Delivering the Goods | Energy, Technology, Security, Consolidation

A variety of trends - from globalization of the supply chain to skyrocketing fuel costs to security issues to increasingly powerful technology - has created a paradox in the world of logistics: It's now both easier and harder to get the goods from place to place. As is the case in most industries, customers are always demanding better and faster service. And as has happened in nearly every business, industry consolidation is changing the face of logistics.

Heading East
"Domestically, one of the biggest trends is the demise of the land bridge in the U.S.," says John Vande Vate, Ph.D., executive director of Georgia Tech's executive master's degree program in international logistics. "More and more people are bringing their goods around to the East Coast rather than coming into West Coast ports and trying to bring them across the country by truck or rail."

That certainly doesn't mean West Coast ports are hurting for business. Many companies continue to view them as the primary front door for bringing in goods produced in Asia. But an increasing number are pointing at least some of their North American shipments toward ports on the opposite coast. "These will be mainly big-box retailers bringing goods over from Asia," says Vande Vate, who believes several factors are driving the trend. There are limitations on the capacity of busy West Coast ports, plus increases in the cost of land transportation, thanks to rising fuel and insurance costs. It is also, in some cases, becoming more difficult to secure transportation between the coasts, given limits on the hours drivers are allowed behind the wheel each day as well as the overall supply of drivers. "It's harder for an owner-operator to survive anymore," says Vande Vate; and the field of long-haul trucking is not attracting as many young drivers as it once did. "The average age of a union driver is 57."

The eastward trend is good for ports serving the Atlantic Ocean and the Gulf of Mexico, he says. The ports of Savannah and Houston are growing, and Charleston and Norfolk also stand to gain, among others. That, in turn, says Vande Vate, is a positive for landowners in the general vicinity of the ports: "People are building their East Coast distribution centers almost on the ports."

Also observing this view toward the east is Mark Vonderembse, Ph.D., director of the Intermodal Transportation Institute at the University of Toledo. But he foresees a day in the not-too-distant future when East Coast ports will become clogged with shipments. "Projections I've seen are that if you take all of the North Atlantic ports, [and] look at their capacity and project container demand for 10 or 12 years, capacity available and planned for the East Coast will be entirely consumed," he says. "If you take any trend line and project it out over 12 years, the number of containers is huge, even if the growth rate drops off. The ability for us to handle that volume of traffic will be severely challenged."

Given that, don't be surprised to see logistics-related activity not just in the vicinity of ports but also further inland. "You're going to see efforts to develop inland port operations throughout this country, where we can bring these goods into a port and ship containers by rail to an inland port," says Vonderembse. "We're looking at a major intermodal port in our region here."

Clearly, no one expects trucking to go the way of the horse-drawn carriage, and in fact, there are plenty of studies suggesting that truck transportation will continue to boom and grow in spite of the challenges of getting enough drivers behind the wheel. The American Trucking Association's long-range forecast suggests that trucking will increase its share of the nation's freight pool between now and 2016 and will continue to dominate freight movement. The report suggests that trucking's share of total freight revenue will be nearly 88 percent by 2016, and that trucks will carry nearly 70 percent of all goods when measured by weight.

The Need for Speed
"What we're seeing is that service is becoming increasingly more important than it seems to have been previously," says David Thomas, president of Atlanta-based Top Flight Concepts, a logistics information-technology firm that consults with companies and provides logistics-focused software. "Before, price was more important, but service seems to be taking a larger role in decisions of what carriers to use, where to locate, things like that."

When he says "service," Thomas means "speed": "One of our larger customers has a vision of being able to serve all points across the country next-day." There are plenty of next-day options available for that client, he says; the trick is devising a strategy that is both speedy and cost-effective. "You can get freight from A to B as quickly as you want, but how do you set up a system to serve customers with reasonable costs?"

For this particular client, the answer has been opening additional locations along the supply-chain route. While some companies have pursued efficiency by consolidating some of their distribution operations, others like this company have found it necessary to move in the opposite direction in order to make speed the primary driver. "It has caused them to open up a couple of satellite warehouses, where they might be working out of a public warehouse," says Thomas.

