Michael P. Murphy is an industrial real estate man, but the chief development officer of CenterPoint Properties says his company is transitioning from being a real estate investment trust to a real estate solutions company.
CenterPoint, which specializes in developing warehouse and logistics hubs geared toward importers and exporters, said competition in global trade today isn’t between the companies themselves but between their supply chains. The importers and exporters with the leanest, most efficient supply chains are gaining the largest market shares.
The inland port is a key component of the supply chain strategy, certainly for large national retailers, but increasingly for midsize retailers and third-party logistics providers. Chicago is the epicenter of the inland port movement, but other cities in the interior, including Dallas, Memphis, Kansas City, Columbus, Ohio, and Atlanta, also are seeing an expansion of their inland ports.
Inland ports are located near population centers and are connected to seaports by excellent transportation infrastructure, including intermodal rail and highways, Curtis Spencer, president of IMS Worldwide, told the JOC’s 2nd Annual Inland Port Logistics Conference this month in Oak Brook, Ill.
Retailers that locate their import distribution centers adjacent to an intermodal rail head are slashing their transportation costs by reducing the long-haul costs of moving containers from seaports to inland locations, and are cutting down on the “last mile” costs of moving product from the distribution facility to destination. The inland port is a key component of this supply chain strategy because “it’s where the boxes are unloaded,” Spencer said.
Reducing transportation costs is crucial. Transportation accounts for 50 percent of the cost of moving a shipment from China to the destination in the U.S. interior, Murphy said. The next highest component is inventory, at 21.8 percent. Labor, usually considered a major expense in such a labor-intensive activity as transloading, accounts for only 9.5 percent of the supply chain cost, and rent is even less at 4.3 percent.
Murphy uses these numbers to encourage importers and exporters to locate their warehouses as close to the railhead as possible. Even though labor and rent costs are higher there than at distant locations, the transportation costs saved moving the transloaded merchandise from the distribution warehouse to the destination, when multiplied over thousands of shipments a year, can be in the millions, he said.
Railroads are sending a similar message to cargo interests. Pat Kinne, general director of international intermodal marketing at BNSF Railway, said the rail carrier’s goal is to push the intermodal leg of the move as far into the supply chain as possible, thereby reducing costs compared to trucking.
Reducing the long-haul cost between, say, Los Angeles and the Chicago area creates opportunities to expand the radius around the railhead that can generate imports or exports, Kinne said. Therefore, an imported container moving from Los Angeles to the BNSF yard at CenterPoint and transloaded into a domestic container or trailer can serve receivers more than 100 miles away, he said.
Although intermodal rail is generally considered most competitive over longer distances, such as the 2,000-mile move from Los Angeles to Chicago, rail carriers are becoming more efficient and are competitive over distances as short as 500 to 700 miles, said Ron Sucik, principal at RSE Consulting. The railroads spent $15 billion during the past five years on infrastructure, equipment and service enhancements, and they are becoming increasingly competitive over shorter distances, he said.