Sunday, July 28 2019
By Michael D. White, author and freelance writer
Confined to non-descript, drab buildings clustered in unappealing urban backwaters, warehouse and distribution operations once considered a straight-forward and relatively simple activity involving nothing more complicated than a hand truck or a forklift have evolved into petri dishes for new technologies that have revolutionized the task of moving a product from Point A to Point B economically and efficiently in the least amount of time.
According to a recent study of the distribution/warehouse sector commissioned by the Deloitte Center for Financial Services, the demand for distribution centers and other industrial real estate is expected to grow by 850 million square feet from 2019 to 2023, to 14.8 billion square feet, compared with demand growth of 870 million square feet from 2014 to 2018.
Deloitte said availability of warehouse space is likely to rise to 10.3 percent by 2023, compared with seven percent in 2018, as changes in the way people shop have reshaped distribution networks with retailers and logistics providers racing to compete with Amazon, open distribution warehouses and sprawling online fulfillment centers, strategically sited near major population centers and transportation hubs.
Deloitte still expects warehouse demand to expand “as eCommerce sales grow and businesses stock up on inventory to meet consumer demand.”
But the forecast shows the market loosening as industrial real-estate development catches up with demand, the report said.
Adam Fields is CEO and founder of New York City-based Arta, an asset-less logistics services provider that works with a number of distribution entities around the country and internationally to facilitate the shipment of specialized, fragile and “irregular” items such as fine art and antique furniture.
“We are implementing technology to create our own supply chain that can streamline the movement of a classic automobile as easy as it is to order a box of diapers online from Amazon.”
The company, he says, “has seen first-hand how important it is to optimize the supply chain by getting things out of the warehouse as quickly as possible because if it’s just sitting there, it’s not getting where it’s supposed to be. We understand the need to have the warehouse and distribution operations we work with as well-oiled as possible.”
“Well-oiled as possible” meaning state-of-the-art warehouse management systems to coordinate the tracking of products; automated conveyors and automated storage and retrieval machines controlled by programmable logic algorithms and logistics automation software; and implementing new technologies from automation and drones to handle and monitor smaller inventories, deal with smaller order sizes and larger SKU catalogues, manage quicker order turnaround, enhance customized packaging, and other value added services.
And, last but not least, proximity to ocean and air cargo ports of entry, and the rail and highway access that provide multiple gateways to end-customers, wholesalers, retailers, and suppliers across the country.
The ‘Amazonization’ of Distribution Logistics
Amazon is already capable of offering same-day and next-day delivery to 72 percent of the total U.S. population, including almost all of the households (95 percent or more) in 16 of the wealthiest and most populated states and Washington, D.C., according to a report published in March by RBC Capital Markets (RBC).
“Amazon set the bar a long time ago,” says Arta’s Fields. “Other entities are playing catch-up because they understand the importance of effective logistics to consumers and the continuing rise of eCommerce. We’re trying to streamline the experience for both buyers and sellers. It’s a wave that needs to be sustained. Amazon has recognized that if they can subsidize some of the costs of delivering the goods, they can continue to increase market share at a rapid rate, while customers’ expectations also ramp up.”
That, he adds, “has led to healthier competition in the logistics area and can only mean more value for the consumer.”
Amazon’s sprawling delivery network is the result of significant investments over the past four years, a period during which Amazon built out fulfillment centers across the country, nearly tripling its U.S. logistics infrastructure, the RBC report said.
The Seattle-based mega-giant has added roughly double the amount of distribution space Home Depot currently owns with more on tap.
While speculation is rife that the company is vetting several sites in New York’s Erie County, Amazon has gone on the record that it will begin operating a one-million-square-foot fulfillment center in Kernersville, North Carolina, in 2020 with about 1,000 full-time and full-time- equivalent employees. The company signed a lease for up to 40 years with an Atlanta real-estate developer for an industrial site, which is located just inside the Guilford County limits.
