Economic cycles come and go, but geography is forever. For the city of Detroit, whose cycle has followed the "to hell and back" trajectory, its future as a major North American logistics player could hinge on whether transportation and logistics users view its location on the continent's map as a blessing or a curse.
Detroit sits at the nexus of U.S.-Canada trade, with its proximity to Toronto, considered the gateway to Canadian commerce. It is located near four of the five Great Lakes as well as the U.S. transcontinental railroad system that connects with Great Lakes port traffic. It is home to three major U.S. interstate highways: I-75, I-94, and I-96. Between 1,000 and 1,450 acres of land are located near urban areas ripe for industrial development, a rarity among large metropolises, according to WSP| Parsons Brinckerhoff, a New York-based engineering and professional services company that last year prepared an extensive report for the Michigan Economic Development Corp. outlining Detroit's potential as a logistics center.
As the North American hub of auto production, Detroit has a superb automotive logistics infrastructure backed by the highly skilled employees needed to keep the automotive supply chain humming. The city and the state of Michigan are well positioned to attract high-tech investment as vehicles become embedded with more technological features than ever before, according to Walter Kemmsies, managing director, economist, and chief strategist of the ports practice for Chicago-based real estate and logistics services giant JLL Inc. In an era when cars are becoming computers on chassis, a company like General Motors Corp. will find itself competing as much with Microsoft Corp., the Seattle-based software behemoth, as with rival carmakers, Kemmsies said in a phone interview.
Agriculture is one of Michigan's core industries, owing to the rich coal-black soil that naturally occurs statewide. Building a new logistics complex in Detroit could help support growing U.S., North American, and global demand for foodstuffs, experts said.
In addition, the city's core downtown area is thriving, thanks in part to large investments made by Dan Gilbert, founder of mortgage firm Quicken Loans, and Mike Ilitch, founder of pizza chain Little Caesar's. Both firms are headquartered in downtown Detroit.
The core area's resurgence has, to some degree, spilled over into increased demand for all types of commercial and industrial space. As of the end of the second quarter, warehouse and DC space in metro Detroit had a 93.67-percent occupancy rate, according to CBRE Group Inc., a commercial real estate company. Vacancy rates across various categories are at all-time lows, and the metro area represents a prime market for speculative construction, according to CBRE.LOCATION, LOCATION, LOCATION
But the obstacles for Detroit are as apparent as its possibilities. Michigan, which appears on the nation's map as a mitten surrounded by water, is a headache for motor carriers who use the Detroit River to traverse the U.S.-Canada border. The 86-year-old Ambassador Bridge, which connects Detroit with Windsor, Ontario, and which last year handled more than $120 billion in NAFTA-related trade, is burdened with 14,000 vehicles a day—about 10,000 of them trucks—squeezed into just four lanes of road. The span, which is owned by industrialist Manuel "Matty" Moroun, who built his fortune providing shipping and logistics services to the auto industry, is the busiest cross-border transport link in North America.
Purolator International Inc., the U.S. arm of Mississauga, Ontario-based transport firm Purolator Inc. and a big user of the cross-border infrastructure, stopped using the bridge years ago, according to John T. Costanzo, president of the U.S. arm. Instead, the unit's drivers use the less-congested Blue Water Bridge, which connects the two countries at Sarnia, Ontario, about 68 miles northwest of Windsor. The relatively light vehicle backlogs at Sarnia outweigh the higher costs and the longer transit times to get there, Costanzo said.
Michigan's far northern location makes it unsuitable for handling the east-west traffic through which most U.S commerce flows, experts said. The state's northern locale and peninsula-like configuration also make it a poor choice for nationwide retail distribution and e-commerce fulfillment, which is optimally handled through massive hubs in more centrally located and landlocked states like Ohio. Cities like Chicago and Columbus, Ohio, both not far from Detroit as the logistics crow flies, have well-established logistics hubs that are situated along east-west shipping routes.
Canada's advanced and efficient infrastructure offers a compelling alternative to Detroit and Michigan. Canada has invested heavily to build a world-class shipping network to support its export-driven economy. U.S. exporters, especially in the Midwest, will often bypass the U.S. to connect with Canada's infrastructure, often through Montreal-based rail powerhouse Canadian National Inc., to get their goods loaded onto vessels for delivery to foreign markets, Kemmsies of JLL said.
Though Detroit lies along CN's line between Chicago and Montreal, the railroad doesn't have a major presence there. By contrast, CSX Corp., the Jacksonville, Fla.-based Eastern railroad, uses Detroit as its hub for all of Michigan. Norfolk, Va.-based Norfolk Southern Corp., CSX's main rival in the East, also relies on the Detroit facility.
