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Denver is Mile High on Growth

FDI magazine: published in December 2012/January 2013 issue

By Karen E. Thuermer

When song writer John Denver composed his infamous tune “Rocky Mountain High” in 1973, his lyrics were meant to describe the sense of peace he found in the Rockies Mountains. But at the time, Denver, Colorado, which sits on the edge of this large North American mountain range, had become known as the second most polluted city in the United States behind Los Angeles.
In fact, in 1973, the Mile High City had 150 days of unhealthy air.
“Air quality doesn’t care about political boundaries,” comments Tom Clark, president and CEO of the Metro Denver Economic Development Corp.
The Denver Brown Cloud wasn’t the only challenge facing this once gold town gone bust. Local governments started praying on one another, stealing companies from one city to another.
“Just when the impulse says dive under the table and pull the blanket up, we decided to build a world class infrastructure,” Mr. Clark remarks.
The effort began with tearing down old viaducts that put Denver in permanent shade throughout the year, and building a baseball stadium in lower downtown.
“We built the stadium area as a pedestrian destination, which resulted in people walking through lower downtown to clubs and restaurants that began to sprout up,” he says.
Today Denver also offers a football stadium, convention center, and a new venue for winter sports. In addition, it provides an efficient transportation system that includes major highway expansions and a $7.4 billion mass transit system that will add 122 miles of rail rapid transit and extend existing routes throughout the region. Denver International Airport also continues to attract a number of international flights
Businesses have taken notice. Since 2010, 26 corporations including several Fortune 500 companies have moved to Denver. Some have announced that they are moving their headquarters there.
Arrow Electronics, which controls about 40% of the global business supplying electronic components and services primarily to manufacturers, transferred its global headquarters from Melville, NY to the Denver in 2011. Not only did it become Colorado’s largest revenue company; it put Denver at the center of a new industry, Mr. Clark says.
Hitachi Data Systems, a unit of Tokyo-based Hitachi Ltd., recently announced plans to open a new office in Denver. J Schneider Elektrotechnik, a leading German manufacturer of industrial power supplies, opened its new manufacturing center in Denver in June.
The same is occurring for innovation clusters such as medical and biotech.
DaVita, a provider of kidney care services, relocated its headquarters from California and to downtown Denver in September. BCT is expanding its global headquarters operations in Lakewood outside of Denver. Fostering future growth is the Fitzsimons Life Science District in neighboring Aurora. It’s one of the largest bioscience real estate developments in the country.
Clean tech is also significant for Denver, despite the fact Denver is ranked No. 4 worldwide as an “up-and-coming” energy city for oil and gas professionals by Rigzone.com.
In 2010, former Governor Bill Ritter signed landmark legislation that requires Colorado to generate 30 percent of its electricity from renewable sources by 2020 — the highest renewable energy standard in the Rocky Mountain West. Since then, the city has seen a 6% average annual growth in clean tech jobs.
Companies like Vestas, Energy Unlimited, Inc. (EUI), and Siemens have invested in Denver. There’s also potential for solar investment.
A big plus, Denver is known for being the No. 1 city in America for relocating young adults (25-34) during the recession. It’s also ranked third among US metropolitan areas for job growth over the 12 months ending in July.

Bosch in South Africa indicative of global auto industry

9/28/2011Bosch in South Africa indicative of global auto industryBy Karen E. Thuermer, AJOT

South Africa’s automotive industry is a global, turbo-charged engine for the manufacturing and export of vehicles and components. The sector accounts for about 10 percent of South Africa’s exports, making it a crucial cog in the economy.

South Africa currently exports vehicles to over 70 countries, mainly Japan (around 29 percent of the value of total exports), Australia (20 percent), the UK (12 percent) and the US (11 percent). African export destinations include Algeria, Zimbabwe and Nigeria.

While South Africa can be regarded a minor contributor of global vehicle production, locally the sector is a giant. The government estimates it contributes about 7.5 percent to the country’s gross domestic product (GDP) and employs some 36,000 people. In fact, new vehicle sales there in recent years have made South Africa one of the best performing automobile markets in the world

One reason for this may be the fact it’s very expensive to import cars into South Africa. Besides the high cost of shipping vehicles all the way to South Africa, a value-added tax of 14 percent is applied to new cars, in addition to a 36 percent customs duty tax.
Consequently, auto manufacturers such as Volkswagen, Daimler AG, BMW, Renalt-Nissan, Toyota, Ford and GM have invested in plants there. Each has benefited from South Africa’s growing market. In fact, last year the auto industry was one of South Africa’s bright spots in its economy.

According to figures reported by Bloomberg News, last year car companies produced 472,049 vehicles in South Africa, up 26 percent over 2009. The government’s goal is for 1 million cars to be produced there by 2020.

If achieved, this would be a boon for components manufacturers that benefit from the local and export market.

The National Association of Automotive Component and Allied Manufacturers (Naacam) reports that component exports ticked up 10 percent in rand terms – and about 15 percent in volume – in the first quarter of the year, compared with the first quarter of last year.

Component sales to local vehicle manufacturers were also up around 10 percent, while sales to the aftermarket declined as the trend moves from repairing old vehicles to buying new vehicles.

This is good news for a country where exports, in general, are falling and manufacturers continue to shed jobs.

Robert Bosch South Africa Enter Robert Bosch South Africa (RBSA), a regional branch of the Bosch Group, the world’s biggest private industrial corporations and where automotive technology is one of the biggest corporate divisions in the World Wide Bosch Group. Bosch is the world’s largest manufacturer of automotive parts and systems.

