Spreading the wealth
Imports are likely to grow faster than the rest of the economy for the foreseeable future. More imports mean more DCs in more places, and ports are welcoming the growth.
A short drive from the Garden City Terminal at the Port of Savannah, Ga., lies a complex of large warehouses in a development called the Savannah International Trade Park. Among them looms a new 1.7 million-square-foot distribution center owned and operated by IKEA, the popular and fast-growing home furnishings retailer.
The IKEA facility, which serves nine stores in the Southeast, typifies two trends in import-driven warehousing in the United States. First, major importers are building new warehouses in locations beyond the traditional import gateways, not just near the coasts but also well inland. And second, they're building them big. And IKEA's massive facility is not even the largest in the trade park: Nearby is a Target DC that occupies in excess of 2 million square feet.
What's driving those trends is simple enough: A surging tide of imports that shows no sign of receding. While imports may no longer be growing at the double-digit rates of recent years, they will continue to increase faster than the economy as a whole, predicts Paul Bingham of the economic consulting firm Global Insight. Bingham, who keeps a close eye on import trends to prepare the monthly "Port Tracker" report for the National Retail Federation, forecasts average annual import growth in the range of 5 to 6 percent.
As imports continue to grow, the demand for large facilities to handle them will grow apace. At the same time, the shift in warehouse locations from congested mega-ports to smaller ports and to locations farther inland will pick up speed. IKEA, Target, and other importers in the Savannah International Trade Park, it seems, have seen the future, and they are ready.
One consequence of import growth is that much of the new import warehouse development now occurs far from seaports. The Inland Empire in California's San Bernardino Valley is a prime example. Although the Inland Empire's western border lies some 40 miles from the sea, the volume of goods coming through the nearby ports of Los Angeles and Long Beach has made it one of the fastest-growing import logistics centers in the nation.
Grubb & Ellis Co., a real estate services and investment management firm, expects the region to continue on that growth path. In its 2008 commercial real estate forecast for the Inland Empire, the company said the area would benefit from its proximity to the ports of Los Angeles and Long Beach, competitive rents, a space shortage in Los Angeles (where the vacancy rate is below 2 percent), and the availability of space to accommodate large warehouses.
The Inland Empire's experience is mirrored in major inland ports like Columbus, Memphis, and Chicago that boast excellent rail links to ports of entry. These and other inland distribution hubs are pursuing and winning new DC development that's directly related to the growth of imports.
Not everyone is looking inland, however. Many importers—especially the "big box" retailers—continue to build large DCs near ports on the Pacific, Atlantic, and Gulf coasts. Those ports have been more than happy to accommodate them.
The spurt in DC construction at ports located away from Southern California accelerated after 2002. That year, labor strife at the ports of Los Angeles and Long Beach, the traditional gateways for Pacific Rim imports, created enormous backups in supply chains nationwide during peak shipping season. LA and Long Beach have rebounded from the crisis and continue to attract huge volumes—last year, the Port of Los Angeles handled 8.4 million TEUs, while Long Beach handled 7.3 million. (The TEU, or 20-foot equivalent unit, is a standard measure of container volume.) Nonetheless, that experience— and forecasts of continued import growth—prompted some shippers to begin looking at alternative ports to reduce their risk of getting caught in the logjam should it happen again.
Furthermore, Bingham says, the big box retailers are looking to align their import facilities with their domestic distribution networks. That means their decisions regarding where to locate their warehouses and DCs will also depend on where their retail stores and their customers are located. That's leading national chains with thousands of stores—like Wal-Mart, Target, and Home Depot—to expand beyond a single import gateway.
Indeed, import growth has spread the wealth to ports large and small on all three coasts. North American ports tracked by the American Association of Port Authorities handled 48.7 million TEUs in 2006, up 35.2 percent since 2002. Just a few examples: On the Atlantic Coast, Savannah's volumes soared nearly 63 percent from 2002 to 2006, traffic at Hampton Roads (Va.) grew by 42 percent, volumes at New York and New Jersey increased by 36 percent, and traffic at Charleston (S.C.) rose 24 percent. On the Gulf Coast, Houston saw container traffic jump by 29 percent. On the Pacific Coast, Vancouver (B.C.) saw volumes grow by 48 percent, Tacoma (Wash.) saw traffic rise 41 percent, and Oakland (Calif.) reported that its volume grew by 40 percent. (Figures for 2007 were not available for all ports at press time.)
