Background Research Material for Freight Facility Location Selection: A Guide for Public Officials (NCFRP Report 13) (2011)

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4 Literature Review 2.1 Overview This literature review begins the process of providing insight on location decisions for transportation facilities and suggesting best practices for transportation, land use, economic development, and regional partnerships. Public agencies require a full understanding of the dynamics of freight movement and the impact on location decisions in order to successfully plan for, attract, and work with freight-related activities. In order to adequately introduce both the topic, this chapter represents a sample of literature on: • An overview of logistics and freight movement, • An introduction to how site selection decisions are generally made, • Trends affecting the freight and logistics industry, • How these drivers and trends currently impact the location decisions process, and • Implications for local and regional economic development Over 60 million tons of freight moves through the US freight transportation system daily, representing roughly $40 billion in goods (1). Trade has become increasingly globalized and manufacturing continues to move offshore. Fuel prices continue to fluctuate. Governments continue to seek ways of reducing carbon emissions, congestion, and pollution. These and other trends place new importance on how we move raw materials and finished goods from shipper to receiver. As one of the reports referenced in our research (2) notes, in the future:  “Speed, cost and reliability will continue to characterize transportation needs factors, with increasing emphasis on reliability and management of supply chains.  The increased emphasis on reliability and supply chain management is increasing the importance of efficient local and regional movement of goods even if ultimate shipping destinations are across the nation or overseas.  …It will continue to be important to provide transportation linkages to all areas of the state in order to allow those areas to take advantage of economic opportunities…” Economic development, planning, and government agencies recognize that employment and investment opportunities result from trade and freight activity and have increasingly sought new strategies for attracting freight-related activities to their communities. Somewhat less well-explored are how transportation and freight facilities interact with other economic factors in impacting corporations’ location decisions. Our review includes academic studies which have begun to examine the relationship between intermodal freight facilities and corporate location decisions. We examine both:  Freight transportation facilities (public and private) that handle freight distribution such as intermodal rail, transload, and ports; and  Private sector freight-intensive business operations such as distribution centers and warehouses.

5 We also review how freight transportation facilities (the first item above) influence private sector siting decisions (the second) and the opportunity for freight transportation facilities to act as catalysts for economic development and private investment. This literature review also includes significant research performed by periodicals such as Site Selection and Area Development magazines, which are marketed to and read by economic development practitioners. Through these channels, we are better able to discern the current understanding and trends for siting freight facilities. Economic development agencies have seen transportation infrastructure as a key driver to some location decisions. They have also read about the success stories of intermodal sites like the Columbus (OH) Inland Port and the Alliance Global Logistics Hub in Texas and these communities’ ability to attract new business (3). Less known is how the combination of transportation, economic, and other location drivers make them successful attractors of business and investment. Academic research has begun to explore some thoughts regarding optimal distribution networks and – in particular – how intermodal nodes might improve functioning. Still, if the reader seeks a practical guide to understanding how to work with freight facilities, no comprehensive source exists. Industry press, such as Area Development Magazine, Site Selection Magazine, and the Journal of Commerce examine freight facility location trends more directly, and in three major aspects – what trends are likely to occur in the industry, how these will impact corporate location decisions, and how these present economic development opportunities. While these publications are not explicitly research literature, their writers have examined the dynamics and outcomes in the logistics industry and have produced a considerable amount of documentation reporting on – and influencing – the existing level of knowledge on what drives decisions to locate for intermodal facilities and corporate freight handling facilities. 2.2 Introduction to Site Selection Research Results Digest 327 (4) provides an excellent introduction to the literature available on both the economic and transportation drivers for site selection decisions. The report – an excerpt from NCHRP Project 20-05 reviews economic development trends, site selection decisions, and how transportation relates to these. The review in Digest 327 focuses on the practical expertise related by current professionals in freight-related industries such as distribution, warehousing, and manufacturing. In particular, the report provides an excellent review of how companies actually make site location decisions. Location decisions are made based upon the business objectives of individual companies, and thus depend upon the specific situations and goals of each company and function. We will discuss the process in more detail in Chapter 4 of this report, but Digest 327 summarizes how site selection decisions typically involve at least the following four steps: 1. Defining the company’s business strategy and the success parameters for the new (or relocated) facility; 2. Developing the site selection criteria, usually phased in such a way as to allow a progressive evaluation from broad to specific, country to region to community; 3. Examining the communities and sites directly on-site; and 4. Involving three to four sites and communities in detailed discussions and negotiations. The progressive nature of the location screening is important, and factors will vary in importance throughout the process. For example, access to specific markets, general cost drivers, and population trends may drive early stages. A secondary screening may involve examining highway and rail networks to determine areas