In South Africa, Bosch is one of several auto components manufacturers. Others include Arvin Exhaust, Bloxwitch, Corning, and Senior Flexonics. All located to South Africa to take advantage of low production costs, coupled with access to new markets as a result of trade agreements with the European Union and the Southern African Development Community free trade area.

Despite today’s economic climate where talk of another recession is on everyone’s lips, Dr. Steffan Hoffmann, managing director of Robert Bosch (Pty) Ltd in South Africa feels more positive, especially as it relates to his country’s auto industry.

This AJOT reporter spoke with Dr. Hoffmann in a recent telephone interview to follow up on a visit to the Bosch plant in Brits, North West Province, South Africa late last year.

The Bosch division also has operations in Midrand, in central Gauteng Province.

While Dr. Hoffmann did not offer updated sales figures, last year he revealed that the Bosch division did 1.4 million Rand, or about US $190 million, in sales in 2009.

He explained that Robert Bosch (Pty) Ltd manufacturers starters, alternators, electrical harnesses, drives, chassis systems, brakes, security systems, and parts for the automotive aftermarket, in addition to non-related items such as power tools, and solar /thermal systems for hot water heaters. It also manufactures home appliances in joint venture with Siemens.

“Our non-auto business started in 2010,” he explained.

It’s at the Brits site where electronics manufacturing is done. The plant there is roughly 18,300 square feet in size. Among its customers are GM, Ford and Polaris.

“Manufacturing at this site is dominated by energy management and security systems,” Dr. Hoffmann said. “Much of the work is in joint venture with local customers.”

Driving much of the business, he revealed, is a big price increase in electrical parts. “The goal is to make $50 million in this sector by 2014,” he added.

Purchasing Issues Most of the purchasing for parts that go into manufacturing Robert Bosch (Pty) Ltd’s products in South Africa is done by Bosch Germany. It also uses some local suppliers. Worldwide, Bosch’s total purchasing volume across all product lines is nearly US $32.8 billion and totals 4.3 million tons of freight each year, according to Bosch’s corporate website.

“They have a large purchasing department,” Dr. Hoffmann explained. The logistics is handled by Schenkers.

By working as a single department for the entire company worldwide, Bosch Germany buys items in bulk then ships them accordingly to supply each plant.

“The purchasing department plans the shipments on a monthly basis, but the window on planning is done on a three-month basis,” Dr. Hoffmann explained.

This is because a shortage of components can impact production. Consequently, the South African operation needs to carry more stock to balance out lead times, although it receives deliveries daily.

“There’s always a mix of central and local purchase ordering,” he continued. “But we obviously get a lot of components from Bosch plants all over the world. They have third party suppliers in Europe, Asia, China, India, as well as locally.”

Of those components, Bosch purchases for its South Africa plants, approximately 70 percent come from China and 20 percent are supplied locally. For the auto industry, the majority of imported components come from Europe due to the fact BMW, Mercedes, and Volkswagen have a major presence there.

“The model of cars manufactured in South Africa typically is part of a worldwide platform,” Dr. Hoffmann commented.

Those imported components are shipped to South Africa by containership. Most come through the Port of Durban, South Africa’s largest seaport. But other ports, such as Port Elizabeth, are also utilized.

There’s also talk down the road of one day using a seaport outside of South Africa in Mozambique or Namibia,” Dr. Hoffmann added. “But we’re not there yet.”

One reason is because Durban is one of the most expensive ports in the world to utilize.

Meanwhile, he stressed how there’s not enough purchasing being done from local suppliers.

We’re working on changing that, but it often requires developing those supplier relations ourselves.”

Purchasing locally not only helps South African manufacturers, but saves time and delivery costs.

All materials are collected from the local suppliers’ premises.

“This gives us the advantage of allowing us to bundle orders,” he revealed. “We work together with highly qualified contracted carriers here, and give them responsibility for the entire region.”

Networking between Bosch, the supplier and the carrier is managed via Web EDI (electronic data interchange), from the call-off to the goods receipt.

But first it takes place inside of our heads,” Dr. Hoffmann said. “A multitude of solution models and variants in networking and assignment of tasks has been developed. The really good ideas only work in close co-operation with our partners.”

There’s another issue Bosch faces when sourcing parts locally, one that can be common to any industry. Suppliers and their manufacturers use shortages to increase prices.

Many do not want to inventory,” he said.The problem is only exacerbated by recent disruptions to the supply of steel due to a dispute between Kumba Iron Ore and ArcelorMittal South Africa. In this respect, Dr. Hoffmann pointed out, the global system of purchasing helps out a lot. “We are limited here,” he said.

Export, Labor Issues When asked if Bosch South Africa exports any of its auto components to other countries, Dr. Hoffmann remarked that it is minimal. What the company does export, goes exclusively to Europe. We used to export more, as did the whole country,” he said.

For example, in the past the majority of catalytic converters worldwide came from South Africa due to the fact that 80 percent of worldwide platinum is mined there. Generally, each catalytic converter contains three to seven ounces of platinum.

Leather seats were also a big auto component exported from South Africa.

But as Dr. Hoffmann explained, the issue is more about being a reliable supplier. The fact there are so many unions in South Africa has translated into many production stoppages caused by strikes and labor disruptions.

There’s a national union that represents auto workers, and others dealing with the seaports, the trucking industry, and others,” he said. “Things got so bad that in a typical year, we were looking at at least two to three major disruptions from somewhere.”

Of course, Dr. Hoffmann attributes this, in part, to South Africa’s history of Apartheid when labor strikes were the only way workers could express themselves.

