March 1, 2008
enroute | Maritime & Port Services

Spreading the wealth

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.

By Peter Bradley

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.

New gateways
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.

About the Author

Peter Bradley
Editor Emeritus
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

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