6 with service advantages. The third screening may balance total costs of operations in the final candidates. The final stage may then involve more site-specific issues such as specific facilities and the labor available in a particular community. Recently, the relative importance of factors shifted yet again (5), with primary importance placed upon labor costs, and followed by highway accessibility, tax exemptions, and energy availability/costs. Any survey of site selection criteria must be approached with a note of caution, however, as the term means different things to different responders. Surveys such as that used by Area Development ask respondents to identify the most critical items in selecting “sites”. The term “site” can be used to narrowly refer to the selection of a specific plot of land or facility. Alternatively, the term “site selection” or “site selection process” can broadly refer to finding new business locations with all the attendant concerns, both strategic and tactical. Hence, while issues such as tax incentives and/or highway access may drive the selection of a final site, they may not be materially important in the initial, strategic phases of the selection process. In these phases, strategic advantage and total cost of operations play a much more important role in the process (4). This NCHRP study (20-05) also notes two new and important trends in how companies make site selection decisions. First, the internet and standardization of demographic and socioeconomic information have accelerated the site selection process. Collection of data takes much less time than it had in the past, and the greater number of sources allows for corroboration of data. Second, and possibly because of the availability of this data, companies have increasingly used consultants and their analytical tools to support the site selection process. Both the Area Development survey from 2003 noted in NCHRP and the most recent survey from 2009 included items such as “highway access,” “access to international airport,” and “waterway or oceanport accessibility” in their lists of most important factors. This underscores the continuing importance of transportation in the site selection process, especially for freight-intensive businesses. However – as noted earlier – every site selection decision is different, and the consolidating and averaging nature of surveys will tend to mask the relative importance of factors. This is especially the case when freight facility factors are examined in the same study with corporate headquarters, research and development, and backoffice operations. Transportation linkages are downplayed, but overall cost concerns remain critical. 2.3 Freight and Logistics Trends Time to market and total costs of operation drive most logistics costs and hence most (if not all) logistics location decisions. Both of these are further impacted by such factors as labor, regulation, infrastructure availability, capacity, and other considerations. However, change and dynamism underpin all current literature on supply chain management and – by extension – underpin the siting and use of freight facilities. Fuel costs, modal shifts, and the changing nature of globalization all force companies to re-assess their distribution networks on a regular basis (6). For example, Kraft cut 50 million truck miles from its global supply chain through shifting traffic to rail and waterways (7). This reduced fuel costs and also improved the company’s overall carbon footprint. A study performed by Cushman & Wakefield (a global real estate services firm) for the NAIOP (formerly the National Association of Industrial and Office Properties) Research Foundation in 2009 (8) pointed to both the causes of and the real estate responses to these dynamics. First, changes over the past 20 years to the global movement of goods – and for regional trade into and within the Americas in particular – have fundamentally changed how the warehousing and distribution functions operate. Central American Free

7 Trade Agreement (CAFTA) and North American Free Trade Agreement (NAFTA) have resulted in more emphasis on border-area distribution developments, for example. The Cushman & Wakefield report also notes that other incipient changes may have impacts on the logistics industry – and the communities that house it – beyond what we have experienced over the previous two to three decades. In particular, Just-In-Time (J.I.T.) manufacturing and distribution strategies may no longer be as cost effective as fuel costs increase. This could result in two major changes: First, industries may experience a sacrifice in the timing of shipments, a movement of manufacturing closer to the consumer, more inventories being held locally to satisfy prospective customer needs, or a mix of all three. Second, there could be a shift away from consolidating distribution activity in one or two national mega centers and then delivering to the local market by truck at the last moment. Instead, these inventories may be moved to a greater number of smaller, regional distributions centers throughout the nation. These could be served by a mix of modes (in particular, rail and truck) for inbound shipments with delivery to final customers typically by truck. Roadway traffic congestion and overall transportation system capacity constraints could also drive the movement towards smaller, locally-held inventory to satisfy demand. Freight facilities currently face at least four major challenges and trends: 1. Companies are using their distribution strategies to gain competitive advantage through flexibility. 2. Distribution is a vital component in the on-demand nature of the economy. 3. Some distribution centers now house functions such as assembly and light manufacturing to add value during the distribution process. 4. Even though manufacturing continues to move offshore, products must still be distributed in the United States (9). Preferences and shares of transportation modes may also change over time, forcing changes to infrastructure. For example, increased overseas trade in the early 2000s drove increased capacity growth for (and development of) port and airport facilities (10). Increased fuel costs and more concerns about the movement of goods within the nation may force more attention to rail, short sea shipping, and short-haul truck intermodal opportunities. Some (e.g. 11) have even noted that fuel costs and overseas wage inflation have forced some companies to re-think earlier offshoring decisions (although this has yet to result in any significant return of manufacturing to the United States). Other sources list exchange rate shifts, rising transportation costs, and older facilities unable to adapt to current and projected future needs as the main criteria driving change in corporate logistics networks in the United States (12). New regulatory pressures on trucking companies also reduce the overall availability of drivers, which in turn means that valuable truck time should not be wasted waiting for loads to arrive or be unloaded (13). This will likely result in changes to the layout and siting of truck-dependent freight facilities. These and related trends have caused more companies to examine and request rail access when considering expansions and relocations – even if they do not immediately use it. In making the case for expansion of short-line rail as an economic development tool in rural areas, one source notes: 1. Demands on both surface roads and rail are high and have been growing. Rail operators, however, have been more successful in concentrating trains and creating higher efficiencies from their rail networks.