Things have been relatively quiet for close to three years,” he said.

Increasing Investment One positive trend affecting automotive industry in particular has been the massive investment original equipment makers (OEMs) have been making in South Africa.

Five years ago, an OEM might have considered locating elsewhere,” Dr. Hoffmann said. “But today, virtually every major OEM is here.” More so, they are growing their investments and upgrading their manufacturing plants. Ford Motor Company, for example, announced in June the completion of a two-year, US$500-million upgrade of its manufacturing and assembly plants in South Africa to enable it to produce and export its new Ranger diesel pickup trucks to 148 countries, mostly in Africa and Asia.

This solidifies South Africa’s role as a key operation in Ford’s global manufacturing footprint,” Ford executive vice-president and CFO Lewis Booth said in a statement.

In fact, Ford’s Struandale, Port Elizabeth engine plant has been extensively upgraded and is now capable of producing 75,000 engines and 220,000 engine component kits a year. Its Silverton, Pretoria vehicle assembly plant has also been expanded and is now capable of producing 110,000 vehicles a year. With about 10 percent of market share in South Africa, Ford trails Toyota, Volkswagen and GM. But, as executives report, Ford’s South Africa investment was not just aimed at growing local market share, its about transforming its South African operations from a domestic to global manufacturing site.

Ford’s news may not impact Bosch, but it is reason enough for Dr. Hoffmann to remain optimistic on the region and South Africa’s future.

Intermodal Rail Comes of Age in Northwest Ohio, American Journal of Transportation, 9/28/2011

9/28/2011Intermodal rail comes of age in Northwest OhioThe opening of CXS’s intermodal terminal in Northwest Ohio clears the way for rail shipments from East Coast ports to the Midwest.

By Karen E. Thuermer, AJOT

Blow your train whistles! CSX’s Northwest Ohio Intermodal Terminal is running full steam ahead.  Shippers can now take advantage of yet another intermodal rail terminal that offers efficiencies and speed to markets in the Midwest and beyond.

In June, CSX Transportation celebrated the grand opening of its Northwest Ohio Intermodal Terminal, located in North Baltimore, Ohio between Findlay and Toledo.

It’s one of several terminals in CSX’s public-private partnership National Gateway project with the federal government that will ultimately clear 61 obstructions, thereby allowing CSX to run double-stack rail, and build and expand six intermodal facilities within CSX’s network.

That network expands North Carolina, Virginia, Maryland, West Virginia, Pennsylvania, Ohio and Washington, D.C.

“We run about 26 trains daily in and out of the terminal and do about 1,500 lifts a day,” Drew Glassman, CSX assistant vice president of Intermodal marketing, revealed to this AJOT reporter in a telephone interview upon his return from the new terminal that same day.

He expects those amounts to be more once the entire National Gateway system is fully up and running, and CSX moves from a point-to-point network to one that operates like a hub and spoke.

“This will allow to us to add hundreds of connection points across our network,” Glassman explained. “Before, where we may not have been able to run full trains from a point like Columbus and different points across the network, we are now able to have a whole train load from Northwest Ohio go to points in the Ohio Valley and beyond.”

Glassman described the network as akin to what air carriers like FedEx or Delta have been doing with their systems for years.

“If you fly into Delta’s Atlanta hub, for example, you can go anywhere,” he said. FedEx’s use of Memphis is another example.

CSX offers a similar concept in which, through its northern tier, shippers can utilize hubs at its Chambersburg, PA; Syracuse, NY, and Northwest Ohio terminals and spring smaller trainloads to other markets. 

“What this means to CSX customers is an improvement to connectivity and efficiency,” he said. “Once you get into Northwest Ohio you can get access to our entire network. We can build high density trains that can be sent out West as far as California, and do the reverse when shipments come East.”

When the railroad has enough density of cargo for a particular route, it can still run a full train point-to-point.

What the National Gateway initiative offers the CSX network is the ability to add double stack capacity from mid Atlantic ports into the Ohio valley via Northwest Ohio.

Seaport and By Pass Connections The Port of Baltimore is part of the National Gateway initiative, where a new CSX intermodal terminal is also scheduled to be built between Baltimore and Washington, D.C. to offer better connectivity to its domestic system.

Whereas today, CSX serves nine different markets from its network from the Port of Baltimore (in addition to connecting to the western railroads), when the National Gateway is fully implemented and all services are phased in, CSX will be able to service nine additional markets and 80 million additional consumers that are not rail served out of the Port of Baltimore today.

Those markets, and phase in periods are: Cincinnati, Louisville, Indianapolis, and Buffalo, 2012; Atlanta, Charlotte, Memphis, and Pittsburgh, 2014.

While CSX has a large presence with the Ports of Savannah and Charleston, these Ports do not connect as well through the National Gateway.

“They tend to be more Atlantic-centric in the South,” Glassman said.

But Glassman stresses how important the Port of New York and New Jersey is to its network since it operates as CSX’s biggest import-export port out of the East Coast. This is significant since transcontinental shippers benefit most from CSX’s connectivity thanks to the National Gateway and Northwest Ohio terminal. “One of the advantages to Northwest Ohio is that it allows us to bypass Chicago, which is very congested and has a lot of complexities related to interchanging freight,” Glassman added.

CSX is also able to partner with Union Pacific (UP) and Burlington Northern Santa Fe (BNSF) railroads and bypass Chicago and go straight into Northwest Ohio.