"You can interpret the need for speed in a broader context," says Vande Vate. "For many companies, really what you mean is to reduce inventory. You want to move your product through your supply chain faster and have less inventory." That has, indeed, happened for many companies in recent years, he says, with many recording a dramatic drop in their days of inventory. "But a combination of things is turning that around and some companies are actually adding days of inventory," he says.

For one thing, congestion in the transportation system can add to the number of days a product spends navigating the supply chain. Beyond that, global sourcing strategies are changing for some companies, causing goods or components to be tallied as being within the company's inventory when in the past the same goods at that point in the supply chain were considered to be the property of a different entity. "Globally, they're bringing things from farther away, and for some of these guys they're increasing their direct international sourcing," says Vande Vate. "They're taking possession right at the factory in Asia."

Energy, Technology, Security, Consolidation
"Fuel is definitely having an impact on shipping," says Thomas. Carriers are commonly tacking on fuel surcharges to cover their increased expenses at the pump, and those surcharges are climbing steadily. "Less-than-load fuel surcharges are ranging from 15 to 20 percent, and truckload rates are even higher than that, as high as 30 percent," he says. "It has been a steady increase, and that has a direct result on profitability." Adds Vonderembse, "I don't expect fuel prices to go down dramatically. High energy prices are here to stay."

That reality adds new complexity to the equation when considering how best to configure a distribution system. For some, it may be another argument for a more decentralized model, with a greater number of distribution facilities that allow larger and more cost-efficient truckloads or trainloads to be shipped that much closer to their final destination before being split up for local delivery. Fortunately, improving technology is helping companies as they make such decisions. "Technology is becoming more of a factor than it was before in helping people to determine which way to go and who to use, and a lot more people are holding players accountable for their service," says Thomas.

In this industry, technological advances are not always obvious to the outside observer. Trucks, trains, ships, and planes operate about the same way they have for decades. The real changes involve the flow of information - data about where shipments and transportation assets are now, where they are headed, what's the most efficient way to plan their transport, when they need to get there, and when they actually arrive. The industry continues to embrace everything from radio frequency identification (RFID) tracking systems for packages to global satellite tracking for trucks and other transportation assets. RFID is so hot that it's becoming an economic-development driver of its own - both northern Texas and northern England tout themselves as RFID hubs.

"There are lots of opportunities for tracking and tracing to improve the use of your assets," says Vande Vate. Some of the advances are being tried first outside of the United States. For example, new messaging and data-exchange technologies are in use in locales where cellular-based service is even more advanced than it is in much of the United States.

With the globalization of supply chains comes an increase in security concerns, especially in this age of growing instability and rising terror threats. As Vonderembse notes, some of the traffic that now moves toward East Coast ports gets there by way of Egypt's Suez Canal. "The more we send through the Suez Canal, in that touchy part of the world," he says, "the more important security is, not just for containers but for the ship itself."

Even so, there still is only slow movement toward adoption of security measures that ultimately could improve safety but also might create supply-chain inefficiencies. For example, there's a growing American chorus to inspect more - or even all - of the containers moving into U.S. ports, but little action in that direction. "The U.S. is behind the curve," says Vonderembse, but he won't be surprised to see eventual adoption of some technology-based solutions that may alleviate security concerns without throwing too much of monkey wrench into the system. "There are technologies now that will allow you to do inspections, maybe even 100 percent inspections, for very specific items such as radiation."

Like so many other global industries, logistics is impacted by ongoing consolidation of industry players, according to John Manners-Bell, CEO of United Kingdom-based Transport Intelligence Ltd., who follows the trend in Europe and elsewhere. There are a number of reasons behind this, most notably the globalization of corporate supply chains, he says. According to his firm's Global Logistics Strategies 2006 report, "The major manufacturing multinationals are increasingly organizing their operations on a pan-European, and even global level. This has led them to demand consistent, multi-country services from their logistics providers. The fastest way in which logistics companies can do this is by acquiring local and national players, and then integrate them within their networks."