8 2. There is little highway capacity remaining in many parts of the US to carry additional loads. The Federal Highway Administration estimated in 2002 that the volume of freight moving within the US will double between 2000 and 2020, compared to a highway capacity increase of about 1% over the same period. 3. As fuel prices resume their upward climb (due to both supply constraints and increased global demand), rail’s energy efficiency could start to outweigh convenience factors in measuring the total cost to move goods. 4. Increasingly stringent regional environmental regulations will force governments to cut back on overall emissions. While some efforts will be made to reduce auto (passenger) motor vehicle miles, the bulk of the impact will likely be felt by trucking. 5. Each of the above arguments have resulted in a better business case for governments to engage in public-private partnerships for expanding railroad infrastructure in selected cases (14). The American Planning Association (APA) also notes these dynamics, and further understands the direct interface between transportation networks and land use (15). While building the argument for reauthorizing the Intermodal Surface Transportation Efficiency Act, the APA noted that most transportation efforts in the early part of the 20th century had focused on highway capacity and efficiency. They then moved on to advocate the creation of a more integrated system that would allow for less congestion, higher rates of movement, more efficient use of land, and reduced emissions. Two of the more significant policy arguments put forth were to:  Place more emphasis of facilitating connections between modes (both for freight and passenger transportation) throughout the system; and  Renew attention to the critical function of freight movement alongside passenger movement, and how this is essential to the economic functioning of the country. Other external forces may force reconfiguration in the current freight network. The addition of a third set of locks on the Panama Canal is causing ports in the Gulf of Mexico to expect more containerized traffic after completion in 2014. Port Manatee (FL) for example, has worked with county government to establish a 3,700 acre zone with intermodal rail capability just outside of the port to attract distribution, assembly, and warehouse functions to the area. Re-distributed container traffic from facilities like this will spur the need for additional intermodal nodes elsewhere in the system (16). However, logistics networks themselves are difficult to optimize on a regular basis due to the rigidity of real estate leases and other contracts. A study performed cooperatively by CoreNet Global and Grubb & Ellis noted that while companies on the whole generally understand the importance of transportation costs as the main driver in overall supply chain costs, significant disconnects remain between logistics and real estate managers in addressing current and expected economic challenges. Particularly, logistics managers have begun to push for more distributed logistics models, allowing for better customer service and reduced exposure to oil price fluctuation. Real estate managers, however, have pushed for reducing cost through reducing footprint – consolidating to fewer sites (11). Interestingly, the CoreNet survey noted that neither of the corporate functions had yet expressed any significant preference for multi-modal development as a strategy for addressing the need for flexibility. Both did cite access to robust transportation infrastructure however, which could push long-term preferences towards intermodal. Regulatory pressures, long-term capacity for trucking, and improved intermodal services also strengthen the operational case for intermodal freight transportation (17).

9 Several international trends are driving carriers (rail and ocean carriers in particular) to aggregate freight demand in key markets along their supply chains. This strategy ensures that the rail or water-borne carrier operates as full as possible, and bypasses areas which generate little volume on their own. These “key markets” are highly dependent on individual manufacturer and distributor strategies – which port they favor, their final consumer markets, and their domestic distribution center strategy (centralized or regional) (18). This finding also fits with observations that Class I1 Fuel costs may also drive changes in the supply chain which will pose opportunities for communities with intermodal terminals. As of 2008 (when oil prices peaked at $140 per barrel), an increasing volume of goods was shifting from all truck to all rail, or a combination of truck and rail. This was found to be true not only for long haul (greater than 600 miles), but also for shorter goods movement (200 miles) if intermodal aggregation points were available along the supply chain. Short sea shipping was discussed as a possible solution as well (19). railroads continue to view themselves as “wholesalers” of capacity, preferring to take large volumes of similar product from one location to another location. Such a strategy explicitly requires a facility at either end for consolidating and dispersing volume (14). Others (e.g., 20) suggest that the current down economy is a key opportunity for manufacturing and distribution companies to adjust their warehouse strategies to better take advantage of intermodal facilities. In this case, the strategy carries with it a measure of risk management. Location at or near an intermodal facility gives any company a choice of modes in shipping raw materials and end product, allowing the company to trade off time to market and fuel cost as this calculus changes over time. Feemster (20) proposes a best practice in which companies build networks with node locations that provide options for a variety of modes at each location. Each location needs to operate both as an optimal transportation hub under the current environment and also provide options in the case of change. It’s also worthwhile to examine the differing drivers for warehouses and distribution centers by the type of owner and user. While most Fortune 200 companies still operate their own supply chains, data points to the increased use of outsourced third-party logistics firms (3PL’s). From 1992 to 2002, market penetration of 3PL’s grew from 2.7 percent of all distribution and logistics services to roughly 10 percent (21). This resulted in increased flexibility for the corporate client, and also allowed them to reduce their overall real estate portfolio. 3PL’s such as FedEx, UPS, TNT Logistics and JB Hunt must also be included in any understanding of corporate logistics facility strategy. As with the other Class I railroads, Norfolk Southern has made significant investments in smoothing its access from ports to major production, distribution, and consumption zones within the United States with the use of 3PL’s. JB Hunt has already made arrangements with Norfolk Southern (22) that encourage both to increase their intermodal volume through these connections. Coupled with JB Hunt’s commitment to reduce their fleet of long-haul tractors, this strategy points to the increasing importance of intermodal hubs and may also point to new opportunities for the communities that house them. This reflects other trends in 3PL decision-making. For example, truck-only deliveries arranged by intermodal marketing companies have fallen over the past several quarters (23). In fact, all container volumes dropped as 1 Class I - A major railroad with annual carrier operating revenues of $250 million or more. There are seven Class I railroads in the US and Canada: Burlington Northern Santa Fe (BNSF), Canadian National (CN), Canadian Pacific (CP), CSX, Kansas City Southern (KCS), Norfolk Southern (NS), and Union Pacific (UP). A full glossary of terms may be found in the appendix