“Shippers are able to get this kind of connectivity into smaller markets, but also are now able to get a high density and connectivity by shipping back to Northwest Ohio where the train is ‘re-densified’ and the containers are put on their way East or West,” Glassman remarked. “We also serve the function of offering local service out of Northwest Ohio.”

Ample Containers Whereas when the economy was flying, containers came in short supply, today’s slower economy has put less pressure on the need for ample containers. But given the fact the railroad is ramping up business, and more and more customers are using rail to save cost and take advantage of its new efficiencies, CSX is investing in a new domestic interline container program called UMAX.

UMAX, which is in partnership with UP, was launched in March 2010 to expand market access and capacity across a nationwide intermodal network.

“We have been adding significantly to that fleet over the last year, and have added almost 4,000 containers this year alone,” Glassman revealed. “We are up to about 30,000 containers.”

Private customers such as JB Hunt and Schneider have also been adding into their fleet, as have international steamship lines.

Although Glassman acknowledges the down economy and diminished import trade, he points out that CSX’s domestic business continues to grow even through this year.

“I think this is because people are making economic choices and use a greener alternative to trucking,” he said. “We have most definitely benefited from the tighter times.”

Reliable, Robust Helping the system further, Glassman stressed how the intermodal terminal in Northwest Ohio is not only improving CSX’s transit times; it is improving its reliability.

“Our connections are much better because we now have multiple departures to destinations,” he said. “So if freight gets behind, it has a better chance of catching up.”

Reliability has always been an issue within the railway system, and a reason shippers hesitated to use rail in the past. But since CSX’s Northwest Ohio terminal is, for the most part, a one connection point across the northern tier of the CSX network, there’s fewer opportunities for freight delays.

“Normally freight has to make two or three connections, which allows more opportunity for things to go wrong,” Glassman related. “It’s the same in the airline industry.”

What will help even more will be when a density of freight builds up, and CSX will have the option of running freight point-to-point without stopping in Northwest Ohio.

Competitor Norfolk Southern (NS) is working to offer the same advantages with its Heartland Corridor, which Glassman described as “a great project and big investment in public private partnership between NS, several states, and the federal government.

“The goal there is to get more connectivity out of the Port of Virginia into Columbus, which is where it is primarily oriented,” he said.

It, too, increases NS’s capacity capabilities on that line, like National Gateway does for CSX.  But from a capacity perspective, Glassman stressed that National Gateway also goes through Virginia and Baltimore.

“Where we feel we really have an advantage is with the Northwest Ohio terminal as an anchor to our pipeline into the Mid Atlantic,” Glassman stressed. “We think that distribution network is our competitive advantage. It’s not just having the clearances, but also that robust distribution network to go with it.”

The Northwest Ohio terminal is also expected to result in a boom in distribution warehouse development in North Baltimore, Ohio and the region. Already, the town of North Baltimore, which partnered in helping CSX locate its facility there, has zoned thousands of acres for commercial and industrial parks.

CSX terminals in other locations, such as Chambersburg, PA, had a similar affect. As a result of the Chambersburg terminal, scores of distribution sites grew up off of Interstate 81.

Panama Canal Impact Going forward, another boom for CSX and its National Gateway project will be the Panama Canal expansion, to be completed in 2014. Overall, CSX executives are convinced that the National Gateway project in Northwest Ohio will allow the railroad to compete effectively for the additional freight that will come into East Coast seaports.

While CSX executives are very vocal about how very excited they are to work with the steamship lines in moving their freight inland from the ports, Glassman emphasized how ports on the East Coast still have to make more investment in anticipation of larger ships coming through the widened Panama Canal in order to make it possible for the bigger ships to arrive.

He revealed, however, that CSX has already seen a shift over the last five years of freight coming into the East Coast versus the West Coast due to other factors.

“We are ready to serve both legs of that because we serve freight coming from the West as well as from the East,” he added.

Short Sea Implications The new Northwest Ohio terminal could also impact the possibility of developing short sea shipping on the Great Lakes.

For years, Europe has benefited from a system of short sea shipping networks. But the idea has never caught on at one of North America’s great water networks. The reason: the system of locks, the St. Lawrence Seaway, and the seasonality of the water system, i.e. cold winters that make it such that the waterway can only be open from mid March to late December.

But Paul Toth, president and CEO of the Toledo Lucas County Port Authority told this AJOT reporter that he believes there are economic and efficiency benefits to offering short sea on the Great Lakes.  The Port of Toledo could, especially, benefit from the CSX Northwest Ohio terminal since it is not that far away. 

“From a strategic standpoint, the Port has looked at how the North Baltimore facility could impact us,” he said. “In the last 18 months we have spent around $15 million in upgrading rail access, buying new cranes and equipment that could handle container movements.”

Those cranes are not the container variety, but instead mobile harbor crane that can be used for the port’s traditional break and break bulk materials.

“But they can also handle containers,” Toth said. “We have always strongly believed that once CSX was up and fully operational that it would create an opportunity for us to move containers by short sea — both inbound and outbound.”

While no container shipments have occurred yet on Lake Erie, Toth reveals his port has received ships from overseas.

“We’ve had a couple of ships from Spain this spring that brought in large wind turbine blades, cells and their hubs,” he revealed. “The challenge with the Great Lakes is the St. Lawrence Seaway and the locks limit the type of ships that you can bring in. But the whole theory is that a large containership could be brought to big container ports like Montreal or Halifax, then transfer those containers to smaller vessels capable of handling up to 1,000 containers that can come in and out of the Seaway.”

Not only would this be an efficient way of shipping, it would be far more “greener” than trucking the shipments those long distances.

