Peter Bradley is an award-winning career journalist with more than three decades of experience in both newspapers and national business magazines. His credentials include seven years as the transportation and supply chain editor at Purchasing Magazine and six years as the chief editor of Logistics Management.
In a supersized world where the sandwich of choice is the Big Mac and the drink the Big Gulp, it probably shouldn't come as a surprise that DCs, too, are living extra large. It's too early to call it a trend, but some of the biggest names in the business are trimming back their distribution networks, consolidating their operations into a few mega facilities that like the Great Wall of China, are probably visible from the moon.
One after another, giant retailers and consumer goods businesses are commissioning giant facilities: Home furnishings company IKEA recently moved into a 1.8 million-square-foot DC in Bakersfield, Calif. Office supply giant Staples recently opened an 815,000-square-foot facility in Hagerstown, Md. Wal-Mart now runs a 1 million-square-foot DC in Hurricane, Utah; a 1.2 million-square- foot facility in Raymond, N.H.; and another 1.2 million-square-foot DC in Hope Mills, N.C.
But it's not just a retail thing. Following its acquisition of Lever Brothers, Cheseborough Ponds and Helene Curtis, consumer goods heavyweight Unilever Home and Personal Care consolidated 15 DCs into five. Once the project is completed, Unilever HPC will operate 4.8 million square feet of distribution space in Georgia, Pennsylvania, Texas, Illinois and California. Operating out of these large—or perhaps we should say, economy size—DCs could save the company serious money. ProLogis, a distribution facilities and services provider that oversaw the project, estimates the move will cut costs by about $20 million annually.
Even investors have not been immune to the supersizing bug. NAI Logistics Group, a Chicago-area company specializing in building and land acquisition and financing for logistics, represents a number of investors that are now building colossal distribution centers on speculation, particularly a long the Intersta te 55 corridor around Chicago. "Four years ago, the largest spec building was about 350,000 to 400,000 square feet," says Daniel P. Leahy, executive vice president of the company, whose clients include Sears Logistics Group, The Home Depot , Motorola, Caterpillar and IKEA. "Now, we have 650,000- and 700,000-square-foot [DCs] coming up out of the ground within two miles of each other."
That speculation's probably not as risky as it sounds. The explosive growth of third-party logistics (3PL) services has created a large pool of prospective tenants. Once a 3PL lands a contract, it usually has to get up and running quickly. "A lot of them don't have the luxury of waiting for a built-to-suit," Leahy explains.
Like the big retailers and manufacturers, 3PLs are drawn to the mega-facilities by the prospect of labor savings and inventory benefits. "If you've got three or four facilities that have been around, you can combine them and get more operating efficiencies out of a new facility," says Gil Mayfield, national director of distribution and real estate services for Carter & Burgess, a Fort Worth, Texas-based civil engineering consultancy whose clients include Wal-Mart, Staples and Toys R Us. "You're just able to handle things more quickly and more efficiently."
Location, location and location
Where are these mega-facilities going? Though economic development agencies from every corner of the country will make a pitch for the business, it's generally the familiar names—and typically, large urban hubs—that prevail: New Jersey, Atlanta, Dallas, Chicago and the Southern California Inland Empire. "Why are those the winners? A lot of it has to do with transportation infrastructure," says Leahy.
Leahy notes, however, that although metropolitan areas may be the most attractive locations, that doesn't necessarily mean downtown. Breaking ground even 50 miles from the city center gives DCs access to labor and transportation and other infrast ructure. And in that range, there's land to be had. "You can still find vacant farmland with utilities at or near the site," adds Leahy.
That infrastructural advantage creates something of a marketing hurdle for economic development agencies in areas outside the main hubs. These agencies, to borrow a phrase from Uncle Sam, want you. To be precise, they want you to locate your distribution center in their town or county, bringing jobs and investment to the region. And they 'll offer all kinds of inducements to make that happen. For example, Mayfield reports that Carter & Burgess has been able to negotiate tax, real estate and other incentives worth $10 million on average on behalf of clients planning large projects. What the communities get in return are as many as a thousand new jobs, he explains. "These are projects that most communities are anxious to have."
One of those incentives may be cheap land. But Leahy, for one, cautions managers about what he calls "the free land paradox." When you look at real estate, he warns, don't focus on what it's worth right now, but rather, what it will be worth in the future. You don't want to be saddled with a white elephant when changing distribution patterns make it necessary to revise your network. "If you build in the boonies," he says, "it [makes things] tougher from an exit strategy point of view."
Time to dig in?
Wherever the site, it would be hard to find a better time to build than the present. Interest rates are at historic lows and commercial construction's hit a lull. "You can build a new building in some markets for less than you can buy a building for," says Leahy. "With developers and contractors very hungry for work, they're being very aggressive on the construction numbers. It's the best time we've seen in the last 15 years to purchase or lease."
The flip side is that the soft economy that makes investment attractive now is also what makes it unattractive. In the case of these construction projects, timing is everything: Invest too late and the network won't be ready when the turnaround comes (DC construction projects take 24 to 30 months from inception to completion); invest too early and you tie up valuable capital.