10 the economy fell into recession. However, the decline was less severe for rail shipments than for truck, resulting in a relative increase in share (24). 3PL’s in particular began to more explicitly shift the long-haul section of their trip from truck to rail. This is in line with other data that shows revenue per container growing faster for those shipped by rail than by truck. The literature tends to suggest a need for more overall flexibility in the supply chain. Other sources (25) reported this same observation in reviewing the impacts of terrorism, labor actions, and natural disasters on the supply chain. Business needs drive the end location decision, and the ability to bring a product to market reliably at the lowest cost will determine where facilities are located. The factors shown above (fuel and regulatory pressures) provide much the same impact. According to interviews with freight system users, suppliers, and planners (1), speed and reliability have both deteriorated for all freight-transportation modes. Since congestion and inefficient transfer are noted as key issues in the system, improving the overall efficiency of the US freight system has been advanced as one possible solution for a well-functioning intermodal network. An official from the Institute for Trade and Transportation Studies (12) notes that all emerging and successful hubs have both a local political structure willing to execute, and a business base committed to using the facility. In the same article, Dan Hertwig, president of CSX Intermodal emphasizes the importance of freight hubs and freight distribution facilities: “As our nation faces combined pressures from an increasingly globalized economy and deteriorating transportation infrastructure, it is critical that we work together to bolster this pillar of our national economy.” 2.4 Corporate Location Trends for Freight-Intensive Businesses The prime drivers for any logistics-related facility are access to markets and the total cost of operation – driven mainly by the cost of transportation to and from the facility. While the exact impact of transportation on site selection – as compared to labor availability and cost, facility cost, and regulatory exposure – will vary with the type of use (bulk, container, integrated assembly, etc), it will likely drive the location decision more than any other factor. In fact, transportation costs far outweigh real estate costs, and often make tax credits and other incentives meaningless in the overall cost analysis (6). Other sources (26) reinforce this concept, noting that proximity to the customer base remains the key factor in site selection decisions – both by corporations and by logistics providers. Likewise, the key decision factors for shipping companies such as Uline and UPS Logistics were both access to their end users and to airports and seaports (13). There is something of a chicken and egg phenomenon, however. Does the proximity to freight infrastructure and supporting facilities drive corporate location decisions, or does access to major customers drive the decision to establish freight infrastructure? This is a common issue in the linkage between transportation and economic development and the reality may be somewhere in between and also depends on the entity in question. Existing logistics activity tends to attract more logistics investment, especially when capacity can keep pace. Memphis, for example, continues to attract investment due to infrastructure investments like the CN-CSXI Memphis Super Terminal (10). However, more and more corporate users cite access to these facilities – and the entry into the global logistics networks they represent – as a paramount driver. Lenovo’s selection of Guilford County, NC for a warehouse and assembly operation was based on a requirement for access to a global intermodal facility. This was not the only factor considered, but intermodal capability was a required factor for site consideration (27). Freight facility location and function has also been examined in the academic setting. For example, Racunica and Wynter developed a model that they used to identify optimal locations in Europe for intermodal freight