Ports come a-courting
One port that has achieved notable success in attracting distribution business is Savannah. In December 2007, the Savannah Morning News reported that the Savannah area had about 15 million square feet of warehouse space already in use, with another 3 million slated to come online this year and an additional 26.8 million square feet in the planning stages.
It's no secret why Savannah is so eager to attract import DCs. The port handled 2.6 million TEUs last year, a 20.6- percent increase over 2006—making it the fourth-busiest container port in North America. That may be just the beginning: Georgia Ports Authority Chief Operating Officer Curtis J. Foltz has said that the port expects to handle 6.5 million TEUs annually by 2018.
Savannah is far from alone in its pursuit of import warehouses, of course. The Portfields Initiative, a joint project of the Port Authority of New York/New Jersey and the New Jersey Economic Development Authority, is designed to promote development of underutilized and "brownfield" sites for ocean and airfreight-related warehousing and distribution. Another example: The ports of Tacoma and Olympia in Washington state are planning a new distribution park, the South Sound Logistics Center, which they hope will eventually include both import and domestic warehouses.
The new lineup
The idea of ports competing for import business is not new. It wasn't all that many years ago, before the boom in imports from the Pacific Rim, that East Coast ports led the nation in handling imports; Los Angeles first surpassed New York/New Jersey in container handling in 1989.
Now, though, the field of competitors is much larger and far more diverse. Big importers are seeking ways to manage soaring import volumes and better align their international trade networks with their domestic distribution systems. Many have chosen to address those issues by diversifying their port gateways to get closer to the end customer. That's why a new lineup of ports—whether along the coast or inland—will be welcoming the new, super-sized import warehouses for some time to come.
The newest container port in North America, Canada's Prince Rupert, opened for business last fall. Kenneth B. Ackerman, president of The Ackerman Co., got a sneak peek and filed this report.
The newest intermodal port in North America is located in the town of Prince Rupert on the north coast of British Columbia, just a few miles south of the Alaska border. When we discovered that a vacation tour would have us in Rupert (the locals omit the "Prince"), I took the opportunity to see the site, escorted by the port authority's manager of corporate communications. Our visit was in September, more than a month before the first containership was scheduled to call at the new terminal.
Everything appeared to be ready—the 52-acre pavement had been completed, four container cranes were on site, and dozens of reach stackers seemed set to begin moving containers from the road to the nearby rail spur. A large number of empty rail cars were also in place. Meanwhile, Maher Terminals of Elizabeth, N. J., was training Rupert's port workers at its New Jersey operation.
Some of the new port's operating advantages are impressive. Rupert is now North America's nearest seaport to Asia, one day closer than Vancouver and two days closer than Los Angeles. The Canadian National Railway (CN), which serves Rupert, offers a comparatively flat route over the Rockies, an observation we were able to personally verify during our rail tour.
An easy route to the east will be an asset. Since the CN also owns the Illinois Central Railroad, Rupert should be able to rapidly and effectively serve Midwest cities. The port authority claims that rail cars can move from Rupert to Chicago in a little over four days. Expectations are running high: In an article in the Memphis Business Journal last summer, supply chain consultant Cliff Lynch described the port as "the most promising option Memphis has seen in recent years."
At the same time, there are a few aspects of the new port that suggest caution is warranted. Rail is the only realistic option for moving intermodal containers here. There is no highway along the coast, and the only highway of any sort is a two-lane road that goes east to Prince George, B.C., before turning south to eventually connect with four-lane highways near Vancouver. For this reason, other ports that offer good trucking services as well as rail may be more attractive for many shippers.
Another cause for concern is labor. Rupert has experienced economic hardship because of lumber mill closures, and the population of about 10,000 is smaller than it was a decade ago. Local people understandably are excited about the prospect of jobs handling intermodal traffic. However, few places in North America have a more difficult history of labor relations than has British Columbia.
