October 27, 2014
strategic insight | Site Selection

Virginia is for (logistics) lovers

Companies seeking a new distribution center site will find a lot to love about Virginia, including a deepwater port and its location in the middle of the Eastern Seaboard.

By Susan K. Lacefield

For 45 years, Virginia has been proclaiming to the world: "Virginia is for lovers." The state's travel and tourism ad campaigns have also declared at various times that "Virginia is for history lovers," "Virginia is for beach lovers," and "Virginia is for mountain lovers." State economic development groups might like to add one more slogan: "Virginia is for logistics lovers."

With a deepwater port capable of receiving the giant post-Panamax megacontainerships and with a location in the center of the Eastern Seaboard, Virginia has attracted companies like Amazon.com, Lumber Liquidators, and Ace Hardware, all of which have opened "big box" distribution centers (those larger than 300,000 square feet) in the state. In addition, industrial real estate developer CenterPoint Properties recently opened an intermodal center near the port that includes 5.8 million square feet of large and desirable Class A distribution and warehouse space.

Why is the commonwealth generating all this logistics love? Here are a few reasons.

If you're looking to locate a single distribution center on the East Coast, Virginia makes a lot of sense. The state lies between the major consumer markets of New York/New Jersey and Atlanta and northern Florida. It also provides easy access to Midwest markets.

"We typically tell folks that from central Virginia, you can access about 40 percent of the U.S. population within a day's drive," says Rob McClintock, director of research for the Virginia Economic Development Partnership. "That's a big chunk of the market right there. And if you just draw a radius of 750 miles, you hit 55 percent of the population. So you can get there from here. And you can get your stuff there from here."

By "there," McClintock doesn't just mean the domestic U.S. market. "We like to think of Virginia as really a gateway for the rest of the world," he says.

The Port of Virginia serves as the state's point of entry for international commerce, offering connections to about 200 countries, according to McClintock. The port's core asset is Hampton Roads Harbor, which, at 50 feet of depth, shares with Baltimore the distinction of having the deepest water of any East Coast port. The water depth is expected to make Hampton Roads inviting to super post-Panamax vessels, which many experts believe will increasingly be used to serve the East Coast once the expanded Panama Canal opens.

Another attractive feature of the port, according to Russell Held, the port's vice president of economic development, is that it has room to grow. The Port of Virginia is the only port on the East Coast with congressional authorization to deepen its channels to 55 feet, and the rivers that serve the port are free of obstructions such as bridges, rail crossings, or power lines that would restrict large vessels from entering the port. Furthermore, the port will be looking to expand its Virginia International Gateway Terminal within the next five years and is "roughing out" a possible 600-acre expansion site for a marine terminal on Craney Island in the harbor.

"We are possibly the only port in the U.S. that can show how it can expand not only next year but also 30 years in the future," says Held.

Business at the port is driving an increase in warehouse and DC development along the I-64 corridor from Hampton Roads to Richmond, according to Mark Levy, managing director and the mid-Atlantic logistics and industrial practice group leader for the commercial real estate firm JLL. Most of the DCs near the Hampton Roads port are used for transloading and breakbulk services. Because Hampton Roads lacks a large population base, it doesn't have many big box distribution centers, Levy says. Instead, companies like Amazon are locating their million-square-foot mega-DCs near the state capital in Richmond, which is situated halfway between the port and the major consumer market of Northern Virginia, which surrounds Washington, D.C., says Levy.

Vitamin Shoppe, a health and wellness retailer, last year opened a 311,740-square-foot distribution center in Ashland, Va., about 19 miles from Richmond. After an exhaustive site selection process, the company chose Ashland over other sites in Virginia and North Carolina. "It is a great location situated right off I-95. The proximity to a major highway serves us well in getting shipments out quickly, as we move most of our freight by truck," says Rich Tannenbaum, Vitamin's Shoppe's senior vice president, supply chain and information technology.