11 hubs (28). In this case, the hub and spoke model familiar to airline and telecommunications experts was superimposed over a theoretical rail network which would allow for superefficient freight moves by rail. However, the discussion was based on determining a more efficient network, not on determining who would likely use the network, nor on what companies would look to locate at or near a hub. Likewise, Bergqvist and Tornberg (29) identify intermodal facility site selection as a crucial component in planning sustainable transportation systems. While their work focuses on research performed for centers in Scandinavia, they note that the public and private realms may have different perspectives in selecting locations for intermodal sites. The private realm may emphasize operational and transportation cost, while the public sector may tend to emphasize factors less easily translated to cost, such as sustainability, and environmental quality. Bergqvist and Tornberg developed a geographically based (GIS) model that integrates economic, environmental, and quality aspects for all parties. They then test this model for a region of Sweden to determine applicability. The modeling approaches discussed above limited themselves to analysis of intermodal siting decisions within metropolitan areas. Nonetheless, industry press shows that the intersection of economic, environmental, and quality factors represents a strong portion of the formula for good location strategy decisions for the facilities. Left unresolved is how these then act as an attractor for other economic activity and corporate site selection. 3PL’s will generally have different location requirements than other corporate real estate users. These firms may not be as willing to place bets on emerging hubs, as investments in more established markets may carry a higher price tag (and thus return on investment) if the company needs to sell at a later date. Established ports may also provide a better return for these users as they afford greater cross-linkages with other established logistics providers (12). Real estate markets have responded to these changes as well. NAIOP – the industry group aligned with both real estate developers and brokerage professionals – has been tracking the trends towards inland ports, for example (30). The discussion of congestion at the coastal ports at the same time import growth has accelerated presents new opportunities for developing inland distribution points (intermodal centers) away from the ports, but closer to points of consumption and interactions of multiple modes. Many of the best prospective markets for new inland port development are also the same areas which are expected to experience the greatest increase in population over the next 10-20 years. (The same source also notes that some companies are forgoing the supply chain management aspect of their business entirely, outsourcing the entire function to 3PL’s such as DHL.) As an example of how these dynamics play out in actual development, there were 58.4 million square feet of warehouse and distribution center construction starts in 2003, a year which was neither the peak nor the trough of the development cycle (13). Corporate tenants are also frequently seeking shorter and shorter lease terms in order to retain the ability to adjust their networks more frequently. The tradeoffs in real estate cost are more than made up in transportation savings and customer retention (21). 2.5 Economic Development Implications Transportation influences economic development opportunities both directly and indirectly (31). Robust networks directly provide access to greater markets and indirectly impact the prices of commodities as choice increases. Transportation is not sufficient for economic growth on its own, but constraining goods

12 movement, such as through insufficient infrastructure that leads to congestion, is a barrier to economic activity. Having multiple modes for freight shipments provides some mitigation to these barriers. Economic development organizations understand that there are employment and investment implications associated with intermodal freight terminals. For example, the President and CEO of the Columbus Regional Airport Authority expects 20,000 new jobs to be generated over 30 years as a direct result of the Rickenbacker Intermodal Terminal (19). Other sources (e.g., 32) note that communities of all sizes desire intermodal yards as they are seen as catalysts for jobs and economic growth. Economic development agencies have specifically targeted larger freight users, especially when these can be used as an opportunity to agglomerate other suppliers and partner companies (4). Value-added distribution centers tend to create small clusters of activity, each carrying new investment and job creation opportunities. Importantly, these need to be located near the value-added centers for pure business reasons, and typically do not need to be solicited or incented to locate in the community. Economic development agencies also see warehouse development as an opportunity for re-using older industrial sites previously used for manufacturing. This both leverages existing transportation and real estate infrastructure and may assist in alleviating “brownfield” or other development issues that may weigh down other community business attraction efforts. However, economic development agencies still often do not fully understand the role and function of these intermodal, warehouse, and distribution center facilities. One source notes an interviewee who does not know how to determine incentives for such facilities as they are unable to determine the economic impact to the community (4). This lack of understanding can confound other business attraction efforts. For example, a public-led initiative to establish a truck to rail intermodal park will not necessarily ensure that new firms will choose to locate in or near that park. An intermodal facility can only drive employment and investment – and project profitability – if there is demand for the service (33). Inappropriate location selection (both regionally and locally), unrealistic planning, and under- or over-sizing the project can all spell failure. Also, not every freight-related function needs heavy transportation infrastructure. In one study examining four major distribution center location decisions in the State of New York (Kmart, Target, Gap, and Wal- Mart), none looked at transportation factors beyond road access to major markets. Trucking cost to the store network scored highest, followed by factors such as labor availability and cost, training, utilities, and public- sector funding assistance. The retailer’s culture – urban, suburban, or rural market preference – also made a significant impact on the ultimate location decision (34). This should be balanced with others’ view (14) that – due to roadway congestion, fuel costs, and the shortage of long-haul drivers – rail (and intermodal by extension) will play an increasingly important role in even retail distribution center site selection. Intermodal facilities (which move goods between rail and truck, usually by container) operate within a larger geographic transportation network, and therefore have very different requirements. Warren (32) puts forth the minimum business case for a successful intermodal facility: 1. Ample businesses within a reasonable distance willing to use the service. 2. Proximity to multiple origin and destination markets with robust transportation infrastructure between markets. 3. Volumes balanced between inbound and outbound freight. 4. A reasonable, longer-run distance between intermodal centers (i.e., diminishing returns to adding more facilities close together).