Detroit's aging rail intermodal facility is in dire need of updating. However, a joint bid by CSX and the Michigan Department of Transportation to obtain federal grants for modernization and expansion fell short at the U.S. Department of Transportation, even though CSX was willing to pony up half of the project's projected $42.1 million cost.
Then there is the land itself, a good part of which is, in industrial property lingo, "blighted." "There are buildings, but many of them are obsolete," said Joseph G.B. Bryan, a principal consultant of Parsons Brinckerhoff and the report's primary author. Many parts of Detroit were badly neglected as it withered for years on the economic vine. City and state officials will need to erect "contemporary properties" if Detroit is to attract meaningful shipping and logistics investment, Bryan said.
The 197-page report, issued in March 2015, calls for creating a "Trade, Logistics and Industrial District" (TLI) in Southwest Detroit that would be funded by the public and private sectors to the tune of $1.6 billion to $2.2 billion. Government would kickstart the project with an investment of $400 million to $530 million over a six- to eight-year period, according to the report. The state, which commissioned the study, supports its findings. However, Michigan officials have not signed off on the TLI project because it has not received unanimous support, according to people familiar with the matter.
The TLI project would form a three-legged stool for Michigan to compete in today's logistics market, the report said: First, it creates a portfolio of logistics assets aggregated in one area. Second, it sends a message that the state is committed to the task. Lastly, it produces a "springboard for growth" by cultivating what the report called a "targeted cluster" of industries that would benefit from Detroit's location. The project would generate 15,000 to 20,000 long-term jobs in Michigan, 6,000 to 8,000 of those in metro Detroit, according to the report.A BRIDGE TOO FAR FROM COMPLETION?
At the heart of the project is a transborder bridge named after Gordie Howe, the late hockey legend who spent most of his career with the National Hockey League's Detroit Red Wings. The proposed $2.1 billion span, expected to open around 2020, would initially have six lanes but could be widened to 10 lanes, and perhaps more. The bridge would create a straight shot between Windsor and the proposed logistics cluster, which would be located about one mile west of the Ambassador Bridge in Detroit's rundown Delray neighborhood.
The Howe Bridge is expected to handle 26,500 vehicles a day by 2025, which will ease congestion at the Ambassador Bridge and provide shippers with more transportation options. Significantly, the Canadian government will fund the span's entire construction, while the U.S. will subsequently contribute revenue collected from tolls.
Getting the Howe Bridge up and running on schedule may not be easy. Unsurprisingly, Moroun, the Ambassador Bridge's owner, has been its most vocal opponent. He has sued the governments of Canada and Michigan to stop its construction and has proposed to build a second span of the Ambassador Bridge, which he would also own. Critics have said Moroun's opposition stems from the prospect of lost profits from duty-free gasoline sales at the Ambassador Bridge.
In July, David Duncan, the Canadian official in charge of the project, told a Canadian paper that the span may not open by 2020 because about 30 properties on the U.S. side have yet to be acquired and may prove difficult to buy.
Andrew Doctoroff, special projects adviser to Michigan Gov. Rick Snyder (R) and the governor's point man on the Howe Bridge project, said the span will brighten the outlook for the city's logistics services, but even if the project runs into trouble, it will not alter the course of the broader TLI initiative. The TLI effort is "not dependent on the Gordie Howe Bridge," Doctoroff said in a phone interview.
Bryan of Parsons Brinckerhoff said Detroit and Michigan—which for the purposes of their logistics outlooks are one in the same—will succeed if officials understand what the metro region is capable of, and what it's not. Detroit's strengths lie in supporting distribution from manufacturing operations, not retail distribution, Bryan said. It can be a key player in serving Michigan, its surrounding markets, and the NAFTA trades, he added. But it cannot and will never be a lead actor in nationwide distribution, he said.
Bryan said the TLI project is critical in leveraging the natural assets that Detroit and the state of Michigan could bring to bear on the logistics market. The initiative would "vault Michigan into a trillion-dollar market with 21st century capabilities, with a marquee site in the midst of the state's largest city, and a package of assets that is rare anywhere in the United States," he wrote.
The project won't guarantee that businesses will choose Michigan for their logistics operations, Bryan said. But it makes Michigan "fully competitive in the game, and that is the game changer the state needs," he wrote.
A version of this article appears in our October 2016 print edition under the title "We heard it through the grapevine ... ."