National Academies Press: OpenBook

Freight Facility Location Selection: A Guide for Public Officials (2001)

Chapter: Chapter 6: The Changing Landscape (Complicating Factors)

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Suggested Citation:"Chapter 6: The Changing Landscape (Complicating Factors)." National Academies of Sciences, Engineering, and Medicine. 2001. Freight Facility Location Selection: A Guide for Public Officials. Washington, DC: The National Academies Press. doi: 10.17226/14594.
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Page 55
Page 56
Suggested Citation:"Chapter 6: The Changing Landscape (Complicating Factors)." National Academies of Sciences, Engineering, and Medicine. 2001. Freight Facility Location Selection: A Guide for Public Officials. Washington, DC: The National Academies Press. doi: 10.17226/14594.
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Page 57
Suggested Citation:"Chapter 6: The Changing Landscape (Complicating Factors)." National Academies of Sciences, Engineering, and Medicine. 2001. Freight Facility Location Selection: A Guide for Public Officials. Washington, DC: The National Academies Press. doi: 10.17226/14594.
×
Page 57
Page 58
Suggested Citation:"Chapter 6: The Changing Landscape (Complicating Factors)." National Academies of Sciences, Engineering, and Medicine. 2001. Freight Facility Location Selection: A Guide for Public Officials. Washington, DC: The National Academies Press. doi: 10.17226/14594.
×
Page 58
Page 59
Suggested Citation:"Chapter 6: The Changing Landscape (Complicating Factors)." National Academies of Sciences, Engineering, and Medicine. 2001. Freight Facility Location Selection: A Guide for Public Officials. Washington, DC: The National Academies Press. doi: 10.17226/14594.
×
Page 59
Page 60
Suggested Citation:"Chapter 6: The Changing Landscape (Complicating Factors)." National Academies of Sciences, Engineering, and Medicine. 2001. Freight Facility Location Selection: A Guide for Public Officials. Washington, DC: The National Academies Press. doi: 10.17226/14594.
×
Page 60
Page 61
Suggested Citation:"Chapter 6: The Changing Landscape (Complicating Factors)." National Academies of Sciences, Engineering, and Medicine. 2001. Freight Facility Location Selection: A Guide for Public Officials. Washington, DC: The National Academies Press. doi: 10.17226/14594.
×
Page 61
Page 62
Suggested Citation:"Chapter 6: The Changing Landscape (Complicating Factors)." National Academies of Sciences, Engineering, and Medicine. 2001. Freight Facility Location Selection: A Guide for Public Officials. Washington, DC: The National Academies Press. doi: 10.17226/14594.
×
Page 62

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Freight Facility Location Selection: A Guide for Public Officials 55 Chapter 6: The Changing Landscape (Complicating Factors) Nomatterhowfamiliarapublicsectorplannerorofficialmaybewith freightissuesorsupplychaindynamics,itisdifficulttostaycurrentwith thetrends,challenges,andopportunitiesthatareconstantlyinflux inthemarketplace.Thisrefersnotonlytolocal,state,andnational trendsandissuesbutalsotothegloballandscape.Inaddition,while thelocationselectionprocesshasbeenpresentedinthisguideasifit alwaysoccursinaconsistentandorderlymanner,suchisnotalways thecase. Thischapterhighlightsforpublicofficialssomeoftheaspectsofthat changing landscape that they need to consider, or of which they shouldatleastbeaware. Changing role of the freight facility Transportationandlogisticsaredynamicbytheirverynature.Freight isalways inmotion,and themeansofaccommodating thismotion evolve constantly. Changes in modes, connections betweenmodes, andthesize,function,andlocationofthoseconnectionsareallpart ofthechanginglandscapeoffreightmovement. Thereisanever-increasingemphasison“goodsinmotion,”referring to the supply chain idealofgoodsdeliveredatmomentofneed, straightfromproduction.Freightfacilitiesareincreasinglyusedfor modaltransfer,consolidation,deconsolidation,andredirection–not storage.Forexample,distributioncentersmay insomecasesneed tobe smaller in sizebutgreater in numberand located closer to markets.Ordersfilledfromgoodsalreadyonthewaywillresultin smallerstaticinventories.Technologiestoenablethisapproachwill continuetoimprove.

