbus have launched programs to prepare workers for a career in logistics, again with the goal of making them productive from the first day.

“Logistics is getting more technical, so workers need more skills,” Indy Partnership’s Vanags says. And Midwest metros are continually looking for ways to keep their competitive edge in the future.

Because there was no direct-rail access between a West Coast port and Indianapolis, Canadian National Railway and Indiana Rail Road Co. began operations last year at an intermodal terminal in Indianapolis, offering an all-rail option for containerized cargo moving to and from Asia through the Canadian West Coast ports of Vancouver and Prince Rupert.

The service reduces transit times and improves transportation consistency for companies, making their supply chains more competitive and efficient by bypassing the congested Chicago rail corridor, Vanags says.

Metro areas know they can’t hesitate if they want to continue to attract distribution hubs and manufacturing facilities. They have to move fast. One example is an automotive company that began construction on a 300,000-square-foot facility in Kansas City in April and expects to be operational by October.

 “Companies held their dollars as they came out of the recession,” Gutierrez points out. “When they pull the trigger to make a capital investment, you have to be ready to go.” 

Recent Articles by Ken Krizner

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