What makes for a great logistics location? Are some cities better equipped than others to handle your company’s distribution needs? If so, why? What is it about those cities that make them better locations for your company’s next distribution center than, say, a neighboring city less than 100 miles away?
Well, like much of life, it’s one of those problems that starts out easy, but gets increasingly more complicated the closer you get to a final answer.
First, the easy part.
“Proximity to market is the single most important issue when determining the best location for a distribution center,” said Bill Schaperkotter of Fluor Global Location Strategies in Greenville, S.C.
Bob Frederickson of PriceWaterhouseCoopers’ site selection practice in Florham Park, N.J., agrees.
“By far the most important factor is proximity to market,” Frederickson echoed. “The first phase of the screening process is heavily logistics-dependent and looks at locations within a 300-mile radius of where the client generally wants to be.”
That’s the relatively easy part. Unlike most other site searches, which may involve wide areas of the United States, distribution center facility searches usually begin within much narrower geographic confines.
And before you bury your eyes under a green eye shade and begin the serious numbers crunching, you also need to decide whether your facility will be a stand-alone, or part of a larger network.
“In addition to the basic location driver — usually market — you also have to determine if you’re talking about a single facility to serve the country or a region, or if you’re looking to fit a facility into a network of several other distribution centers,” according to Saul Grohs of Location Advisory Services, a site location consulting firm based in Fords, N.J.
That’s all at the strategic level. How do you go about deciding among cities that are in reasonable proximity to each other?
“The next phase looks at work force availability and operating costs,” Frederickson says. “After that, it’s things like infrastructure, access to roads, availability of facilities and land, etc.”
Like other types of site selection, finding the best location for your distribution facility is essentially a competition between cities. That’s what the Logistics Quotient™ attempts to sort out.
Clearly, where a business locates its manufacturing and distribution facilities is dependent upon a whole host of factors, most of which are specific to that particular business. If your market is in the Southeastern United States, then Los Angeles or Seattle don’t make a whole lot of sense, no matter how high they rank in this survey. Likewise, if your company is shipping sport utility vehicles, being next door to a major FedEx or UPS hub is probably not all that important. Similarly, if your company promises next day repair of sophisticated electronics equipment, an ocean-going port or major railroad facility is, likewise, unimportant.
In other words, there is no single best logistics location for all companies. Still, within the particular region your company needs to locate, some cities have a much better infrastructure to handle logistics functions than do some of their neighbors. These are our “logistics friendly” cities. Like last year, most of these metro areas are strong in at least three of the four major transportation modes — road, rail, air and water — and many are strong in all of them.
Breaking Down the Numbers
As with last year’s study, we chose to compare the transportation infrastructure of 328 Metropolitan Statistical Areas (MSA) and Primary Metropolitan Statistical Areas (PMSA), as defined by the U.S. Office of Management and Budget, in various areas important to supporting a manufacturing and distribution facility.
We did not include the three newest MSAs — Auburn-Opelika, Ala., Corvallis, Ore., and Missoula, Mont. — because of insufficient data.
We gathered data in 10 major categories: the overall transportation and distribution industry climate, work force/labor costs/availability/skill levels; road/highway basic infrastructure and spending; road density/congestion/truck safety; road conditions; taxes and fees; railroad access; water ports (both river/lake and ocean); air service; and interstate highway access (both main and auxiliary routes). The data we collected came from a variety of public sources.
As you might expect, metro areas that scored best generally had a broad range of logistics-supporting infrastructure (ground, air, water/sea and rail) in place, as well as a plentiful and well-trained work force in a variety of transportation and logistics-related skills.
Industry Climate
The first major area we examined was the transportation and distribution industry climate of each of the 328 MSAs. In this category, we tried to get a feel for the overall strength and vitality of the transportation and distribution sectors within the various MSAs.
“Having a number of trucking firms in a location is important, both in terms of service and cost competition,” said Fluor Global Location Strategies’ Schaperkotter. “Also, the size and financial strength of the carriers will impact the view of the reliability of those carriers. You don’t want to put yourself in a position of having to rely on a bunch of financially weak carriers.”
We looked at things such as the number of establishments, the amount of revenue, and the amount of revenue per employee (as a rough measurement of productivity). If you’re going to establish a distribution facility in one of these cities, this — and the work force/labor category below — will give you a feel for the type of business climate, as well as the work force, you’re likely to encounter. Information on the came from the Bureau of Economic Analysis (BEA) and the Census Bureau.
The top five cities in terms of industry climate are Middlesex-Somerset-Hunterdon, N.J., Houston, Newark, N.J., Atlanta and Dallas.
Work force Climate
The second major category, work force and labor, looked at the cost and availability of labor in the various transportation- and distribution-related sectors. Because this survey is done from the employer’s perspective (as opposed to the worker’s perspective), lower wages are considered better, as are larger numbers of workers in the industry. Information also came from BEA and the Census Bureau.
“When it comes to evaluating the work force, the experience of other employers is important, particularly in such areas as turnover, cost, productivity, degree of unionization, history of work stoppages, those sorts of things,” Frederickson says.
“Work force is important in that you need to make sure you can find enough people at the salary level you want to pay,” Grohs added.
The top five cities in terms of the work force are Knoxville, Tenn., Johnson City-Kingsport-Bristol, Tenn.-Va., Springfield, Mo., Laredo, Texas, and McAllen-Edinburg-Mission, Texas.