The facility will reportedly handle bulky items that are 18 inches and larger, such as diaper boxes, kayaks and furniture. The company already operates North Carolina distribution facilities in Charlotte, Garner, Concord, Durham, and Kernersville.
In April, the company said it would develop a 3.6 million-square-foot fulfillment center at the former home of Lucent Technologies in North Andover, Massachusetts. Plans call for the demolition of much of the 1.37 million-square-foot industrial and office campus, leaving some 400,000 square feet of office fronting Osgood Street, and develop a 3.6 million-square-foot facility behind the offices.
A 569,301-square-foot, Class A logistics building has been fully leased to Amazon in southwest Phoenix. The facility is the second and final phase of 10 West Logistics Center, a 1.3 million-square-foot, master-planned bulk distribution park developed by New York Life Real Estate Investors.
The company has committed to use the entire new building as a fulfillment center. The facility is divisible down to 100,000 square feet and is Foreign Trade Zone certified.
Located near Interstate 10, the facility is well positioned to receive goods from the West Coast ports, while serving as a citywide product distribution hub. Phoenix’s West Valley area is dominated by industrial properties, including warehouse and distribution centers.
In May of 2018, Amazon announced that it would build its first distribution center in Missourian 800,000-square-foot facility in the St. Charles County town of St. Peters. The facility is scheduled to be completed by the end of this year.
That same month, the company announced plans to open a distribution facility in the village of West Jefferson, roughly 18 miles west of Columbus in Madison County. Officials say the center is expected to open by the end of next year. It will become Amazon's third distribution center in the Columbus area.
Tectonic Southern California
With its immediate proximity to the nation’s two busiest containerports—Los Angeles and Long Beach—Southern California serves as a focal point for a vast distribution network that extends by highway and rail deep into the interior of the entire country.
The Los Angeles-Long Beach mega-port complex “is the transloading capital of the country, with the double advantage of being the second-largest U.S. population center and having the most extensive intermodal rail services from the West Coast,” according to Cushman & Wakefield most recent North American Industrial Outlook.
Last year, the two ports handled a combined record throughput of more than 17.4 million TEUs (20-foot equivalent units), a tidal wave of containerized goods moving in and out via a bustling mélange of distribution centers, logistics centers, and warehouses that span the region.
In February, the UCLA Anderson Forecast Center released a forecast report on the condition of the state’s distribution and logistics sector, particularly that of the greater LA/LB area. The entire region, the report found, “is in flux” with “industrial space – warehouses in particular – remaining a hot market in spite of the fluctuations of the economy and the threat of trade wars.”
That “hot market,” heretofore, has largely been centered to a great extent in the Inland Empire region of inland Riverside and San Bernardino counties.
“Hot” indeed with Amazon, already the two-county region’s largest private-sector employer, announcing that it will build its 14th fulfillment center there, while other massive warehouses are under construction.
A few months ago, construction began on the first phase of the Ontario Ranch Logistics Center which is expected to be completed by the end of this year. The first building in that logistics complex will reportedly cover almost 1.2 million square feet. All told, an estimated 15 million square feet of space in the Inland Empire is currently under construction, according to the UCLA report.
Encouraging news, but a starkly simple questions lingers—namely, when the region runs out of room for any more logistics facilities will the demand for space push construction to more remote areas? The answer is yes, and the drift—by no means a tidal wave, but a drift nonetheless—has already begun.
In August 2018, the Los Angeles County Regional Planning Commission voted to recommend to the Board of Supervisors the approval of a massive Tejon Commerce Center development project planned by the Tejon Ranch Co. (TRC).
The 175-year old TRC owns a massive 270,000-acre parcel of land—the largest privately-owned land mass in the state—located near the Kern County community of Grapevine, about 60 miles north of Los Angeles, near the junction of two critical highways, the Interstate 5 and California State Route 99.
Considered an up-and-coming competitor that could break the Inland Empire’s decades-old hold on Southern California’s distribution business, the new Tejon Commerce Center project has already signed an unidentified distribution center tenant that is committed to leasing 390,000 square feet of space in an even larger building currently under construction.