Freight Facility Location Selection: A Guide for Public Officials56 Freight facilities have in some cases become a key link in goods productionandhaveacquiredtheroleoffinalstagemanufacturing –conductingcustomizedkitting,assembly,packaging,andlabeling ofgoodsforlocaluse.Thiscanreducetransportationcosts,andcan also provide the ability to includemarket levelmodifications and valueaddedclosertothemarket,pointofsale,andconsumption. Asanexample, some retail businesses note thatasmuchas65% of the inventory moving through the distribution center must be assembledasitmovesthroughthefacility.Thiscanbeverylabor intensive,whichinfluencesthelocationrequirementsaccordingly. Changes in global sourcing Thetrendtowardsfreertradeandthecorrespondingglobalsourcing ofproductshasarguablyhad the largest single impacton freight facilitiesanddistributionnetworksinrecenttimes.Thishasresultedin newgrowthatandnearportsonboththeWestandEastCoasts,and hasforcedtherealizationthatlocationsinthehinterlandhavetobe atsomeformofcommercialcrossroadinordertosupportintermodal distributioncenterconcentrations. Previously, manufacturing in the Pacific Rim, coupled with major consumption zones on both American coasts and in the growing Sunbelt and Midwest, had forced a reconsideration of logistics networks.  Manufacturing in Asia naturally resulted in additional portactivityatPacificports,particularly in LosAngelesand Long Beach.Distributionnetworkswerethendesignedtoefficientlymove thesegoodsacrossthecountryanddispersethemtotheconsumption centersoftheUnitedStates. However,congestionattheseportsandriskmanagementbysupply chainoperatorsforcedsometraffictocometoNorthAmericafrom theoppositedirection,bywayoftheSuezCanal,ortocontinuetothe AtlanticCoastthroughthePanamaCanal.Thissubsequentlyresulted in newexpansion inNorfolk,VA, andSavannah,GA,which those facilitiestookparticularstepstoencourage.GrowthoftheGulfand Atlanticportsisexpectedtocontinue.ThecompletionofthePanama The trend towards freer trade and the corresponding global sourcing of products has arguably had the largest single impact on freight facilities and distribution networks in recent times.

Freight Facility Location Selection: A Guide for Public Officials 57 Canalexpansion in2014willallow fast,all-water routes tomore majorconsumptionzones. Sourcingdecisionsintoday’seconomicandpoliticalenvironmentare influx.Overseasproductionseemsunlikelytodiminish.Infact,itcould be speculated that the American transformation to a “knowledge economy”necessarilyresultsinknowledgeableworkerswhodemand high-quality, low-cost products fromglobal sources. Nevertheless, the growing concern regarding fuel and carbon costs (discussed below)couldsuggest“nearshoring”(productioninlowercostareasof MexicoorCanadatoreducebothlaborandtransportationcosts)for certainproducts,alongwithashorteningofsomesupplychains.For thepurposesoflocalofficialsandeconomicdevelopmentmanagers whowishtounderstandmoreaboutfreightissues,itisenoughtohave abasicunderstandingofthecompetingfactorsatworkinthefield and tounderstand that theglobal situation is constantlychanging. Inshort,change in thestatusquoshouldbeexpected,andfacility locationandusagewillshifttoaccommodatethosechanges. Growth of the Gulf and Atlantic ports is expected to continue. The completion of the Panama Canal expansion in 2014 will allow fast, all-water routes to more major consumption zones. Changes in International Trade Lower CostmAnuFACTuRInG COST RAnkInG AnnuAL InCREASE In ExPORT VALuE 2005-09 Growing Faster Growing Slower Higher Cost Source:AlixPartnersU.S.Manufacturing-OutsourcingCostIndex,February2010andWorldTradeOrganization,InternationalTradeStatistics,26March2010