In addition, the international connections between the United States and Asian trading partners are a strong driving force, according to Manners-Bell's report: "The U.S. is highly reliant on China in particular for much of its imports, and logistics companies are consequently looking to control both ends of the supply chain."

Logistics Happenings
One could fill a book with all of the logistics developments taking place across North America and around the world, as the globalization of manufacturing and distribution makes the world a smaller place. At present, the amount of distribution space under development in the United States alone tops 100 million square feet. Though most of the logistics "hot spots" remain as hot as ever, the need to deliver goods faster and more cost-effectively has sparked projects all over the map.

It's not surprising that the logistics globe continues to revolve around such clusters as Chicago, Atlanta, Kansas City and St. Louis, Indianapolis, Dallas and Houston, northern and central Ohio, Memphis and Nashville, Louisville, and other traditional hot spots. It's also logical to find large amounts of logistics activity in and around other big cities and ports, from New York, northern New Jersey, and Los Angeles to Norfolk and Savannah.

It's remarkable is how many other places are among the most recent logistics headlines - locations like Las Vegas, Oklahoma, Idaho, and Greenville, S.C. Here is a small sampling of noteworthy developments:

• Kansas City's former Richards-Gebaur Airport is on its way to becoming a "world-call inland port," according to developer CenterPoint Realty Services Corp. The company acquired and plans to spend at least $250 million redeveloping the 1,400-acre former military airfield. The region also boasts two intermodal parks under development by Kansas City Southern and Burlington Northern Santa Fe Railroad Co. The Kansas City area in general has high hopes for its "Kansas City SmartPort" initiative, which promotes its confluence of rail, air, water, and highway routes and its location along Interstate 35, dubbed a "NAFTA Highway" linking Canada and Mexico.

• Southern Idaho has surprised some observers with its success in attracting logistics operations. Among them is WOW Logistics Co., which opened a state-of-the-art, 232,650-square-foot regional distribution center for both dry and refrigerated storage in the city of Jerome. Within a year the facility was slated for expansion.

• Council Bluffs, Iowa, has drawn attention with its location at the hub of two of well-traveled interstate highways, 29 and 80, as well as strong rail, water, and air connections. The combination was key to landing a logistics operations of American Freightways, a part of FedEx Freight.

• PepsiCo, Inc. is spending $180 million to build a distribution and manufacturing facility in Pryor, Okla., at the MidAmerica Industrial Park. Some 280 people will work to produce and distribute Gatorade and Propel Fitness Water.

• Midlink Business Park in the Michigan community of Kalamazoo was once a major General Motors operation. Today, it's a mixed-use development that offers, among other things, lots of well-located distribution space. Among the tenants that have found it attractive is Kenco Logistics Services, which picked it for a warehousing, packaging, and transportation-management operation serving other companies.

• Titan Industrial Development has signed a long-term ground lease with the Port Authority of San Antonio, involving 62 acres of Port San Antonio formerly known as KellyUSA. The plan is to create a large-scale industrial park with more than a million square feet of industrial warehouse and distribution space.

• In Alabama, Mobile Container Terminal LLC is to develop a new container terminal at Choctaw Point. The hope is to provide terminal customers with strong access to all possible trade routes to and from the Port of Mobile.

• Wyoming is among the latest sites chosen by Wal-Mart for distribution operations. The company is investing more than $60 million to build an 850,000-square-foot mechanized distribution warehouse in the Cheyenne area that will employ 600 people.

• CDW Corp. recently opened its new Western Distribution Center in North Las Vegas, Nev., more than tripling the company's capacity for quickly shipping IT products. At more than 513,000 square feet, the new facility becomes the second and largest distribution center for CDW, which provides technology products and services to business, government, and education.

• Southern California continues to be a great spot for logistics operations. Among countless activities is the project involving Birtcher Development & Investments to develop a state-of-the-art distribution center in Paramount, Calif., servicing the ports of Long Beach and Los Angeles.