Changes in the industry have provided an opportunity for some regions to capitalize on new business opportunities that, in turn, have led to job creation and significant capital investment. Other regions tied to more traditional supply chains have and will continue to suffer.
In various regions around the country, creative economic development incentive tools and strategies are being deployed to capitalize on market potential. The effective use of federal, state, and local incentive options by companies helps to reduce overall initial project expansion/location costs in addition to long-term operating costs. Those organizations that are highly focused on improving the bottom line will take strategic advantage of available tools either on their own or in partnership with a professional site selection and economic development advisory services firm.
Some examples of effective incentive tools that states and communities have utilized to attract and retain the distribution/logistics sector include:
- Sales tax recapture agreements: Through a restructure of business operations, a company can source all sales through one location vs. multiple locations. As an inducement for the company to change its business operations, an agreement may be structured in which the company and community share in the percentage increase over the original base sales tax amount for an agreed upon period of time.
- Personal and/or real property tax reductions: In exchange for creating jobs and making capital investment, the company may receive a partial exemption/abatement/reduction of property tax liability over an agreed upon time. This is an effective tool in most areas of the country with respect to real property tax assessment, and in some locations where both real and personal property taxes are levied.
- Forgivable loans: In exchange for a certain level of job creation and capital investment, a community may provide an upfront "loan" for building improvements and/or purchase of machinery and equipment. As the job and investment commitments are met, the loan is "forgiven" over some period of time, often in annual increments.
- Tax increment financing: This is an exceptional tool whereby incremental increases in assessed value are captured and utilized for land acquisition, building purchase, facility improvements, and/or needed infrastructure to support a project.
- Training assistance: Many federal, state, and local programs are available to help companies offset training costs associated with new and incumbent work forces. As a general rule, the primary objective of training assistance programs is to provide transferable skills that will aid the employee in developing lifelong skills needed in the workplace.
- Tax credits: Credits to offset a variety of business taxes may be offered in support of a business' commitment to make capital investment and create jobs over a specified period of time. The reduction of tax liability can be very meaningful to companies as they make investments in growth. Some tax credits may be refundable, meaning that if the value of the credit exceeds the amount of tax liability, the difference is refunded to the company in the form of cash.
Need for Continued Innovation
The above represents a sampling of potential economic incentive opportunities that may be available to support the growth of the logistics industry. In today's logistics field, it is critical for leaders to have a solid overall strategy so that they know what to do, why they are doing it, and how to get it done. Those companies that are flexible and agile are most likely the ones to prosper in the long term. Of critical importance is the building and maintenance of a dynamic portfolio of activities and resources. Leaders should also ensure a balanced organization - one that encompasses strong metrics, fosters a creative environment, and has focus, flexibility, and agility to balance existing activities with new opportunities.
Over the past several decades the logistics sector has evolved from being simply one aspect of a larger business process to a viable and thriving industry in its own right. This change has been reflected in changes in federal, state, and local policies as well. In the past, economic incentive resources and discretionary spending have been geared predominantly toward manufacturing operations. Now, many state and local governments have designed creative new approaches to compete for new business investment in the logistics sector, with some communities actively promoting themselves as logistics hubs.
What has not changed is an environment marked by fierce competition for new investment. While it is difficult to predict what changes will occur in the logistics sector in the coming decades, one constant will be the need for continued innovation from businesses and communities seeking to remain competitive in this arena.