“We can use our port to off load containers,” Toth continued. “On the inbound side, we can distribute directly out of the port by truck, or put them on rail, and send them to the CSX facility in North Baltimore where they can be broken down for further shipment.”

The Port of Toledo offers direct access to the North Baltimore terminal since CSX rail comes directly to the port.

Toth also sees the same advantages on the outbound.

“There could be a company in Toronto that needs a container coming from China. It could come into the West Coast by rail to North Baltimore, get transferred to our port and then put on a short sea ship and sent to Toronto,” he said.

Toth is convinced there is an opportunity because of the way CSX has developed the Northwest Ohio facility to take advantage of short sea shipping on the Great Lakes.

Although the St. Lawrence Seaway is shut down from the end of December to the middle of March, Toth emphasized how these two or so months fall smack in the middle of the slowest time for moving containers worldwide.

“So we still think a viable container service nine or 10 months a year can work well out of the Great Lakes,” he said.

Currently, the Port is working on a freight movement study with the State of Ohio to understand how products are moving literally by all modes and what opportunities there are to take advantage of that movement.

In the meantime, the Port of Toledo has purchased 182 acres of land, which would more than double the size of the port. While the port, which opened its general cargo facility in 1955, has up to now only been served by CSX, the new property will also offer access to NS rail.

“The property is also right next to our existing property,” Toth said.  Just recently, the Port installed enough rail to accommodate a full unit train that can tie into NS. The Port is also investing about $20 million in the property so that by late 2012 it will be able to start handling shipments at that facility as well.

Just like CSX’s North Baltimore terminal, Toth points out how Toledo is geographically in a unique position because of its close proximity to Chicago, Columbus, Cleveland, and Indianapolis. Northwest Ohio is also in the middle of a very large population, and at the crossroads of I-75, which goes from Canada to Florida, and I-80-90, which runs from the East to the West Coast.

Three Class 1 railroads (CSX, NS, and CN), in particular, have access to the Port of Toledo.

“We enjoy a great partnership with our port operator,” Toth added. “We had a 15 percent increase in freight last year, and are experiencing the same this year. We are riding a high wave right now and making investments in our future.”


 

Up in the Air

As appeared in FDI magazine, December/January 2012

 

By Karen E. Thuermer

 

 

When the Hesse Administration High Court in Germany put an end to scheduled nighttime flights at Frankfurt Airport, the news came as a big blow to Lufthansa Cargo.  The carrier had planned for 10 night flights on its winter schedule, beginning October 30.

Karl Ulrich Garnadt, Chairman of the Executive Board and CEO of Lufthansa Cargo, sees the resulting consequences for the carrier as “quite severe.”

“We don’t know how our customers will react, but we expect a double digit impact,” Mr Garnadt says.

He sees the provisional night-flight ban in Frankfurt as a drastic signal for the German logistics industry.

“As an export world champion, Germany is reliant on dependable connections to ship airfreight to destinations around the globe,” he says. “Frankfurt Airport plays, in that respect, a highly important role since around 40% of German exports are transported by air.”

 Mr Garnadt also predicts the decision will impact companies in Frankfurt and the Rhineland industrial area that depend on night flights to give them a competitive logistics solution.

 “By loosing night flights, the quality of Frankfurt as a logistics hub will have an impact on investment decisions by companies,” Mr Garnadt proclaims.

Airports are economic drivers, and those handling cargo are powerful engines for local economic growth, particularly in attracting manufacturers and logistics operators who depend on fast transport service.

         This fact is so poignant that Dr. John Kasarda, professor at the Kenan-Flagler Business School at the University of North Carolina-Chapel Hill, has named the concept “Aerotropolis” to describe an aviation-oriented economic region that has an airport as its cornerstone.

         Two cities in the United States exemplify this point: Memphis, Tennessee, home to Federal Express; and Louisville, Kentucky, the world hub for UPS.

         FedEx has grown into a worldwide power, and its Memphis hub has made the city a magnet for businesses that thrive on time-critical transportation. From Memphis, FedEx can deliver to any North American location within 24 hours and to most major global cities within 48 hours.

         Among the companies locating in Memphis to capitalize on these advantages are Johnson & Johnson and Pfizer. Both have major logistics centers in Memphis.

         Zappos.com, one of the largest on-line shoe stores in the world, moved its fulfillment center in 2006 to Louisville to be close to the UPS world hub.

That hub, dubbed Worldport, currently turns over 130 aircraft and processes around 1.5 million packages a day.  

 “From there, and with the help of UPS, we were able to serve areas with population density, and the US lower 48 states with next day or two day delivery,” says Craig Adkins, Zappos.com vice president of services and operations.

As a result, Zappos sales grew from $597 million in 2006 to $840 million one year — an amazing 40 percent jump.

          Nevertheless, Dr. Kasarda points out airports in the US are treated as nuisances to be controlled, unlike their counterparts in Asia and the Middle East where they are regarded primary infrastructure assets for their cities and nations to compete in the globally-connected, speed-driven economy. 

Aside

RED HOT Logistics Parks!

May 20, 2008, American Journal of Transportation

Red-Hot Logistics Parks and Inland Ports Address Shippers’ Distribution Needs

By Karen E. Thuermer

The latest prospects for real estate appear dim. Yet for those in the shipping industry, distribution centers are red-hot. After all, even in a slowing economy shippers want their goods fast. Consequently, distribution center (DC) developers have become adept at providing projects designed for flexibility and agility.