"It's a mixed picture," Mayfield says. "We're seeing some companies begin to make commitments. Some are in the early design stages. They're at least willing to spend design dollars." But though construction may not exactly be roaring along like a hurricane, he says that he's still more optimistic than he's been in some time. "We're seeing some pretty decent activity right now."
Congestion on U.S. highways is costing the trucking industry big, according to research from the American Transportation Research Institute (ATRI), released today.
The group found that traffic congestion on U.S. highways added $108.8 billion in costs to the trucking industry in 2022, a record high. The information comes from ATRI’s Cost of Congestion study, which is part of the organization’s ongoing highway performance measurement research.
Total hours of congestion fell slightly compared to 2021 due to softening freight market conditions, but the cost of operating a truck increased at a much higher rate, according to the research. As a result, the overall cost of congestion increased by 15% year-over-year—a level equivalent to more than 430,000 commercial truck drivers sitting idle for one work year and an average cost of $7,588 for every registered combination truck.
The analysis also identified metropolitan delays and related impacts, showing that the top 10 most-congested states each experienced added costs of more than $8 billion. That list was led by Texas, at $9.17 billion in added costs; California, at $8.77 billion; and Florida, $8.44 billion. Rounding out the top 10 list were New York, Georgia, New Jersey, Illinois, Pennsylvania, Louisiana, and Tennessee. Combined, the top 10 states account for more than half of the trucking industry’s congestion costs nationwide—52%, according to the research.
The metro areas with the highest congestion costs include New York City, $6.68 billion; Miami, $3.2 billion; and Chicago, $3.14 billion.
ATRI’s analysis also found that the trucking industry wasted more than 6.4 billion gallons of diesel fuel in 2022 due to congestion, resulting in additional fuel costs of $32.1 billion.
ATRI used a combination of data sources, including its truck GPS database and Operational Costs study benchmarks, to calculate the impacts of trucking delays on major U.S. roadways.
There’s a photo from 1971 that John Kent, professor of supply chain management at the University of Arkansas, likes to show. It’s of a shaggy-haired 18-year-old named Glenn Cowan grinning at three-time world table tennis champion Zhuang Zedong, while holding a silk tapestry Zhuang had just given him. Cowan was a member of the U.S. table tennis team who participated in the 1971 World Table Tennis Championships in Nagoya, Japan. Story has it that one morning, he overslept and missed his bus to the tournament and had to hitch a ride with the Chinese national team and met and connected with Zhuang.
Cowan and Zhuang’s interaction led to an invitation for the U.S. team to visit China. At the time, the two countries were just beginning to emerge from a 20-year period of decidedly frosty relations, strict travel bans, and trade restrictions. The highly publicized trip signaled a willingness on both sides to renew relations and launched the term “pingpong diplomacy.”
Kent, who is a senior fellow at the George H. W. Bush Foundation for U.S.-China Relations, believes the photograph is a good reminder that some 50-odd years ago, the economies of the United States and China were not as tightly interwoven as they are today. At the time, the Nixon administration was looking to form closer political and economic ties between the two countries in hopes of reducing chances of future conflict (and to weaken alliances among Communist countries).
The signals coming out of Washington and Beijing are now, of course, much different than they were in the early 1970s. Instead of advocating for better relations, political rhetoric focuses on the need for the U.S. to “decouple” from China. Both Republicans and Democrats have warned that the U.S. economy is too dependent on goods manufactured in China. They see this dependency as a threat to economic strength, American jobs, supply chain resiliency, and national security.
Supply chain professionals, however, know that extricating ourselves from our reliance on Chinese manufacturing is easier said than done. Many pundits push for a “China + 1” strategy, where companies diversify their manufacturing and sourcing options beyond China. But in reality, that “plus one” is often a Chinese company operating in a different country or a non-Chinese manufacturer that is still heavily dependent on material or subcomponents made in China.
This is the problem when supply chain decisions are made on a global scale without input from supply chain professionals. In an article in the Arkansas Democrat-Gazette, Kent argues that, “The discussions on supply chains mainly take place between government officials who typically bring many other competing issues and agendas to the table. Corporate entities—the individuals and companies directly impacted by supply chains—tend to be under-represented in the conversation.”
Kent is a proponent of what he calls “supply chain diplomacy,” where experts from academia and industry from the U.S. and China work collaboratively to create better, more efficient global supply chains. Take, for example, the “Peace Beans” project that Kent is involved with. This project, jointly formed by Zhejiang University and the Bush China Foundation, proposes balancing supply chains by exporting soybeans from Arkansas to tofu producers in China’s Yunnan province, and, in return, importing coffee beans grown in Yunnan to coffee roasters in Arkansas. Kent believes the operation could even use the same transportation equipment.
The benefits of working collaboratively—instead of continuing to build friction in the supply chain through tariffs and adversarial relationships—are numerous, according to Kent and his colleagues. They believe it would be much better if the two major world economies worked together on issues like global inflation, climate change, and artificial intelligence.