Road Transportation Infrastructure
“Road networks are critical because you have to be able to get in and out of the city,” according to Grohs. “After that, it becomes site specific (how you get the trucks from the site to the highway), and that’s often a deal breaker. Those situations often turn into incentive issues (can you give me a lane to get my trucks into my facility), as well as issues of neighborhood acceptance (how do they feel about the truck traffic?)”
The next four categories involve road transportation, and the majority of the data came from the Federal Highway Administration.
The first road transportation category we looked at was the interstate highway network servicing each particular metro area. In this category we looked at the actual number of interstate highways servicing that particular metro area, as well as the number of auxiliary routes (otherwise known as loops or beltways, etc.).
“Proximity and easy access to an interstate highway is a basic screening requirement,” PWC’s Frederickson said.
Next, we looked at each metro’s road infrastructure and spending in an attempt to gauge the road infrastructure in proportion to the metro area’s population. We looked at miles of roadway per capita, as well as the percentage of those roadways that are considered freeways. We also looked at capital spending on highways in order to expand or maintain the existing infrastructure. In order to provide better perspective, we also looked at spending both per mile and per lane mile.
Next, we looked at road density/congestion/safety to measure the adequacy of a metro area’s highway network. We looked at vehicle density per capita, freeway density, traffic density per lane and truck accidents in order to get a good feel for how the actual traffic and the physical infrastructure match up. Four lanes may be more than adequate for metros like Laredo, Texas, but not for cities like Dallas or Los Angeles.
Finally, we looked at the road conditions of the major thoroughfares that service each of the metro areas. We felt this was important because of the significant impact it has on traffic flow, not to mention wear and tear. In this category, we looked at the conditions of major roads and interstate highways, both urban and rural, as well as the condition of bridges along those thoroughfares.
Taxes & Fees
We also looked at vehicle taxes and fees, in order to measure some of the costs of transiting each of the metro areas, as well as the states in which they reside. In this category, we looked primarily at gas and diesel taxes. This year we also
Rail, Water and Air
“Generally, rail service is important for inbound shipments, with outbound shipments normally going by truck,” Schaperkotter said.
In the railroad service category, we looked at the number of freight and Class I railroads that service the area. We also looked at things like miles of track, tons of cargo carried over those freight and Class I lines, as well as the safety record of railroads within that state. Most of the data came from the American Association of Railroads and the Federal Railroad Administration.
Water ports included both ocean-going vessel ports and river ports. While this is not an option for most cities, it is, in fact, a major transportation resource and, for those cities blessed by nature, these ports account for a tremendous volume of cargo tonnage. And it’s not limited to just the coastal cities, either. Cities like St. Louis and Cincinnati both pass a lot of cargo through their inland ports.
The final category we looked at is air service. Unlike water ports, and to a certain extent railroads, adequate air service is fundamental to a metro area’s transportation infrastructure. Even passenger service is an important indicator because about 70 percent to 80 percent of all air freight shipped in the United States goes in the belly of wide-body passenger jets, said Perry Trunick, associate publisher/chief editor of Transportation & Distribution magazine. Wide-body jets usually eliminate regional jets.
In this category we looked at things such as major carrier service, enplaned passenger and freight volume, and cargo airports. Data came from the Federal Aviation Administration and the Bureau of Transportation Statistics. In addition, we also included data on overnight air delivery capabilities.
You Can’t Be Good at Everything
As you would suspect, very few metro areas ranked high in every category.
The key to success is to be above average in the road transportation categories and to be strong in one or more of the others (air, sea or rail). That pretty well mirrors what most companies are looking for when they scout out sites for a new distribution facility.
While many companies tend to look at transportation infrastructure as an overall package, one mode usually predominates, and that is usually road transportation. Communities without a well-maintained road and highway infrastructure generally did not do as well as they might have expected in this survey.
“How important is overnight delivery?” Frederickson asked. “It depends upon the client’s requirements. It can be one of the basic discriminators, in that, if you don’t have good access to it, you’re automatically eliminated.”
Time to market is everything in today’s economy. For many companies, the markets they can reach overnight from a particular location is the basic criteria in selection one city over another.
5-Star and 4-Star Logistics Cities
Unlike last year’s Logistics Quotient™, we are not publishing the top 100 cities in numerical order because, on a national basis, the more we thought about it, the less sense it made to us. That’s because logistics competition among cities is more regional than national.
Therefore, this year we took each of the top 50 cities in our study and awarded them a “5-Star Logistics Metro” designation, while the cities that ranked 51-100 in our studies are awarded the designation of “4-Star Logistics Metro.”
These new designations fit more precisely with our original intent when we created the Logistics Quotient™. Throughout the next year, we will publish regional logistics reports that rank the top cities within five different regions: Northeast, Southeast, Midwest, Southwest and West Coast.
What’s the Bottom Line?
Cities that ranked in the top 100 have a broad transportation infrastructure that are well-suited to having distribution facilities located there. They may not be strong in all four areas (road, rail, water and air), but they are usually pretty good in at least three.
One thing this survey does not highlight is the combined transportation strengths of the major metroplexes, otherwise known as Consolidated Metropolitan Statistical Areas (CMSA). CMSAs like Los Angeles-Riverside-Orange County appear in the study as three separate MSAs, while the New York-Northern New Jersey-Long Island CMSA consists of 15 individual PMSAs.
Clearly, businesses located within the confines of one of these CMSAs can take advantage of the transportation resources of any of the metro areas. In that case, the sum of the resources are, indeed, much bigger than the individual parts.
Still, site selection is a local thing and companies need to know where, within the overall huge metroplex, they would be best off locating their next facility.
For a more complete ranking of all 328 metro areas, please visit our web site at www.ExpansionManagement.com.
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