Now with transportation costs raging sky high, land becoming increasing scarce and rents too expensive for sites close to ports of importation, a number of logistics parks and inland ports farther a field are popping up. These draw strength from the availability of ample, inland land, cheaper real estate and multi-modal access. After all, we’re all heard the adage “location, location, location.” When combining real estate with logistics, this expression is not far from the truth.

“Today development companies are trying to take land acquisition away from high cost and high congested areas,” observes Jon C. Cross, spokesman for The Allen Group, a private development company in San Diego. The company is developing significant inland ports and logistics parks.

INLAND PORT DEFINED

The Center for Transportation Research at the University of Texas in Austin defines an inland port as a “site located away from traditional land, air and coastal borders with the vision to facilitate and process international trade through strategic investment in multi-modal transportation assets and by promoting value-added services as goods move through the supply chain.”

Cross adds that a successful logistics park has additional characteristics: access to a major container seaport, an intermodal facility serviced by Class I railroad, a minimum of 1,000 acres of total land, US Customs clearance services, Foreign Trade Zone (FTZ) status, strong local market access (e.g., major metropolitan area), nearby access to north/south and/or east/west interstate highways, and access to a strong local labor pool.

Although inland ports have been around since the Virginia Port Authority (VPA) opened its 161-acre Virginia Inland Port (VIP) in1989 in Front Royal, VA some 70 miles west of Washington, DC, inland ports are now coming of age. Today inland ports are being developed to operate similarly to VIP’s: an intermodal container transfer facility that provides an interface between truck and rail for the transport of ocean-going containers to and from the ports of Norfolk, Newport News and Hampton Roads. The idea is to ship containers by the less expensive means of rail to locations where they can be trucked shorter distances.

Cross defines such projects as akin to “oceanfront property.” By locating close to an inland port, a company can reduce its drayage costs. The savings can be considerable — as high as $1 million to $3 million per year, he claims.

“Companies, especially in the Western United States, are looking at all components: transportation, drayage costs, labor, real estate costs,” Cross says.

“All together, these equations call for an inland location.”

INTERMODAL ORIENTED

California, especially, is seeing its share of logistics parks and inland ports. These offer an alternative to California’s congested and expensive locations near Los Angeles/Long Beach. Driving their development in California is that state’s overwhelming importation of Asian imports. Despite its 15,000+ miles of highways and freeways, 12 cargo airports, 11 cargo seaports, 18 foreign trade zones, 42 enterprise zones, and 11 cargo seaports, California’s infrastructure is bursting at the seems handling increasing international trade.

Consequently, The Allen Group has developed two logistics parks in California’s Central Valley: International Trade and Transportation Center (ITTC) and MidState 99 Distribution Center.

ITTC is a 700 acre industrial park with some 2 million square feet in Bakersfield in California’s southern San Joaquin Valley. Located four hours from 35 million consumers, the park is rail-served and on the main line of the Burlington Northern Santa Fe Railway (BNSF). It includes an intermodal facility with direct rail service to and from the Ports of Los Angeles and Long Beach that serves shippers and distributors in the western United States. Its MidState 99 Distribution Center is a 488-acre park located in Visalia in the center of California halfway between Bakersfield and Fresno. Current tenants include VF Corporation, International Paper Company, JoAnn Stores, Coast Distribution Systems, Workflow One, Worms Way, Bound Tree Medical, ORS NASCO and DATS Trucking. Over 99% of the California market can be served next day from MidState 99 by UPS.

Also a burgeoning market for international trade, Texas is seeing its share of mega logistics parks. The Dallas Logistics Hub, under development by The Allen Group, operates as a logistics park and inland port on 6,000 acres on the south side of Dallas, Texas. Part of the project was recently designated Foreign Trade Zone status (FTZ No. 39). This means it can provide tenants (US importers, especially retail distribution operations) cost saving advantages on merchandise processing fees and deferred duty payments.

“The Dallas Logistics Hub is one of the largest intermodal-served inland ports in the country,” Cross claims.

The logistics hub is adjacent to Union Pacific’s (UP) Southern Dallas Intermodal Terminal with access to four major highways (Interstates 20, 45 and 35 and Loop 9).

“We also have an option with BNSF to put an intermodal facility there,” he adds. “If this happens, the project will become be first logistics park in the world to have two railroads offering intermodal facilities.”

In addition, Lancaster Airport on the project’s southern side, offers air cargo options. Its runway is currently being expanded to accommodate freight and related facilities. Cross adds airports and air cargo facilities are not drivers for industrial development.

“Goods are meant for short shelf life,” he states.

“They are in and out.”

In direct competition with the Dallas Logistics Hub, and located north of Dallas and Fort Worth, Texas is the 17,000-acre AllianceTexas project developed by Hillwood, a Perot real estate development company. Its location 15 miles northwest of Dallas/Fort Worth (DFW) Airport and the $420-million American Airlines Center and Victory district near downtown Dallas give AllianceTexas the distinction of often a logistics hub prototype.

The one million square-foot distribution facility project opened in 1994. Besides its air cargo focus the project is adjacent to a BNSF intermodal facility. It was the intermodal business, rather than the airport, that helped build Alliance s fortunes, and that developers say is the key to logistics hub success.

Last August, Union Pacific announced plans to build a $90 million state-of-the-art 300-acre intermodal rail terminal. To be alongside Interstate 35 in San Antonio, the project will advance the city’s goal to establish itself as a NAFTA inland port. UP officials indicate the terminal will process more than 100,000 truck trailers annually when completed in 2008, and will have the capacity to grow to a potential of 250,000 trailers and containers per year. It provides shipper tenants rail and airport service and access to deep water seaports.