And such relations could play a significant role in strengthening world peace, particularly in light of ongoing tensions over Taiwan. Because, as Kent writes, “The 19th-century idea that ‘When goods don’t cross borders, soldiers will’ is as true today as ever. Perhaps more so.”
Hyster-Yale Materials Handling today announced its plans to fulfill the domestic manufacturing requirements of the Build America, Buy America (BABA) Act for certain portions of its lineup of forklift trucks and container handling equipment.
That means the Greenville, North Carolina-based company now plans to expand its existing American manufacturing with a targeted set of high-capacity models, including electric options, that align with the needs of infrastructure projects subject to BABA requirements. The company’s plans include determining the optimal production location in the United States, strategically expanding sourcing agreements to meet local material requirements, and further developing electric power options for high-capacity equipment.
As a part of the 2021 Infrastructure Investment and Jobs Act, the BABA Act aims to increase the use of American-made materials in federally funded infrastructure projects across the U.S., Hyster-Yale says. It was enacted as part of a broader effort to boost domestic manufacturing and economic growth, and mandates that federal dollars allocated to infrastructure – such as roads, bridges, ports and public transit systems – must prioritize materials produced in the USA, including critical items like steel, iron and various construction materials.
Hyster-Yale’s footprint in the U.S. is spread across 10 locations, including three manufacturing facilities.
“Our leadership is fully invested in meeting the needs of businesses that require BABA-compliant material handling solutions,” Tony Salgado, Hyster-Yale’s chief operating officer, said in a release. “We are working to partner with our key domestic suppliers, as well as identifying how best to leverage our own American manufacturing footprint to deliver a competitive solution for our customers and stakeholders. But beyond mere compliance, and in line with the many areas of our business where we are evolving to better support our customers, our commitment remains steadfast. We are dedicated to delivering industry-leading standards in design, durability and performance — qualities that have become synonymous with our brands worldwide and that our customers have come to rely on and expect.”
In a separate move, the U.S. Environmental Protection Agency (EPA) also gave its approval for the state to advance its Heavy-Duty Omnibus Rule, which is crafted to significantly reduce smog-forming nitrogen oxide (NOx) emissions from new heavy-duty, diesel-powered trucks.
Both rules are intended to deliver health benefits to California citizens affected by vehicle pollution, according to the environmental group Earthjustice. If the state gets federal approval for the final steps to become law, the rules mean that cars on the road in California will largely be zero-emissions a generation from now in the 2050s, accounting for the average vehicle lifespan of vehicles with internal combustion engine (ICE) power sold before that 2035 date.
“This might read like checking a bureaucratic box, but EPA’s approval is a critical step forward in protecting our lungs from pollution and our wallets from the expenses of combustion fuels,” Paul Cort, director of Earthjustice’s Right To Zero campaign, said in a release. “The gradual shift in car sales to zero-emissions models will cut smog and household costs while growing California’s clean energy workforce. Cutting truck pollution will help clear our skies of smog. EPA should now approve the remaining authorization requests from California to allow the state to clean its air and protect its residents.”
However, the truck drivers' industry group Owner-Operator Independent Drivers Association (OOIDA) pushed back against the federal decision allowing the Omnibus Low-NOx rule to advance. "The Omnibus Low-NOx waiver for California calls into question the policymaking process under the Biden administration's EPA. Purposefully injecting uncertainty into a $588 billion American industry is bad for our economy and makes no meaningful progress towards purported environmental goals," (OOIDA) President Todd Spencer said in a release. "EPA's credibility outside of radical environmental circles would have been better served by working with regulated industries rather than ramming through last-minute special interest favors. We look forward to working with the Trump administration's EPA in good faith towards achievable environmental outcomes.”
Editor's note:This article was revised on December 18 to add reaction from OOIDA.
A Canadian startup that provides AI-powered logistics solutions has gained $5.5 million in seed funding to support its concept of creating a digital platform for global trade, according to Toronto-based Starboard.
The round was led by Eclipse, with participation from previous backers Garuda Ventures and Everywhere Ventures. The firm says it will use its new backing to expand its engineering team in Toronto and accelerate its AI-driven product development to simplify supply chain complexities.
According to Starboard, the logistics industry is under immense pressure to adapt to the growing complexity of global trade, which has hit recent hurdles such as the strike at U.S. east and gulf coast ports. That situation calls for innovative solutions to streamline operations and reduce costs for operators.
As a potential solution, Starboard offers its flagship product, which it defines as an AI-based transportation management system (TMS) and rate management system that helps mid-sized freight forwarders operate more efficiently and win more business. More broadly, Starboard says it is building the virtual infrastructure for global trade, allowing freight companies to leverage AI and machine learning to optimize operations such as processing shipments in real time, reconciling invoices, and following up on payments.
"This investment is a pivotal step in our mission to unlock the power of AI for our customers," said Sumeet Trehan, Co-Founder and CEO of Starboard. "Global trade has long been plagued by inefficiencies that drive up costs and reduce competitiveness. Our platform is designed to empower SMB freight forwarders—the backbone of more than $20 trillion in global trade and $1 trillion in logistics spend—with the tools they need to thrive in this complex ecosystem."