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Critical Site Selection Factor #2: Highway Accessibility - The Supplier/Market Connection

In-and-out is more important, but concerns are growing about highway quality.

Q4 2014
This series examines the top-10 site selection factors as decided by the respondents to AD's Q1 Corporate Executive Survey. Labor costs, skills, and highway access are top of mind; construction and occupancy costs are key; and availability of ICT infrastructure is getting closer scrutiny. Find out what else your company should consider when making its next location/expansion decision…

Just as in the 2012 Area Development Corporate Survey, in 2013 highway accessibility ranked as the #2 most important factor to corporate executives. Certainly that reflects the crucial role of transportation costs and logistical efficiencies in a U.S. and global market with less and less margin for error in the supply chain.

One reason this factor may be even more important is the continued sweep of just-in-time supply chains across the U.S. industrial landscape and the increasing consolidation of distribution and warehousing facilities. These two trends put an even keener edge on the ease of highway accessibility for the existing facilities that remain, and for larger new ones that are being built to handle broader geographic areas.

“A lot of companies are reducing the number of warehousing operations that they may have scattered around the country and building fewer but larger distribution facilities,” says Dean Uminski, an executive in site selection consulting for Crowe Horwath LLP. “They need to be highly accessible; trucks need to be able to get in and out of there quickly; and they often need to be within one day’s drive of a huge chunk of the U.S. population.”

Infrastructure Investment Is Critical
If the Area Development survey were taken in the spring of 2014, later than its actual timing, another consideration might have been layered onto the others that make highway accessibility important: concerns about the nation’s long-crumbling transportation infrastructure and which states and cities have been experiencing it most acutely, handicapping the companies and operations located there.

This year’s record-harsh winter bashed many roadways, even principal ones like interstates, and left crucial economic lifelines in tatters — or at least enough damaged that they slowed activity for the rest of the year. Yet in Michigan, for instance, the governor and legislature were still debating a massive increase in funding to fix the state’s crumbling roads and bridges, a problem that has become severe enough to put a crimp in its overall rising economic tide. This year’s record-harsh winter bashed many roadways, even principal ones like interstates, and left crucial economic lifelines in tatters — or at least enough damaged that they slowed activity for the rest of the year.

“If you think about the 10,000 miles across the state that your goods are moving on, a big chunk of them could be gravel, Michigan Department of Transportation Director Kirk Steudle recently told a crowd of CEOs and other business leaders from across the state.

This problem of an increasingly decrepit network of highways and bridges is true to one degree or another across the country, and politicians at the national level as well as at the state level have only paid lip service to the situation. States cut their budgets for spending on infrastructure by 3.8 percent in 2009 and by an accelerated 5.7 percent in 2010 and haven’t made up much of the lost ground since the Great Recession officially ended.

Exacerbating the problem for site locators is the fact that the infrastructure crisis remains largely unabated, even while the gradual strengthening of the U.S. economy and a quickening pace of business expansion and construction is placing even more of a premium on dependable and efficient highway systems — a situation that hasn’t been seen since the last time the economy was humming, mid-last decade, when all the roads and bridges were a decade younger. “We’ve seen a major uptick in industrial deals in the last two years, and highway accessibility and quality is important in those deals,” concludes Eric Stavriotis, a senior vice president at CBRE’s Economic Incentives Group.

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