From Dust to DC in KC

Today, it’s a vast, open expanse of concrete and gravel, a vista interrupted only by the occasional construction vehicle, freshly built gate complex and a series of imposing orange cranes — the distinctive color of BNSF Railway — in the distance. A half-hour drive south of Kansas City, there isn’t much that disturbs the serenity of the semi-rural setting.

That will change soon.

This fall, what will become the Kansas City Intermodal Facility, part of the larger Logistics Park Kansas City, will be a loud and busy place as the railroad’s newest intermodal terminal roars to life. Fairly rapidly, possibly within the first two years, the facility will approach its initial capacity of 500,000 lifts a year, encompassing international and domestic containers as well as a fair number of trailers, putting it roughly on par with the Port of Baltimore.

But it’s not the existence of a new intermodal hub in the heartland that makes it noteworthy. Instead, it’s what that hub says about where supply chains may be headed. The facility sits on more than 1,000 acres that BNSF acquired in 2006, with the intent of building the intermodal ramp and to develop, together with an industrial real estate partner, an adjoining park for multiple large distribution centers whose cargo flows are tied to intermodal.

That vision, based on the increasingly accepted idea that it makes sense to locate DCs near intermodal railheads to reduce fuel expense from trucks, is taking a key step toward reality this year. In what will be one of the largest DCs in the Kansas City region to be built on spec, BNSF’s real estate partner, NorthPoint, will break ground in early May on a 500,000-square-foot distribution center within the logistics park and make it available for occupancy by up to three tenants later this year.

Based on how quickly the property is leased, NorthPoint will build others, for a total build-out within the logistics park of some 7 million square feet. Additional land around the park could triple the DC footprint in a total build-out scenario many years in the future.

All this activity is at one level confirmation that the formula of marrying intermodal and distribution centers, which initially took shape at Hillwood’s Alliance, Texas, development and at the Joliet/Ellwood complex developed by CenterPoint Properties, is gaining traction nationally. There are enough examples of fuel-cost savings and thus environmental benefit of reducing to virtually nothing the distance between the railhead and the DC that the basic logistics concept is settled.

Indeed, so great are the benefits that the whole conversation around DC site selection has changed, with logistics considerations now front and center versus tax abatements or land giveaways.

But the question is how far this will go, especially in one key respect: To date, most DCs located near railheads receive direct international shipments from seaports, that is, 40-foot containers transferred to rail at Los Angeles-Long Beach, for example, and sent straight via BNSF or Union Pacific to Alliance or Joliet/Ellwood — locations that as a result are called “inland ports.”

But the fastest growth in North American intermodal is in domestic shipments moving in 53-foot containers. Accepting that much of the cargo moving inside 53s originated in 40-footers prior to transloading, domestic moves still account for nearly half of U.S. intermodal moves.

The supply chain is different, however. This traffic is managed by truckers and intermodal companies, with rail substituted for a segment of what was previously a fully over-the-road transit. Thus, the trucker picks up the container at the destination railhead, and off it goes back on the road, not down a heavyweight road to a co-located DC.

The question is whether, or to what extent, the economies of locating DCs near railheads for international containers can be extended into domestic intermodal. That’s largely untested, but will be critical if Logistics Park Kansas City, for example, is to reach its full potential.

“In my conversations with the developers at logistics parks, they need to develop strategies to look beyond the international or inland port approach,” said Darrell Coffey, BNSF’s director of economic development, who oversees development of the Logistics Park Kansas City for the railroad. “For the developer to grow their parks, it does need to expand beyond (international) to also include a domestic approach. A customer using a combination of international and domestic can take advantage of shortened dray just as an international carrier is doing.”

That’s why developers of parks such as that in Kansas City are targeting shippers as well as 3PLs, which handle cargo for multiple shippers and thus often can tap more easily into a domestic flow of cargo moving on the rails.

But while intermodal itself is an established trend, the location of DCs near railheads to capture goods moving via domestic intermodal is a story yet to be told.   

Peter Tirschwell is senior vice president of strategy at UBM Global Trade. Contact him at ptirschwell@joc.com and follow him at twitter.com/PeterTirschwell.

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