13 Bruns (27) quotes Burlington Northern-Santa Fe (BNSF) in extending this list. A successful site for intermodal use must have: 1. Class I mainline track, 2. At least two miles of railroad frontage, and 3. Large tracts of adjacent, entitled land for development by both carriers and customers. Arend, Bruns, and McCurry (10) explored the complexities as applied to a specific facility – the Pittsburgh International Airport (PIT). At the time, the airport was one of two regional passenger hubs for US Airways, and, given the possible threat of downgrading passenger service, PIT was looking to upgrade its cargo capacity. This was seen as a possible way of heading off any negative economic impact of losing the passenger traffic. The article cites significant complexity in adapting existing infrastructure to meet the needs of multimodal transportation. Complicating the matter even further, there was significant skepticism that there would not be enough demand at that location to support an air-truck intermodal facility. The development has not yet progressed to the point where results may be identified. State economic development agencies also implicitly understand there is a linkage between transportation systems capacity and corporate location decisions (2). Less well understood is the nature of this linkage and how best to plan for it. Oregon, for example, explicitly leaves the siting decisions to local and regional jurisdictions, while retaining the transportation planning capability at the state level. Less apparent is the level of feedback and coordination on these specific points. The Oregon report does make an important observation: As with facilities, building transportation infrastructure on its own will not necessarily bring new economic development. Instead, public agencies need to understand which industries and uses will benefit from these investments, and what connections they need to make. Many communities emerging as preeminent transportation and logistics centers (such as Mobile, Savannah, Memphis, and Kansas City) have already forged trade relationships with other hubs, particularly port hubs in Canada and Mexico (12), to create these connections. These international connections increase the speed with which goods from overseas can move to key consumption markets. Ideally, the reverse may happen as well, providing an outlet for goods moving from American production centers to international gateways. While transportation connections are important for all forms of freight facilities, it is difficult to ascertain their impact on siting decisions, increased employment, and inward investment. Handbooks for new economic development directors (35) point out the link between airports and container ports and the ability to attract business, but does not develop any further analysis of which businesses, with what proclivity to invest, and using which kinds of facilities. A Ports of Indiana analysis states that an intermodal rail facility can spur $800 million in additional development, a 16,000 rise in employment, a significant number of short-term construction jobs, and $27 million in property tax income (9). The analysis does not indicate what other conditions are necessary to ensure this level of employment and investment growth. Other groups explicitly question these estimated outcomes. For example RailSolutions, a grassroots organization in the American Southeast advocating for a balanced surface transportation policy, agrees with the Norfolk Southern’s push for more rail infrastructure supporting intermodal transportation, but feels that the data provided in support of the public investment is “robustly described, but poorly quantified (36).” While they note that the Norfolk Southern does not provide an explanation for how their economic impact and truck mile reduction figures are computed, current practices for Transportation Investment Generating

14 Economic Recovery (TIGER) grant applications do require detail on how fuel savings were calculated. There is also still a lack of understanding of how much private competitive advantage the railroads gain from these public investments. In short, RailSolutions feels that these improvements do benefit the public, but that the NS is attempting to use these arguments to gain public funding for investments that the railroad would likely elect to make on its own if public funds were otherwise unavailable. In practice, it is likely that at the very least public funding of private rail infrastructure accelerates investment and improvement in rail capacity. The literature does suggest best practices for informing all parties and for arriving at solutions that benefit all stakeholders. Mullen (37) points out both the positive impacts and the need for real communications among all stakeholders when planning for intermodal freight facilities. In his write-up of the events that led to the construction of the Centerpoint Intermodal Center at the former Joliet Arsenal outside of Chicago, Mullen notes that the public initially opposed the construction of the yards, viewing them as heavy industrial uses that would increase local truck traffic and negatively impact the adjoining Midewin Tallgrass Prairie and Abraham Lincoln Veterans Cemetery. After significant interaction, community outreach and co- development, the public has supported the development. The Center is now expected to generate over 20,000 construction jobs and create more than 8,000 new permanent full-time jobs at the full-operational yard and surrounding industrial park. Sternberg and Banks (14) also point to some of the other difficulties facing a truly multi-modal economic development policy and – by extension – suggest best practices as well. In addition to understanding freight’s drivers, such policies involve significant coordination among land use, transportation, and economic development policy. It is not enough to rely upon rail and other infrastructure which may have been put in place in the 19th century. For example, even a medium sized railyard requires: a mile’s length; up to six hundred feet in width; a flat, dry site devoid of road crossings; and to have room for ancillary industrial development. Other literature (38) also notes that transportation projects, facilities, and land use policy are often developed in isolation, with little regard for how these facilities and networks will work together as an overall system. Coordination is required for the system to work well and for all public goals to be met. In an example of this, Norfolk Southern is current pursuing an explicit strategy of forging public-private partnerships based upon the expected public returns on intermodal investment. The railroad’s Crescent Corridor is expected to be funded through a public-private partnership between the railroad, the federal government (they received $105 million in TIGER stimulus funds) and the five states directly impacted by the line. Six existing intermodal terminals along the line will be expanded, and another five will be constructed new. The railroad and the governments involved have estimated that roughly 47,000 jobs could be created by these investments by 2020. Ancillary benefits could include 170 million gallons less of fuel use, 2 million tons less of carbon emissions, and an increase of $326 million in tax revenue (39). When best planned, parks such as Centerpoint at Joliet Arsenal allow the public and private sectors to both cluster industrial development and leverage high-capacity transportation infrastructure. The key to successful implementation usually includes: 1. Careful understanding of origins and destinations of goods. 2. Development of connections between key transportation infrastructure channels. 3. An understanding of whether and how these developments can impact economic development. 4. Land use regulation that allows for proper use of transportation infrastructure and supporting businesses.