That new structure is sited next to a 480,000-square-foot building built two years ago. Half the space in that building is leased to Dollar General Corp., a Tejon tenant since 2012, which moved into the new, larger structure in March 2018. The other half of the newer building is occupied by L’Oreal USA, which bases its 48-state, SalonCentric salon supply distribution operation there.
Sweden-based home furnishings giant IKEA was the first company to build a distribution center at Grapevine. In 2000, the company cut the ribbon at a two million-square-foot facility that serves as its Western U.S. distribution hub. A few years later, Caterpillar acquired 46 acres for a 400,000-square-foot, $50 million parts distribution warehouse to serve its customers located west of the Rocky Mountains.
Internationally-known Famous Footwear, a tenant since 2008, occupies a 350,000-square-foot distribution complex built on a 23.5 acre site in the section of the TRCC designated as a FTZ.
All industrial sites within the TRCC, totaling nearly 1,100 acres, are included in FTZ No.276, which was re-established and expanded in 2018 by the U.S. Department of Commerce. The FTZ is locally administered by the County of Kern Economic Development Corp. and is one of the largest activated FTZs in the state. Operations in the FTZ are eligible to apply for tax rebates and other Kern County incentives.
Why is the Grapevine area attractive for warehouse and distribution facilities?
“Kern County is much more business friendly,” says Charles Crumpley, publisher of the San Fernando Valley Business Journal. “Builders there can go from concept to a ribbon cutting ceremony before their counterparts in Los Angeles could get permits approved. And much of the area is in a Foreign Trade Zone, which provides benefits for companies involved in international trade.”
What’s more, he adds, “costs there tend to be lower than in the built-out and congested Inland Empire east of Los Angeles, adding that the Tejon Ranch Co. has developed five million square feet in warehouse and industrial space and has plans for 14 million more.
“That’s a pittance compared to the Inland Empire, the nation’s warehouse and distribution capital. Still, close to 20 million square feet would make it a respectable little brother to the Inland Empire,” he says.
Georgia: On Everybody’s Mind
Atlanta, long the logistics terminus of the U.S. Southeast, is home to the sixth-most warehousing space among the nation’s metro areas, with 683 million square feet. The city also serves as base camp to several giant logistics services providers including UPS and XPO.
Hartsfield-Jackson International Airport is a major cargo hub with excellent rail and interstate highway access linking it and the Port of Savannah with points across the country and the world.
Container terminals at Savannah moved 4.35 million twenty-foot equivalent container units in Calendar Year 2018, its highest annual volume ever, a 7.5 percent increase over 2017, according to a report from Georgia Ports Authority (GPA). The increase makes Savannah the fastest-growing port in the country and ranks it as the fourth busiest port in the country behind only Los Angeles, Long Beach and New York/New Jersey.
In August 2018, the ribbon was cut at the state-of-the-art Appalachian Regional Port (ARP) in northwest Georgia’s Murray County. When fully operational, the ARP is expected to “provide logistics solutions for customers in a four-state region and remove an estimated 50,000 trucks and 15 million truck miles from local highways every year,” according to Georgia Ports Authority (GPA) Executive Director Griff Lynch.
The new terminal, he says, “is part of our Network Georgia initiative that brings services from the coast to communities around the state.”
Through intermodal rail service from CSX, “the Appalachian Regional Port offers customers across North Georgia, Northeast Alabama, Tennessee and Kentucky a more efficient option to move cargo to and from Savannah’s container port,” added Lynch.
The port authority’s strategy to expand its reach even deeper into the midwest, northeast and south took another major step in March when the GPA broke ground on its $126.7 million Mason Mega Rail Terminal. The expansion will increase the Port of Savannah’s rail lift capacity to one million containers per year, and open new markets spanning an arc of cities from Memphis to St. Louis, Chicago to Cincinnati.
“The Mason Mega Rail project will expand rail capacity by 100 percent while reducing impact on the local community and throughout the supply chain,” said the GPA’s Lynch.
