CALGARY, Alberta — Here between the Canadian Rockies and plains, it’s not hard to see why major shippers are setting up shop or expanding their distribution operations in Calgary. The Trans-Canada and CANAMEX highways systems intersect at Calgary, giving shippers access to a population of roughly 50 million within 24 hours. The intermodal terminals of the region’s two Class I railroads provide shippers with service to the major West Coast ports, Vancouver and Prince Rupert. Shippers with more time-sensitive freight are using belly capacity in passenger planes and warehousing at the growing Calgary International Airport.
To the north are the Alberta oil sands, which are expected to help expand the Calgary region’s population of roughly 1.4 million to 3.4 million within 50 years, a brisk pace for Canada. The booming energy sector, coupled with the region’s pioneer ‘can-do spirit,’ infuses Calgary with a sense of optimism and energy thata one might find in Texas or the Bakken formation in North Dakota.
Calgary Builds for Demand
Unlike in many U.S. cities, the various government entities in the region are addressing the transportation infrastructure needs of the private and publics sectors. Roughly $3.5 billion will be spent on infrastructure over the coming year. Most recently, the city finished the southeast leg of a ring road, a $770 million project that allows shippers to bypass most of the city’s urban area. The highway will also make nearby industrial real estate more attractive to tenants.
So far, Calgary’s strategy appears to be paying off. Target, which opened its first Canadian stores last year, also last year finished construction of a 1 million-square-foot facility in the region. Wal-Mart in 2012 completed a lease transaction for a 400,000-square-foot DC and opened a refrigerated 400,000-square-foot DC in 2011, expanding the Calgary warehousing footprint of the world’s largest retailer to more than 2.5 million square feet.
Unsurprisingly, several major retailers have located distribution centers near the two major intermodal terminals in the region. Construction of a facility park for an unidentified user adjacent to the CN’s Calgary Logistics terminal has begun. CN aims to attract major shippers near its new terminal, which is adjacent to more than 2 million square feet of potential warehousing space, much like it has done in other markets and its archrival, Canadian Pacific Railway, has done nearby. Canadian Tire Corp. and Sears Canada have private entrances to the CP terminal. Unlike some Canadian cities, such as Vancouver, that are struggling to provide enough industrial real estate, the Calgary region has more than 4,700 acres that can be developed immediately or in the short term.
The warehousing expansion isn’t limited to retail distribution. Air Canada Cargo late last fall opened a 90,000-square-foot facility at Calgary International Airport, one of the fastest-growing airports in North America. The airport later this year is opening a 30,000-square-foot cargo facility designed to handle cattle and equestrian horses, adding to the more than 1.8 million square feet of warehousing. Even more warehousing space is near the airport.
The airport, supported by traffic of heavy-lift equipment for the Alberta oil and natural gas fields, is a hub for FedEx, DHL, Purolator and UPS, which opened a $30 million distribution center there in 2010. Ultimately, the airport plans to build a global logistics village, a 208-acre cluster of air cargo handlers, said Keith Stanley, manager of cargo and logistics development at the airport. The expanded warehousing capacity, buoyed by freighter services to Tokyo and various major European destinations, is expected to have boosted traffic in 2013, but stats aren’t yet available. The airport handled 117,000 tons in 2012.
Shippers will also likely have access to more belly capacity when a new terminal opens in 2015, doubling the airport’s passenger capacity. The new terminal, along with the opening of the country’s longest runway (at 14,000 feet) is part of a $2.3 billion investment the airport is making.
“The next big push is to get direct service to mainland China and more Asian destinations, and the Middle East,” said Stanley, who added that Calgary serves the Middle East market through direct freighter services to European hubs.
A Distribution ‘Sweet Spot’
The infrastructure network and location within the western market put the Calgary region in a sweet spot in terms of landed costs for single stocking points in western Canada and speed to market, said Reg Johnston, consultant to the Calgary Regional Partnership. Through modeling, he estimates the average cost of moving 1,000 containers — 500 40-foot containers from Asia and 500 53-foot containers from central Canada — was $5.9 million for Calgary, $6 million for Vancouver, $6.2 million for Edmonton and $6.9 million for Winnipeg. Outbound cost from the various stocking points was calculated using average trucking costs, and occupancy costs were based on average prices for labor, real estate, insurance and other related costs.