15 5. Public willingness to support these projects (37). As is the case with new trends, the articles and studies examined for this review generally focused on a prospective look at intermodal developments and facilities; they examine the expected results. Less information is yet available examining these investments in hindsight to see which have actually realized their prospective claims of increased job creation, reduced emissions, and accretive economic benefits to the community and region (see Chapter 8 for specific case study findings). 2.6 Summary Multiple articles and studies (2, 32, 40, 41, etc.) point to cost efficient links between suppliers and markets as being key to corporate facility location success. Bergqvist and Tornberg (29) further note that “…close cooperation between private and public actors would improve the interconnections of layer in the transportation system…. The community as such, including both public and private actors, would benefit if infrastructure would correspond better to private needs and market development at the same time as sustainability is ensured.” Left open for discussion is just how much these connections interact with other economic and demographic factors to impact location decisions. This review is not exhaustive and does not include every source on the topic of freight facility site selection and strategy. Instead, the preceding narrative provides a baseline understanding of the freight and logistics world. The research that follows will build on this to provide the reader with greater insights on how these decisions are made and how public and community officials sector can help build more effective partnerships with this important sector.

16 2.7 References 1. Hillestad, R., Van Roo, B., and Yoho, K. Fast- Forward: Key Issues in Modernizing the U.S. Freight-Transportation System for Future Economic Growth. AND Supply Chain Center. Santa Monica, CA. 2009. 2. Oregon Transportation Commission (OTC). Transportation and Economic Growth. Oregon Transportation Plan Update. April 8, 2004. www.oregon.gov/ODOT/TD/TP/docs/otpPubs /EconPolRev.pdf. Accessed December 18, 2009. 3. Gooley, T. One Location, Many Options. Logistics Management and Distribution Report. Volume 37, Number 11, November 1998, Pp 181- 189. 4. Strauss-Weider, A. Transportation Implications of Emerging Economic Development Trends. Research Results Digest 327. National Cooperative Highway Research Program. August 2008. 5. Gambale, G. 24th Annual Corporate Survey & 6th Annual Consultants Survey Complete Results. Area Development Site and Facility Planning. Dec 2009 [Online]. Available: www.areadevelopment.com/AnnualReports/dec0 9/corporate-consultants-survey-site- selection2010.shtml 6. Underwood, R. Opting for Better Logistics Locations. Area Development Online. www.areadevelopment.com/logisticsInfrastructur e/aug07/logisticsLocations.shtml. Accessed December 2, 2009. 7. Cassidy, W. Kraft Foods Cuts 50 Million Truck Miles. The Journal of Commerce. December 11, 2009. www.joc/print/415198. Accessed December 18, 2009. 8. Cushman & Wakefield. New Age of Trade: The Americas. NAIOP Research Foundation, January 2009. www.naiop.org/foundation/newageoftrade.pdf. Accessed December 18, 2009. 9. Kirchhoff, M. and Peacock, J. The Greater Chicago Region. Economic Development Journal. Spring 2005. www.iedconline.org/secure_view.php?file_path= EDJournal/Spring_05/Greater_Chicago.pdf. Accessed December 18, 2009. 10. Arend, M., Bruns, A., and McCurry, J. The 2003 Global Infrastructure Report. Site Selection Magazine. www.siteselection.com/issues/2003/sep/p524/. Accessed December 10, 2009. 11. McDermott, M. Preparing Portfolios for Global Logistics Challenges. Grubb & Ellis, August 2009. www.grubb- ellis.com/Data/Articles/SpecialReport_0908.pdf. Accessed December 14, 2009. 12. Bruns, A. Open the Gates: A Roster of New Locations Will Fill Companies’ Unique Supply Chain Requirements. Site Selection Magazine. www.siteselection.com/features/2009/jan/Logisti cs-Hubs/. Accessed December 10, 2009. 13. Bruns, A. High-Stakes Tag: New Technology and New Laws Introduce a New Wave of Complexity to Distribution Decisions. Site Selection Magazine. http://www.siteselection.com/issues/2004/may/ p296/. Accessed December 10, 2009. 14. Sternberg, M., and Banks, C. Short Line Railroads in Economic Development. Economic Development Journal. Winter 2006. www.iedconline.org/secure_view.php?file_path= EDJournal/Winter_06/Shortline_Railroads.pdf. Accessed December 14, 2009.