The new terminal will begin operations by the fall of 2019, with project completion in the fall of 2020. The Mega Rail expansion was funded in part by a $44 million U.S. Department of Transportation (USDOT) grant administered by the Maritime Administration.
Over the past year, a number of companies have begun or completed construction on a number of other distribution projects in Georgia. Some examples:
A Sampling Elsewhere
Alabama – Last August, retail giant Walmart cut the ribbon on a $135 million distribution center in Mobile. The Arkansas-based company first announced plans to build the facility in early 2017. The facility covers 2.6 million square feet and serves as the primary supply hub for several regional distribution centers that serve Walmart stores in Alabama, Mississippi and several other states in the U.S. Southeast.
Indiana – The Brooks Running Company has opened a 400,000 square foot distribution center near Whitestown, Indiana, that serves as the company’s North American distribution center. According to the Seattle, Washington-based company, “With almost 60 percent of the U.S. population living east of the Mississippi River, the new distribution center allows Brooks to get product to more runners and retailers in less time. Additionally, the majority of orders placed on the company’s website are shipped east of the North Dakota-Texas line. By moving the Brooks distribution center to the Midwest from its former location in Sumner, Washington, “most orders will now arrive within three days via ground shipping.”
Illinois – With an eye on future development, commercial real estate developer Newmark Knight Frank recently represented Logistics Property Company in its acquisition of a 28-acre site at the entrance of Brewster Creek Business Park in Bartlett, Illinois. The parcel will be developed into two distribution facilities totaling 414,000 square feet. Both 207,000-square-foot buildings are slated for completion in January 2020.
Iowa – Last December, Burnsville, Minnesota-based tool manufacturer Northern Tool & Equipment announced plans to build a $75 million, 66-acre distribution center in Ankeny, Iowa. The company expects to move into the new 600,000-square-foot building in Ankeny's Crosswinds Business Park in early 2020. The facility will serve Northern Tool's more than 100 retail stores and online customers. Northern Tool's products include generators, pressure washers, power and hand tools, air compressors, welders and more. The company currently operates two retail stores in the state.
Kansas – Commercial developer NorthPoint Development is reportedly seeking local government agencies to build a $125 million logistics park at the northern intersection of Interstate 70 and the Turner Diagonal, near Kansas City. The planned Turner Logistics Park would include eight distribution facilities ranging in size from 240,000 square feet to 541,000 square feet. In the past, the NorthPoint has developed about 50 million square feet of industrial space at local sites, including Logistics Park Kansas City in Edgerton, plus markets near its satellite offices in St. Louis, Cincinnati and Chicago, and cities throughout Texas and Florida.
Michigan – Healthcare provider Beaumont Health has leased a 124,564-square-foot industrial building in Belleville, Michigan, so it can relocate and grow its distribution and mail-order pharmacy operations. The move, the company said, “will accommodate growth and give the health system better access to highways for distribution.” The center is used to store medical supplies distributed to its facilities and to fill and ship mail-order pharmacy items. General Electric Corp. previously "lightly used" the building, built in 2022, for its aviation group.
New York – In March, CEVA Logistics inked a five year deal to provide warehouse management and fulfillment services at IKEA's new customer distribution center on Staten Island in New York City. The new facility focuses on home delivery of items to customers who order online or purchase larger items in-store or the Planning Studio, the company said. The facility is already in operation seven days a week. CEVA has operated logistics facilities for IKEA in the United Kingdom and Australia since 2015. The 975,000-square-foot site was built on a vacant 200-acre tract of land on the west shore of Staten Island, as part of IKEA's expansion into the New York City market. Development costs for the facility were in the range of $33 million.
Oregon – Beverage distributor Columbia Distributing Inc. has said it will locate its new metro Portland warehouse in Canby, Oregon. The 530,000-square-foot warehouse facility, which sits on 43 acres, will consolidate the company’s three current Portland locations and is scheduled for late 2020.
