Kansas City: logistics powerhouse?

It rests on America's logistics axis, the focal point for much of the nation's freight moving in any direction. It handles more rail tonnage than any city in the country and more rail cars than any city except Chicago. It is bisected by two major interstate highways: I-35 running north to south, and I-70 from east to west. Its airport handles more cargo than any facility covering a six-Midwestern-state radius other than O'Hare International Airport. Its bi-state, 18-county region boasts more road lane capacity than any of comparable size, which might explain why "rush hour" is a largely alien concept even though more than 2 million people call it home.

It also serves up the meanest barbeque anywhere in creation.

Yet Kansas City, Mo., remains one of the world's most overlooked commerce centers, a reality not lost on its devoted community of business leaders and civic boosters. Upon arrival, visitors will usually be greeted by a boisterous "Welcome to Kansas City!" followed by, "Is this your first time here?" with the tacit understanding that the reply is often affirmative.

Kansas City's image has long been that of a "large small city" dwarfed by Chicago, 500 miles to the northeast, and by its sister city on Missouri's eastern rim, St. Louis, with the latter having a reputation for being more cosmopolitan than Kansas City and with stronger ties to East Coast culture and commerce.

None of that seems to bother the locals. They revel in Kansas City's label as the original "cow town," a phrase coined decades ago after the preponderance of cattle roaming its streets. As they see it, their city's central location makes it—not Chicago or St. Louis—the natural eastern gateway to the west, as well as the ideal northern consolidation point for truck and rail service supporting the booming U.S.-Mexico trade.

Yet for all its strengths as a rail center, Kansas City still lacks the established gateway status of a city like Chicago, where all seven North American Class I railroads come together. Patrick Ottensmeyer, executive vice president and chief marketing officer for Kansas City Southern Inc. (KCS), the Kansas City-based railway, said it is more efficient for shippers and carriers to go direct into Chicago without the need for an interchange at Kansas City.

Still, Ottensmeyer said that, in many cases, Kansas City is the "perfect set-up" for rail movements, especially given its position as a median point for north-south traffic moving between the upper Midwest and Mexico. To leverage the region's pre-eminence as a source of animal protein products, KCS is considering a "shuttle" service at Kansas City under which the railroad would load beef and poultry shipments brought in by truck and then ship it southbound to Mexico, Ottensmeyer said. KCS would carry Mexican produce on the northbound leg, he said.

Chris J.F. Gutierrez, president of KC SmartPort, a non-profit economic and logistics development organization, said Kansas City actually benefits from having Chicago considered a rival for supply chain projects. "Most supply chain professionals know the difficulty of congestion, labor, and other factors that challenge them in Chicago," Gutierrez said in an e-mail to DC Velocity. "Kansas City does not have these issues and offers a competitive option for [a] company to consider."

Gutierrez said that when Kansas City is in the running as a site for a new manufacturing or distribution center, "we rarely are competing against Chicago."

Location, location...
When it comes to attracting industrial development, however, Kansas City still has some work to do. Local financial institutions, by and large, adhere to very conservative lending practices. As a result, there is little, if any, so-called speculative development of industrial properties. While that served the city in good stead during the economic downturn, it has made it hard to aggressively and creatively market a property to a business looking to quickly expand or relocate into an existing facility.

But the city's many supply chain strengths can offset the impact of its lenders' practices. When the Coleman Co. Inc., the Wichita, Kan.-based maker of outdoor products, looked to build a 1.5 million-square-foot distribution center—its largest ever—it chose Kansas City, even though St. Louis made a more "financially favorable" proposal, according to Rob Tecco, Coleman's director of distribution.

Kansas City got the nod because of its abundant labor pool, a friendly pro-business climate, and a superior transport network to support Coleman's receiving and distribution, said Tecco. "We think we have a better transportation piece" in Kansas City, he said.

It didn't hurt that the facility was constructed and in move-in condition for Coleman within 10 months after it committed to Kansas City, Tecco added. Coleman moved into the DC in October 2009.

Kansas City's proximity to major consumer markets also drove Pure Fishing Inc., one of the world's leading makers of fishing tackle equipment, to build a 400,000-square-foot distribution center there in 2008, according to Jeff Kisling, vice president, North America logistics and services. "Kansas City was the place to be from a cost perspective and from an inventory perspective," he said.

Kisling said Pure Fishing's goods can be delivered anywhere in the United States from its DC in three days or less. This is critical for serving West Coast anglers, who make up a good chunk of the company's customer base, he said.

"We can take an order on Monday, ship it out on Tuesday, and our West Coast customers can receive it on Friday in time for the weekend," Kisling said. "St. Louis is too far east" to consistently hit those delivery targets, he added.

Municipal support
Logistics has also been embraced at the municipal level. Perhaps the most striking example is in the western suburb of Olathe, Kan., where over the past 40 years its residents have helped finance—in conjunction with federal and state funding—the construction of four interchanges off I-35. The first three focused on retail and office development. The fourth, and last, was dedicated to industrial development. It opened three years ago.

Tim McKee, president of the Olathe Chamber of Commerce, said the projects have yielded financial benefits far in excess of their costs. "For each interchange that we have built, we have seen private investment of more than $1 billion," he said.

But perhaps the most ringing endorsement to date of Kansas City's increasing relevance on the logistics map can be found in Edgerton, Kan., about 25 miles southwest of the city off I-35. There, workers are erecting an intermodal and distribution complex that will occupy more than 7 million square feet and cost about $750 million, 80 percent of which will be funded through private sources. An additional $100 million in public money will be spent on infrastructure such as access roads around the park.

The project, considered one of the most important development efforts in the history of Kansas, is expected to create more than 13,000 direct and indirect jobs statewide and generate about $1.7 billion in tax revenue over a 20-year period, according to state estimates.

Anchoring the complex will be a $250 million intermodal yard being built by BNSF Railway. The BNSF terminal, slated to open in the fourth quarter of 2013, will replace a smaller facility near the city and become a linchpin of the railroad's southern corridor connecting Chicago and the Southwest. At full capacity, the facility will be able to handle 1.5 million intermodal "lifts" per year, compared with 313,621 lifts handled at the existing facility in 2011. A lift is defined as one trailer or container being placed on or taken off a rail car.

Ground was broken at the BNSF facility in mid-March, and the project is expected to take about 22 months to complete. For BNSF executives, the contrast between the progress at Edgerton and an ongoing project in Southern California, which is in its eighth year of development and remains mired in bureaucratic and environmental red tape, could not be starker.

"We have to get your spirit out there," remarked John Lanigan, BNSF's executive vice president and chief marketing officer, at a conference in Kansas City in early April.