17 15. American Planning Association. Policy Guide on Surface Transportation. San Diego, April, 1997 www.planning.org/policy/guides/adopted/surfac etransportation.htm. Accessed December 2, 2009. 16. Nodar, J. Gulf Ports Pin Hopes on Exports. Journal of Commerce. December 14, 2009. www.joc.com/node/415242. Accessed December 14, 2009. 17. Tirshwell, P. Intermodal’s Lure. Journal of Commerce. October 5, 2009. www.joc.com/node/413848. Accessed December 14, 2009. 18. Spencer, C. Intermodal Trends: What Should We Expect in the International Supply-Chain System? Area Development Online. www.areadevelopment.com/specialPub/ldw07/ld wIntermodal.shtml. Accessed December 2, 2009. 19. Stackhouse, S. Fueling Change in Intermodal Transportation. Area Development Online. www.areadevelopment.com/logisticsInfrastructur e/aug08/intermodal-fuel-cost-rail-water.shtml. Accessed December 2, 2009. 20. Feemster, T. Evolution of the Global Supply Chain. Area Development Online. www.areadevelopment.com/logisticsInfrastructur e/august09/evolution-global-supply- chain004.shtml. Accessed December 2, 2009. 21. Bruns, A. Follow The Sun. Site Selection Magazine. www.siteselection.com/issues/2003/sep/p537/. Accessed December 10, 2009. 22. Boyd, J. Hunt Stacks Up. The Journal of Commerce. November 19, 2009. www.joc.com/node/414682. Accessed December 14, 2009. 23. Boyd, J. Intermodal Marketers Lean More to Trains. The Journal of Commerce. November 16, 2009. www.joc.com/node/414670. Accessed December 18, 2009. 24. Boyd, J. Intermodal Takes Share from Trucking. The Journal of Commerce. August 19, 2009. www.joc.com/print/412977. Accessed December 14, 2009. 25. Harbatkin, L. Flexibility Is New King. NAIOP’s Development Magazine, Winter 2005. www.naiop.org/developmentmag/features/20050 4indexa.cfm. Accessed December 21, 2009. 26. McCurry, J. Global Sourcing Casts Logistics in a New Light. Site Selection Magazine. www.siteselection.com/issues/2004/sep/p591/. Accessed December 10, 2009. 27. Bruns, A. The Streamlined Box. Site Selection Magazine. www.siteselection.com/features/2007/sep/Logist ics/. Accessed December 10, 2009. 28. Racunica, I., Wynter, L. Optimal Location of Intermodal Freight Hubs. Transportation Research Part B 39, 453-477. 29. Bergqvist, R., and Tornberg, J. Evaluating Locations for Intermodal Transport Terminals. Transportation Planning and Technology, 31: 4, 465-485. 30. Rand, E. Alternate Distribution Locations Serving New Routes From Here to There. NAIOP’s Development Magazine, Winter 2007. www.naiop.org/development mag/features/200704indexa.cfm. Accessed December 21, 2009. 31. Rodrigue, J. Transportation and Economic Development. The Geography of Transport Systems. Chapter 7. New York, Routledge.

18 people.hoffstra.edu/geotrans/eng/ch7en/conc7e n/ch7c1en.html. Accessed December 2, 2009. 32. Warren, D. Breaking Free of Intermodal Gridlock. Area Development Online. www.areadevelopment.com/logisticsInfrastructur e/aug06/intermodalGridlock.shtml. Accessed December 2, 2009. 33. Wang, W. Beyond Bricks and Mortar: Functions of Logistics Parks. Economic Insight. Jones Lang LaSalle. http://www2.corenetglobal.org/dotCMS/kcoAss et?assetInode=3742025. Accessed December 2, 2009. 34. Held, J. Distribution Center Site Selection. Economic Development Journal. Summer 2003. www.iedconline.org/secure_view.php?file_path= EDJournal/Summer_03/Distribution_Site_Selecti on.pdf. Accessed December 14, 2009. 35. Conway, M. Economic Development: A Flight Plan for Success. Conway Data, Norcross, GA, 2009. Pp 41-48, 81-84. 36. RailSolutions. A Comparative Analysis of Public Benefit from the “Crescent Corridor” and “Steel Interstate” Rail Service Concepts. November 19, 2009. www.railsolution.org/uploads/PDF/Crescent_Co rridor-Public_Perspective.pdf. Accessed December 17, 2009. 37. Mullen, M. Centerpoint Intermodal Center. Economic Development Journal. Spring 2005. www.iedconline.org/secure_view.php?file_path= EDJournal/Spring_05/Centerpoint.pdf. Accessed December 2, 2009. 38. Sternberg, M. Transportation Gateways for Rural Development. Economic Development Journal. Winter 2004. www.iedconline.org/secure_view.php?file_path= EDJournal/Winter_04/Transportation_Gateways. pdf. Accessed December 14, 2009. 39. Stagl, J. If Funding Falls Into Place, So Will Norfolk Southern’s Crescent Corridor. Progressive Railroading. November 10, 2009. www.progressiverailroading.com/pr/article.asp?id =21900. Accessed December 18, 2009. 40. Dixon, R. Making a Proximal Location Decision. Area Development Online. www.areadevelopment.com/logisticsInfrastructur e/august09/proximal-corporate-location- decision005.shtml. Accessed December 2, 2009. 41. Economic Development Research Group, Inc. (EDRG). Use of Freight and Business Impact Criteria for Evaluating Transportation Investments. Report prepared for the Portland Business Alliance and Port of Portland. www.portlandalliance.com/pdf/Freight-Business- Impact-Sep2008.pdf. Accessed December 14, 2009.