Calgary also came out ahead in modeling for average transit times from distribution centers to various western Canadian population centers, Johnston said. The average transit time for a Calgary DC was 9.8 hours; Edmonton, 10.4 hours; Vancouver, 11 hours; and Winnipeg, 19.7 hours. Generally, retailers begin to start looking at Calgary once they have seven to 10 distribution centers in North America, he said.
“What a shipper will often do is put a warehouse in the Toronto and Montreal corridor, and that will give them access to 70 percent of Canada’s population. Once they get enough critical mass, they will turn to the West, and the center in the west is Calgary,” Johnston said.
The Next Steps
Gaining match-backing potential appears to be one way, as the region already exports grain to Asia and is increasingly drawing in freight from the West Coast. Kansas City, for example, is trying to connect its export agricultural shippers with containers and has already had success with DeLong, a transloading company, setting up at BNSF Railway’s new Kansas City logistics park.
Export grain, especially packaged specialty grains, are loaded into containers in Manitoba and Saskatchewan, but very little is loaded in Alberta, said Tom Dixon, business development manager at Calgary Economic Development. Interest in doing so appears to be growing among agriculture shippers. CN is looking to replicate its match-backing success at its intermodal terminal, said Chris Kyte, CN's senior manager of intermodal for Western Canada.
The challenge is that too few 20-foot containers are moved inland, largely because ocean carriers want to keep ocean equipment as close to the port as possible, said Doug Mills, senior account representative for Trade Development at Port Metro Vancouver. Increased transloading, that is, the shifting of cargo from 20-foot and 40-foot boxes into 53-foot containers, only adds to the scarcity. The 20-foot equipment is ideal for export grain, because loads in larger equipment weigh out before they cube out, meaning shippers are paying for space they don’t need. To capture the match-backing market, Calgary shippers, both importers and exporters, need to work with the railroads to insure not only that there are enough 20-foot containers but that they're consistently available.
Key to Calgary fulfilling its goal of becoming a larger logistics hub is not only having a workforce available to fill jobs but also potentially attracting logistics companies to set up regional or national headquarters in the city. Jacksonville, Fla., had been able to accomplish both through close ties between the private sector and educational institutions, ranging from high schools to M.B.A. programs. The partnership has helped give local companies a steady stream of young and relatively affordable employees, and give others, such as a third-party logistics companies, reasons to set up offices in the city.
Calgary has already made inroads in this effort. The University of Calgary’s Haskayne School of Business offers three degree programs related to transportation and logistics, and the Bisset School of Business at Mount Royal University offers minor concentration in various logistics-related specialties. The Van Horne Institute, a partnership between the private sector and University of Calgary, has been instrumental in promoting logistics education at the university and other institutions, including at the high school level.
“Calgary can not be complacent, “ said Van Horne Institute CEO and President Peter Wallis. “The pioneering spirit still exists, but we need to make sure it passes onto the next generation.”
Wallis sees logistics training as part of the solution to Calgary’s unemployment, which is about 7 percent and even higher for young people. The institute and the Haskayne School of Business recently finished a 12-month project to identify what types of logistics jobs are needed and the skills they demand. Under the second phase of the pilot, young Calgary residents will take introductory courses on logistics and transportation, and then see how it works in the real world through an eight-week logistics internship. Wallis thinks the model can be eventually adopted provincially and nationally.
Creating a larger trained logistics and transportation workforce could attract transportation and logistics companies to join the 137 companies that have already made the region their headquarters. The number of head offices in Calgary rocketed 100 percent between 2002 and 2011, as energy companies and supporting engineering firms rushed to where the action is. Financing companies tied to the energy sector followed. Considering the region’s emphasis on transportation, the hope is logistics and transport companies will join CP and WestJet in making Calgary their home.