Its East Kelly Railport offers direct rail access to the seaports of Houston, Corpus Christi, Long Beach, Los Angeles, and the Mexican seaports of Lazaro Cardenas, Manzanillo, Veracruz, Tampico, and Altamira thanks to its access to two Class I railroads, Union Pacific and BNSF. The Railport is immediately adjacent to the Union Pacific’s South San Antonio Classification Yard, which is the destination for most of the local industry traffic. The project also offers direct access to: Dallas, Kansas City, Chicago, and Detroit.

Slated to open this fall, the project’s Kelly Field (SKF) will offer an 11,500 foot (3,505 meter) runway that will be able to handle all heavy lift aircraft. Immediately adjacent to the runway is 575 acres (232.7 hectares) of mixed use airport property. The airfield will provide sufficient space on the ramp areas and terminals for quick re-fueling and efficient turnarounds. It is operated under a joint use agreement with Lackland Air Force Base. Both entities are co-located on either side of the runway, which affords the airport exceptional security.

Port San Antonio’s entire 1,900 acre site falls under FTZ (No. 80-10) classification.

UP, UP AND AWAY

With the decommissioning of various Air Force bases due to Defense Base Closure and Realignment (BRAC), numerous airfields have come available that offer alternatives for air cargo and adjacent industrial part development. To meet distribution needs and accommodate air cargo, Southern California Logistics Airport (SCLA) in Victorville, CA, a development by Stirling Capital Investment, offers an 8,500-acre multimodal business complex on the former George Air Force Base. The project provides a dedicated international airport. Phase I includes the 407,000-square-foot Newell Rubbermaid Distribution Center. Another 296,000- square-foot distribution building is set for completion in the second quarter of 2008.

Recently the Victorville Planning Commission approved another 1 million-square-foot warehouse to be built at SCLA by Stirling Capital Investments. Plans call for a total 6.5 million square feet of industrial space over 350 acres. Likewise, Hillwood has anchored its AllianceCalifornia in San Bernardino, CA to San Bernardino International Airport (SBD), the former Norton Air Force Base with easy access to Interstates 10, 210 and 215. It is also two miles from BNSF Intermodal Container Facility. SBD has attracted numerous all-cargo aircraft operations that include the Antonov-24, Atlas Air, Custom Air Transport and Evergreen Aviation International. Anticipated total cargo tonnage projected by Southern California Associated Government for SBD is 500,000 tons. SBD is supported by a new 3,048 meter by 61 meter runway. It offers a new fuel farm, US Customs facilities and personnel, and room to construct or expand facilities. Over $90 million have been invested in major infrastructure improvements that include the runway, hangar and utility upgrades.

“SBD is well positioned as a consolidation/distribution point for both air cargo and truck shipments,” states Donald L. Rogers, SBD Executive Director.

ODW Logistics, a Columbus, OH -based provider of logistics and transportation services, recently announced plans to lease 339,980 square feet there. Current tenants include Kohl’s, Mattel, Stater Bros., Pactiv, Medline and Pep Boys. Over the past seven years, more than 7.8 million square feet have either been built or are under construction at AllianceCalifornia.

In Ohio, Rickenbacker International Airport in Columbus has received much attention, especially with its anticipated connections to the Port of Virginia via the Heartland Corridor. Recent big news there is the Columbus Regional Airport Authority’s partnership with Norfolk Southern (NS) to create an intermodal facility adjacent to Rickenbacker. The new Rickenbacker Intermodal Terminal is expected to be operational in early 2008. According to the Airport Authority, developing a new rail/truck intermodal facility at Rickenbacker is vital to Central Ohio remaining an advanced logistics center and a key player in global trade. The facility will be used for the interchange of shipping containers between trains and trucks.

MIDWEST ADVANTAGES

The Rickenbacker project will quickly demonstrate how important intermodal is to the Midwest. Freight rail has traditionally played a major role in transporting commodities long distances. Other important Midwest rail centers in Kansas City and Chicago are fostering growth in intermodal transport and the development of inland ports. Intermodal is key to The Allen Group’s Logistics Park project in Gardner, KS, outside of Kansas City. The Logistics Park, a 1,000-acre project in partnership with BNSF Railroad, will operate as an intermodal inland logistics park when it become operational in 2009-2010. At that time, containers will arrive the inland port from the Ports of Long Beach and Los Angeles on a double stack train to the inland port.

“BNSF will rail containers on its southern transcontinental route from Los Angeles to Chicago,” Cross says. “The first stop will be Kansas City.”

Meanwhile, Kansas City Southern Railway Company (KCSR) and CenterPoint Properties have partnered to develop a 370-acre intermodal logistics park in Kansas City, MO that will offer 6 to 7 million square feet of warehousing and distribution space. Key to the project is KCSR’s direct rail service from the Mexican Port of Lazaro Cardenas. Also on site is Richards Gebaur Airport, a former US Air Force base.

CenterPoint’s CenterPoint Intermodal Center in Elwood, IL features an ultra-modern, 1,200-acre industrial park adjacent to the 770-acre BNSF Logistics Park Chicago. With more than 7.5 million square feet developed in less than five years, the industrial park will eventually encompass more than 12 million square feet of distribution centers and container handling yards.

CenterPoint Intermodal Center’s primary advantage is the significant reductions in average drayage and demurrage costs per container, due to the industrial park’s proximity to the rail yard and its location in FTZ No. 22. Executives estimate that importers at the park can realize savings of $200 – $275 per container by locating at CenterPoint Intermodal Center versus locations as little as five miles away. In addition, an on-site container handling yard is being developed to provide approximately 1,500 container positions, offering further savings. Existing customers include Wal-Mart, Maersk Sealand, Georgia Pacific, DSC Logistics, Potlatch, Inc., Sanyo Logistics, Partners Warehouse and California Cartage.