At the port authority, we were told that the likelihood of labor trouble was reduced because about half of the workers will be "First Nation," the Canadian term for native people, and that they are less likely to favor unions and strikes than are other groups. A business friend, a Vancouver native who once worked in the rail industry there, disagreed with that opinion; he believes First Nation employees present more disciplinary issues than do other groups. Further, other workers could still be prone to labor actions.
In the last analysis, the new port's success will depend on productivity—something a 2007 research paper described as "lackluster" in Canada. Several questions come to mind. Will the turnaround time for container ships be competitive with the best intermodal ports? Will port and railroad management achieve competitive productivity, or will their emphasis be on creating new jobs? A better appraisal of Rupert's success will be possible after a few dozen ships have moved through the port and after the railroad has moved containers to and from Chicago and Memphis.
And how is Rupert doing these days? In December we talked with Tony Maddox of TBC Corp., a large marketer of replacement tires located in Memphis. When we spoke, his company had received six containers through the port and three more were in transit. The first of TBC's containers arrived at Rupert on Nov. 20, and they were at a ramp in Memphis on Nov. 28th. Total transit time from the Far East was 19 days, four to five days shorter than TBC's experience with other intermodal ports. Maddox was quite pleased with his first experience moving cargo through Rupert.
The rapid growth of imports means that the warehouses and DCs that handle them have plenty to do. Except when they don't.
That was one of the issues highlighted last year in "Import-Driven Warehousing in North America," a report sponsored by ProLogis, an international developer of warehouses and distribution centers. The study's authors, Thomas Speh, a professor of distribution at Miami (Ohio) University, and Arnold Maltz, a professor of supply chain management at Arizona State University, noted that one of the biggest challenges for import warehouses is the "extreme volatility" of daily workloads. "An import warehouse's backlog can surge from zero to 50 containers (or more) in a single day, depending on the pace of unloading, customs clearance, drayage, and the warehouse operator's own efficiency," they wrote.
Leonard Sahling, first vice president of ProLogis Global Research, agrees: "There are tremendous peak load problems," he says. "One of the major characteristics of these facilities is that one day they are working two or three shifts and have to bring in temp staff, and then other days things are quiet."
Making matters worse is the spotty accuracy and timeliness of import shipment information. That lack of visibility into when imports will arrive (and often, what goods the containers hold) makes planning labor and space utilization difficult.
Speh and Maltz found enormous variance in the level of visibility available to the warehouse managers they surveyed. That variance is itself a problem. "What the people in the warehouse are looking for is reliability in the data," Speh says. "The process is built for glitches, and when you have glitches, you build inventory . When you have good information and know what's coming, then [the process] works as it should."
Some software developers insist that tools for inbound visibility are already at hand. GT Nexus, for one, offers an on-demand platform that collects data from all the parties involved in international trade transactions and disseminates the information in an easy-to-use format. Greg Kefer, director of corporate marketing, says that DC managers at companies that use the system have clear visibility into inbound container shipments.
Based on the results of the ProLogis study, such solutions are not yet in widespread use, at least at the warehouse level. Instead, managers interviewed by Maltz and Speh cope with inconsistent information in other ways, perhaps none of them ideal. For instance, companies that handle their own drayage may have drivers circle around a port until they are notified that containers are ready for release. When goods do arrive, the DCs unload containers based on outbound priorities.
Maltz says that some of the managers he interviewed are getting better visibility into the seaports' information systems than they once did. That gives them a better sense of when containers will arrive at their dock doors, but that solution remains imperfect.
Solving the visibility problem may be the most significant need for import warehouse operators today, especially since volatility will likely become more pronounced as larger containerships come into service. Achieving that goal will require a level of collaboration among global supply chain participants—including ocean carriers, customs brokers, and local drayage companies—that thus far has not been widely seen. Speh says, "Everyone has a key role. There are so many people involved, and if any one of them screws up, you've got a big problem."
About the Author
Peter Bradley is an award-winning career journalist with more than three decades of experience in both newspapers and national business magazines. His credentials include seven years as the transportation and supply chain editor at Purchasing Magazine and six years as the chief editor of Logistics Management.
More articles by Peter Bradley
Resources Mentioned In This Article
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- Report: automated material handling market set for double-digit growth
- In unusual move, supply chain consultant forms logistics company; stocks it with big names
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