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OCR for page 56
Freight facilities have in some cases become a key link in goods production and have acquired the role of final stage manufacturing conducting customized kitting, assembly, packaging, and labeling of goods for local use. This can reduce transportation costs, and can also provide the ability to include market level modifications and value added closer to the market, point of sale, and consumption. As an example, some retail businesses note that as much as 65% of the inventory moving through the distribution center must be assembled as it moves through the facility. This can be very labor intensive, which influences the location requirements accordingly. Changes in global sourcing The trend towards freer trade and the corresponding global sourcing of products has arguably had the largest single impact on freight facilities and distribution networks in recent times. This has resulted in The trend towards freer trade new growth at and near ports on both the West and East Coasts, and and the corresponding global has forced the realization that locations in the hinterland have to be sourcing of products has at some form of commercial crossroad in order to support intermodal arguably had the largest single distribution center concentrations. impact on freight facilities and distribution networks in recent Previously, manufacturing in the Pacific Rim, coupled with major times. consumption zones on both American coasts and in the growing Sunbelt and Midwest, had forced a reconsideration of logistics networks. Manufacturing in Asia naturally resulted in additional port activity at Pacific ports, particularly in Los Angeles and Long Beach. Distribution networks were then designed to efficiently move these goods across the country and disperse them to the consumption centers of the United States. However, congestion at these ports and risk management by supply chain operators forced some traffic to come to North America from the opposite direction, by way of the Suez Canal, or to continue to the Atlantic Coast through the Panama Canal. This subsequently resulted in new expansion in Norfolk, VA, and Savannah, GA, which those facilities took particular steps to encourage. Growth of the Gulf and Atlantic ports is expected to continue. The completion of the Panama 56 Freight Facility Location Selection: A Guide for Public Officials

OCR for page 56
Canal expansion in 2014 will allow fast, all-water routes to more major consumption zones. Sourcing decisions in today's economic and political environment are in flux. Overseas production seems unlikely to diminish. In fact, it could Growth of the Gulf and Atlantic be speculated that the American transformation to a "knowledge ports is expected to continue. The economy" necessarily results in knowledgeable workers who demand completion of the Panama Canal high-quality, low-cost products from global sources. Nevertheless, expansion in 2014 will allow fast, the growing concern regarding fuel and carbon costs (discussed all-water routes to more major below) could suggest "nearshoring" (production in lower cost areas of consumption zones. Mexico or Canada to reduce both labor and transportation costs) for certain products, along with a shortening of some supply chains. For the purposes of local officials and economic development managers who wish to understand more about freight issues, it is enough to have a basic understanding of the competing factors at work in the field and to understand that the global situation is constantly changing. In short, change in the status quo should be expected, and facility location and usage will shift to accommodate those changes. Changes in International Trade Growing Faster Annual Increase in Export Value 2005-09 Growing Slower Higher Cost Manufacturing Cost Ranking Lower Cost Source: AlixPartners U.S. Manufacturing-Outsourcing Cost Index, February 2010 and World Trade Organization, International Trade Statistics, 26 March 2010 Freight Facility Location Selection: A Guide for Public Officials 57