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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 57
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