Virginia's infrastructure enables it to support other modes of transportation. For example, Virginia has the third-largest state-maintained highway system in the country, with six major interstates. Two Class 1 railroads serve the port: Norfolk Southern and CSX, both of which are headquartered in the state. Currently, 34 percent of the port's cargo arrives and departs by rail, the largest percentage of any U.S. East Coast port.

In Northern Virginia, Dulles International Airport serves as a major hub for both passenger traffic and cargo. According to McClintock, there is enough available space around Dulles that the airport could expand its capacity by a few hundred acres.

Virginia's maritime traffic is not limited to oceangoing vessels. Two and a half years ago, the port established a barge service from Hampton Roads to the Port of Richmond on the James River. Barge traffic has grown to the point where service is now offered three times a week, according to McClintock.

Companies like Vitamin Shoppe are finding that Virginia doesn't just offer the physical infrastructure to support a distribution center; it can also provide the workers needed to staff that DC. "The Ashland area has been very welcoming ... and we have been able to find many skilled, qualified candidates to join our team," reports Tannenbaum.

Overall, the labor force in Virginia is growing at a rate that's twice the national average, according to the Virginia Economic Development Partnership. In the logistics and distribution sector alone, Virginia employs 68,500 people.

Every region of Virginia is served by community colleges, some of which offer truck driving schools, forklift driving academies, and warehouse management system training. In addition, Virginia boasts a network of universities that provide logistics-focused research and education. Old Dominion University, located in Norfolk, is known for its Maritime Institute, which provides maritime, port, and logistics management education, training, and research. The recently formed Commonwealth Center for Advanced Logistics Systems connects local businesses seeking help resolving logistics problems with students and professors at the University of Virginia, Virginia Commonwealth University, Virginia State University, and Longwood University.

The labor market also benefits from the strong military presence in the state. According to McClintock, 23,000 people a year are being discharged from the military and are looking for work in industry. Many of these veterans possess significant logistics skills because Fort Lee in central Virginia is the Army Sustainment Center of Excellence, a focused training base for military supply, subsistence, maintenance, munitions, and transportation. In addition, the base is home to the U.S. Army Logistics University and the U.S. Army Transportation School. "The military is a constant feeder to our labor force of educated, highly skilled, highly disciplined people who are ready to go to work," says Held.

On top of that, Virginia is the northernmost right-to-work state on the East Coast, meaning that workers cannot be required to join a labor union in order to be employed, and its Jobs Investment Program provides companies with state-funded grants for job training.

The jobs training program and right-to-work status reflect the state's business-friendly environment. "It's very easy to do business in Virginia in terms of dealing with elected officials, getting economic incentive packages approved, and getting permits fast-tracked," says JLL's Levy. "Virginia has a very pro-business approach."

The state also offers a competitive tax structure, McClintock says. "We'll never be the lowest, but our taxes will always be consistent," he says. This stability enables companies to accurately forecast their costs from one year to the next, he adds.

Certainly, no state has the perfect business recipe, and Virginia has its share of challenges. Companies struggle with the fierce road congestion in the northern part of the state. Unlike the Port of New York/New Jersey or the Port of Miami, the Port of Virginia lacks proximity to a major consumer base.

Furthermore, Virginia has to compete against the more aggressive incentive packages developed by its southern neighbors. "It's a very competitive market," says Levy. "There are states that will provide very attractive incentives to the point where they will provide free land, they will provide all sorts of tax credits, and they will provide, in some cases, cash and, in a few cases, even build the facility for you." In spite of these challenges, Levy says, Virginia holds its own because of its innate advantages in geographic location, infrastructure, and labor.

"Our population is continuing to grow, and our economy is continuing to grow," says McClintock of the state's Economic Development Partnership. "That shows the environment is still conducive to business and development, and therefore, we are still considered vibrant and relevant."

About the Author

Susan K. Lacefield
Senior Editor
Susan Lacefield has been working for supply chain publications since 1999. Before joining DC VELOCITY, she was an associate editor for Supply Chain Management Review and wrote for Logistics Management magazine. She holds a master's degree in English.

More articles by Susan K. Lacefield

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