Freight Facility Location Selection: A Guide for Public Officials58 Fuel costs and environmental factors Startingintheearly2000s,fuelcostsgrewsignificantlyfasterthan the overall rate of inflation (as measured by the consumer price index).Gasolineanddieselpricespeakedinthe$4.50pergallon range,and,in2008,manytruck-reliantfreightbusinessesfoundthat theyhadspenttheirentireannualfuelbudgetsbymidyear. Ataboutthesametime,consumersandstategovernmentsbeganto lookmorecloselyathowtransportationwasimpactingtheenvironment at large. Inthecaseofconsumers,amovementtounderstandthe overall carbon footprint of specific consumergoodsbecamemore common.Atthesametime,governments,inanattempttocurbboth pollutionandcongestion,begantolookspecificallyattheimpactof freighttransportation(particularlytrucktrips)onlocal,regional,and statefacilities. Bothfactorshavehadanimpactonfreightfacilitylocationselection andassociateddistributionnetworks.  There isageneral tradeoff betweenthecostofhavingmorefacilitiesandthecostofshipping Re la tiv e In cr ea se in C os t (1 9 9 6 = 1 .0 ) Year The Rising Cost of Fuel Source:USEnergyInformationAdministration,2010andBureauofLaborStatistics2010 ConsumerPriceIndex OilPerBarrel GasPerGallon DieselPerGallon

Freight Facility Location Selection: A Guide for Public Officials 59 goodslongerdistances.Putanotherway,itbecomesmoreefficient toconsolidatewarehouseanddistributionoperationswhenfuelcosts arelowandthecosttoshipgoodslongdistancebytruckisrelatively inexpensive.However,higherfuelcostshavepushedsomefreight- dependent companies to investigate more dispersed distribution networks,with largernumbersof smaller facilities. Thesefacilities reducedistancesfromthecenterstothefinaldeliverypoints,which arethemostdispersedandtruckdependent,andallowconsolidated carriageinboundtothedistributioncentersbyarelativelysmaller numberoflong-haultrucks,orbyrail.Thismethodtrimstransportation costswhileboostingfacilityexpenses.Duringthefuelspikein2008, supply chain designers began considering a larger number of smaller-footprintfacilitiessituatedclosetobigcities,preferablywith highdegreesofautomation,offeringshortcommutesforlaborand shortdistancestoproductdelivery. The same set of behaviors also tends to reduce environmental impacts,becausefuelefficiencyandcarbonefficiencyarepositively correlated.Thisisimportantascurrenttrendsarebeginningtoplace moreweightongreen/carbonevaluationcriteria. Accordingtoonelogisticsmanager,approximatelyone-thirdtoone- halfofhiscustomersarerequestingmeasurementofgreenand/or carbonfootprintdata.RailcompaniessuchasBNSFandintermodal operatorslikeJBHuntnowprovidetheirclientswithinternet-based “carbon calculators” to estimate the impact of specific shipping decisions, underscoring the fuel consumption and carbon emission advantageoflong-haulrail.Whileadifferentlogisticsprofessional describedcustomerattitudestogreeningasmostly“waitandsee,” the fact that an influential company like Wal-Mart now expects carbonreductions from itsvendorswould tend to indicate that the requirementislikelytospread. Theeffectofcarbonmonetizationonsupplychaindesignwouldbe identicaltothatofhigherfuelprices.Monetizationisessential,so thatacarbonfootprintcanthenbeconsidereda“realcost.”

Freight Facility Location Selection: A Guide for Public Officials60 A complicating factor in the site selection approach described in preceding chapters is the fact that companies approach the locationselectionprocesswithvaryinglevelsofsophistication, comprehensiveness,andcollaboration.Also, insomecasesthe locationprocessmayberunbyeithertherealestatedepartment or the logistics department, with little input from other aspects of the company. Thus, sometimes rent and occupancy might take more precedence in the location selection, while in other cases, transportation costs and logistics may dominate the evaluation of locations.  Likewise,thepresenceofaspecificthird-partylogistics(3PL)partner might dictate a location which otherwise does not meet objective strategic goals. Typically, logistics and supply chain departments may report throughoperations to the chiefoperatingofficer,and realestatemayreportthroughfinancetothechieffinancialofficer. Eachdivisionmayhaveindividualperformancemeasurementcriteria thatdonotadequatelyreflectoverallcorporategoals.Integration ofthetwochainsofcommandmaynotoccuruntilhighercorporate levelscompelanoptimumresult.Thesesituationsreflectcorporate culturethatisnotfullyalignedintermsofoverallvisionorgoals. Increasingly, the total operating costs of the supply chain force a review of the decision-making process, ensuring a more holistic approachinlargecompanies.Inthesecases,competinggoalsand measuresmaybereplacedwith,forexample,aninitiativetominimize total land cost and preserve future options for change.  Even so, manycompanieswillstillexhibitlackofcoordinationintheirfacility locationprocess. ComputermodelssuchasILOGandCAPS,whichoptimizelogistics costswithinperformancecriteria,interactivelysimulatetransportation linkagesacrossmodesandcandeterminethesensitivityofoperations Computer model use and sophistication Increasingly, the total operating costs of the supply chain force a review of the decision-making process, ensuring a more holistic approach in large companies. Organizational factors and comprehensiveness