Pennsylvania – Hardware giant True Value has earmarked $150 million to upgrade its logistics efficiencies. Part of that, the company has said, will be invested in the construction of a new regional distribution center in Hanover Township, Pennsylvania. The investment will also cover changing to a hub-and-spoke model for fulfillment, upgrading its planning and ordering software, working to optimize its transportation routes.
South Carolina - DHL Supply Chain has said it will spend $100 million to build a 1.7-million-square-foot warehouse and distribution center complex near Charleston, South Carolina. The Westerville, Ohio-based unit of Deutsche Post DHL group said it will construct three buildings in Dorchester County, South Carolina. The first building will be completed during the first quarter of 2020. The timeframe to complete the balance of the project will be based on demand, though a company spokeswoman said work on the two additional facilities will be finished no later than 2023.
Maryland - Tradepoint Atlantic continues the buildout of its inland port in Baltimore County. The ongoing project is located close to the Port of Baltimore on a 3,250-acre site that had been home to a Bethlehem Steel mill that closed down in 2012. Already up-and-running at Tradepoint Atlantic are distribution facilities operated by Amazon, FedEx and Baltimore-based Under Armour, with a pair of big Atlanta-based concerns – The Home Depot and Floor & Decor – among those having recently inked deals for distribution warehouse space.
Texas – In May, paint and coatings manufacturer PPG opened a new, nearly 450,000-square-foot (41,800-square-meter) facility in Flower Mound, Texas, making it the largest distribution center for architectural paints and coatings in the company’s U.S. and Canadian network. Centrally located in the Lakeside Ranch Business Park in the Dallas-Fort Worth metropolitan area, the distribution center serves more than 1,000 company stores, national retailers and independent retailers in the southwest U.S. region. It can store in excess of four million gallons of more than 4,500 of the company’s products. Its distribution network includes more than 15,000 touchpoints through company-owned stores, independent dealer locations and major home improvement centers across the U.S. and Canada.
Wisconsin – Business supply wholesaler Uline Inc. has said it is considering the construction of a distribution center of more than 1.2 million square feet in Kenosha, a project that would give the company nearly five million square feet of warehouse space in the city and adjoining Pleasant Prairie. Uline already has a distribution center of nearly 800,000 square feet just to the south of the proposed new project site, and another of similar size under construction nearby. Besides those distribution centers and its corporate headquarters, Uline’s Kenosha County operations include two other warehouses of one million square feet each, and leased facilities totaling another 1.6 million square feet.
The growing economic clout of the middle class, the unstoppable tide of urbanization, the meteoric escalation of eCommerce, and the demanding expectations of consumers are continuing to drive the distribution sector from the growth in middle-class economic well-being an unstoppable increase in urbanization and have supported the domestic consumption of fast-moving consumer goods, household items, and luxury items. As a result, an increase in the technological sophistication of warehouse distribution centers will symbiotically continue to fuel the growth of the companies, both large and small, in all sectors that rely on cost-effective and efficient ways to get their goods from here to there.
Bio: Michael D. White is a published author with four non-fiction books and well more than 1,700 by-lined articles on international transportation and trade to his credit.
During his 35 year career as a journalist, White has served in positions from contributor and reporter to managing editor for a number of publications including Global Trade Magazine, the Los Angeles Daily Commercial News, Pacific Shipper, the Los Angeles Business Journal, International Business Magazine, the Long Beach Press-Telegram, Los Angeles Daily News, Pacific Traffic Magazine, and World Trade Magazine.
He has also served as editor of the CalTrade Report and Pacific Coast Trade websites, North America Public and Media Relations Manager for Mitsui O.S.K. Lines, and as a consultant to Pace University’s World Trade Institute and the Austrian Trade Commission.
A veteran of the United States Coast Guard, White has traveled in both Japan and China, and earned a degree in journalism from California State University and a Certificate in International Business from the Japanese Ministry of Trade & Industry’s International Institute for Studies & Training in Tokyo.