In Rochelle, IL, CenterPoint has also developed its CenterPoint Intermodal Center, a 362-acre development that will ultimately contain more than 5 million square feet of industrial facilities. Just minutes from the intersection of I-88 and I-39 and approximately 70 miles west of downtown Chicago, the park offers single-day access to nearly every major Midwestern market. For customers with aircargo requirements, the Rockford Airport is less than 30 minutes away.

The industrial park is located in FTZ No. 176, granted to the Greater Rockford Airport Authority. Companies operating at the park will have the ability to consolidate a week’s worth of entries into a single Customs entry, saving time and money.

Other CenterPoint projects in the Chicago area include BNSF Logistics Park – Chicago, a 770-acre intermodal facility that opened on the site on the former Joliet Arsenal in October 2002. As the cornerstone of CenterPoint Intermodal Center, this freight logistics center integrates direct rail, truck, transload and intermodal services with distribution and warehousing, all in one location.

SOUTHWARD CONNECTIONS

Also in the company’s portfolio is CenterPoint Intermodal Center – Savannah, GA. Located four miles from the Georgia Port Authority, adjacent to Highway 307 and within minutes of I-95 and I-16, CenterPoint Intermodal Center offers access to world-class transportation amenities, including direct NS rail service and access to NS’s Dillard Intermodal Yard. The NS Dillard Yard, a domestic intermodal facility, is capable of handling 150,000+ containers annually. It is situated on 40 acres and is operational 24 hours a day. With 250 acres available for development, CIC-Savannah will ultimately contain more than 1.3 million square feet of industrial facilities and 30 acres of container and trailer storage management.

Hillwood recently purchased 69 acres in Jacksonville, FL to build a 601,500 square-foot speculative building. Construction will start immediately with a delivery date of early fourth quarter 2008. Located on the city’s Westside, West Point Trade Center is in close proximity to the Port of Jacksonville (JAXPORT) and within two miles of the CSX Intermodal rail facility and the Interstate 295/10 interchange.

“Hillwood believes Jacksonville’s demographic location within the Southeast, excellent highway and rail infrastructure, burgeoning seaport, pro-business civic leadership, and abundance of labor make Jacksonville the ideal place for companies to locate their Southeastern U.S regional distribution centers,” says T. Preston Herold, vice president of Hillwood Investment Properties.

Containerized freight at JAXPORT is expected to be on the increase given plans by two Asian shipping companies to open new terminals at the port. Japanbased Mitsui O.S.K. Lines (MOL) is scheduled to open a new 157-acre, $220 million terminal later this year. Hanjin Shipping Company plans to open a new 170-acre, $360 million terminal in 2011. These alone will bring an additional capacity for 1.8 million containers. This new activity will be a large part of the expected quadrupling of containers handled at the port over the next seven years.

In addition, a proposed dredging project will allow the port to handle the massive ships that will begin flowing through the Panama Canal in 2014, when the canal expansion project is scheduled to be completed.

Tim Feemster, senior vice president, director Global Logistics for Grubb & Ellis, identifies the extensive dredging going on by East Coast ports as key to the burst of logistics parks and inland ports being developed to service this market.

“It has to do with the widening of the Panama Canal and the fact a lot of companies are looking at risk factors,” he says. “It’s driven by West Coast by-pass diversion. A lot of companies cannot afford to have all of their eggs in the West Coast basket.”

Florida Biotech Leaping Fast

 By Karen E. Thuermer

As appeared in FDI magazine (June-July 2011)

 Florida Governor Rick Scott wants to catapult his state to top status for biotech. 

 The Sunshine State already has the second fastest growing biotech industry in theUnited States.

 Florida  first rose to national prominence as a biotech hub in 2003 when the Scripps Research Institute announced it would build a major new campus in South Florida. Today, Scripps occupies 30 acres (120,000 m2) adjacent to the John D. MacArthur campus of Florida Atlantic University inPalm BeachCounty. 

 Scripps’s presence inFloridahas resulted in Max Planck Florida, Sanford-Burnham, VGTi and many more biotech companies locating to the state to conduct cutting edge research. In fact, since 2007, the number of biotech companies in Florida has more than doubled, resulting in biotech employment increasing 150 percent.

 Florida continues to see big growth. In 2009,San Diego’s Burnham Institute for Medical Research opened its new $85 millionFlorida satellite laboratory in Orlando’s new “medical city” in Lake Nona. 

 The master planned community encompasses 7,000 acres and features Nemours Children’s Hospital, M.D. Anderson Orlando’s Cancer Research Institute, Orlando VA Medical Center, University of Central Florida’s new College of Medicine and Health Sciences campus, Burnham Institute for Medical Research’s east coast campus, and a University of Florida research facility.

Governor Scott expects new biotech and pharmaceutical companies to sprout around the medical facilities and employ more than 30,000 people with an $8 billion economic impact.

“We have all of the elements,” he adds.

 These include competitive labor costs, low taxes, and reduced regulation.

Florida has no personal income tax, compared to an 8% tax or more in many other life science states. Governor Scott is also eliminating its business tax, now at about 10%.

He has also streamlined government, reduced burdensome regulations, and reorganized the state’s economic development agency. For example, Florida has recently eliminated duplicative oversight of medical device manufacturers.

Through our efforts, I am confidentFloridawill be the number one place to start, grow or move a business,” he says.

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