Freight Facility Location Selection: A Guide for Public Officials 61 Transportation network congestion Networkcongestion forallmodes impacts freight facility location decisions. Most modes have at least one identified trouble point. For example, containerized ocean shippers may view Southern Californiaportsasanareaofconcern.Railfreight experiences difficulty in major urban areas, at the interface point between Class I railroads, or betweenClass I railroadsand short line carriers. Truckcarriersexperiencedifficulty inanynumber ofurbanmarkets. costvis-à-vischangesintheoperatingenvironment.Theyareable to evaluate huge numbers of scenarios, allowing corporations to determinetheidealnumber,size,andlocationfordistributioncenters andcross-dockfacilities. However, while these models are precise and can allow for the manipulation of huge amounts of data, they are limited in that theycan’taccuratelyrepresenton-the-ground localdetails suchas trafficcongestion,inefficienthighwayinterchanges,ordelayrelated to transferpointsbetweenmodes. Additionally, thesemodelsare largely staticand cannoteasily incorporate future changes to the network or its capacity.  As an example, a one-hour drivetime analysisforasiteontheoutskirtsofamajormetropolitanareawill usuallyshowthatatruckcantraveljustasfarintoandthroughthe cityasoutwardfromthecity.Anyonewhousesthissameroadway networkduringthemorningoreveningcommutemightsuggestthat travelwillbeeasierinonedirectionandconsiderablymoredifficult intheother. While computer models are powerful, useful, and increasing in sensitivity, theyare not yet (norare they likely tobe)apractical substitute for local knowledge of actual conditions.  Nevertheless, theyarewidelyappliedandtendtogoverndecisionsintheinitial planningstage,meaningthatthelargescaledesignofsupplychains isdeterminedby the factors they consideroromit,aswellas the methodstheyemploy.

Freight Facility Location Selection: A Guide for Public Officials62 Competition with other types of development Freight users in some cases are prohibited from locating in ideal freightlocationseitherduetolanduseprohibitionsorconflicts(real oranticipated)withsurroundinguses.Inmanycases,landthathad previouslybeenusedforfreightmovementhasnowbeenconverted to commercial, retail, or even residential use.  The remaining developableindustriallandbecomessubjecttoincreasedlimitations duetoconflictwiththenewlanduses. One example of this trend is the federal government’s decision to expand military and associated operations at the Aberdeen ProvingGround and Ft. Meade inMaryland as a result of Base RealignmentandClosure(BRAC)activity.Inconsequence,landwhich hadpreviouslybeenusedorpermittedaswarehouseandindustrial spacealong the key Interstate95 EastCoast distribution corridor willnowbeconvertedtoofficedevelopmentinsteadofindustrialor freight-relateduse.TheopportunitytoimplementUrbanDistribution Centers,withtheirclearadvantagesforfuelandcarbonefficiency andtruckVMTreduction,isdependentonsuitablesites,mostlikely on brownfield properties with established, but perhaps dormant, industrial designation.  The risk to such properties from land use conflictscouldreducesupplychainperformancebysocialaswellas commercialandeconomicmeasures. Whileallhaveexperiencedtransportationnetworkcongestionand understandwhere it is, there is frequently an inability to use this informationinameaningfulwayinsimulatingdistributionnetworks. Anothertrendthatmayinfluencetheoperationoffreightonrailand roadwaynetworksistheincreasinglevelofcompetitionforcapacity between freight and passenger movement on both road and rail infrastructure.

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TRB’s National Freight Cooperative Research Program (NFCRP) Report 13: Freight Facility Location Selection: A Guide for Public Officials describes the key criteria that the private sector considers when making decisions on where to build new logistics facilities.

A final report that provides background material used in the development of NFCRP Report 13 has been published as NCFRP Web-Only Document 1: Background Research Material for Freight Facility Location Selection: A Guide for Public Officials (NCFRP Report 13)

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