The Top Site Selection Factor series outlines the factors that ranked high in importance by the executives responding to Area Development's 25th Annual Corporate Survey. Find out why and how these factors should be evaluated in your next move...
Highway accessibility is traditionally at the top of the short list for site selection criteria. In fact, 97.3 percent of respondents to Area Development's 2010 Corporate Survey considered highway accessibility to be very important or important. Companies are not only targeting locations that are in close proximity to prime transportation arteries, but they also are making sure they have easy access both on and off of those major interstates and highways.
"Especially in the logistics world, having to deal with congestion means that trucks are sitting on the road or going slow on the road instead of going down the road at 55 miles per hour," says Tim Feemster, senior vice president and director of Global Logistics at Grubb & Ellis in Dallas. For many firms, extra time on the roads is a direct hit to the bottom line. Trucks use fuel more efficiently when they are traveling at 60 miles an hour, compared to sitting at traffic lights or in stop-and-go traffic congestion.
In addition, because of limits on the hours of service for drivers, the slower the traffic, the fewer miles a driver can go in any given day. "Obviously, that costs dollars if you extend transit time beyond a single day into two days or two hours into four hours. It limits the amount of work a driver can do after that particular load gets delivered," adds Feemster.
Eyes on the Road
Highway accessibility has increased in importance as supply-chain management has become more sophisticated. In order to effectively compete, distribution companies have had to become skilled at reducing product transit times.
"Speed is essential for survival in this sector. This need for speed has placed a premium on highway access when siting distribution centers," says Thomas J. Dalfo, vice president of Real Estate Services at the Philadelphia Industrial Development Corp.
In particular, companies are paying close attention to both the last and the first mile, as the sources of delays tend to be at the very start and finish of a truck's trip. "Reducing the amount of exposure to this source of delay, presumably by reducing the distance, has driven companies to place a growing emphasis on highway access," says Dalfo.
Highway access is critical for Mid-Atlantic industrial users since trucks are the primary mode for transporting goods in the region. For example, companies concerned with highway access in Philadelphia are focused on drive time access to and from interstates 95 and 76. "The ability to get trucks quickly connected to the interstate network can represent tremendous operational cost savings for both manufacturing and distribution companies," Dalfo notes. "In a dense market like this one, good access to the highways can also eliminate conflicts with non-industrial uses that may be located nearby."
Highway access factored heavily in the decisions by the Philadelphia Regional Produce Market and Teva Pharmaceuticals to invest a combined total of more than $500 million to construct distribution centers on sites in Philadelphia. However, the presence of large and industrially zoned sites also played an enormous role in these location decisions. "It's almost impossible to separate these factors - site size, highway access, and existing entitlements - since elimination of any one will significantly compromise a site's ability to support development," says Dalfo.
Wary of Change
Firms also want to choose locations where the highway accessibility will not see any adverse changes. "Companies want to make sure that they aren't driving through an area where the neighbors will suddenly rise up and decide they don't like the sound of trucks going through every day," says Noah Shlaes, managing director of Strategic Consulting for Grubb & Ellis, Chicago. "Nor do they want to be in a place where parcels between their facility and the interstate will be developed and suddenly it will take 10 minutes to get onto the ramp instead of two."
Future road construction can be another big deterrent. For example, the LBJ Freeway in Dallas has great accessbut is also undergoing a five-year construction and expansion project. Some companies may rule out locations along a highway where construction will add to traffic delays in the near term.
Nonetheless, access to transportation routes is often specific to the particular company and its delivery patterns. Location decisions for logistics and manufacturing firms, in particular, depend heavily on where the product is coming from, where it is going, and what the go-to-market strategy is for that company, says Feemster. For example, companies that demand a quick turnaround on small package delivery are going to look at key cities such as Louisville, a ground hub for UPS, or Memphis, a major FedEx ground hub.
For those companies looking to move more goods off of the highways and onto the country's rail system, locations in close proximity to intermodal hubs are attractive. "Not only do they have a benefit of moving product off the highway and onto rail, which helps with congestion, but they also have a big sustainability advantage to the client," adds Feemster. Moving products on the intermodal system can reduce a company's carbon footprint for a particular delivery by 50- 60 percent compared to a standard truck delivery.
One of the nation's oldest intermodal hubs was built in Alliance, Texas, more than 25 years ago. The surrounding industrial park now spans some 30 million square feet. Several intermodal hubs have been built in the last few years, including a new intermodal facility for Union Pacific in Joliet, Illinois, and a new facility for CSX in North Baltimore, Ohio. "Companies are definitely gravitating towards those hubs," Feemster says.