Smack in the Middle

Smack in the Middle

Copyright 2003, Traffic World, Inc.

First they built it. Then they came. Chicago was raised - literally - from Lake Michigan mud and transformed in just a few decades into the nation's leading transportation and logistics hub. The "Metropolis of the Northwest" already was the nerve center of America's expanding rail network by the 1860s, linking the eastern United States with the soon-to-be opened West. More than a century later, the commodities may have changed - Chicago is no longer the livestock center of the Midwest, for example, as its famous stockyards closed in 1971 - but the trains are still there, alongside thousands of trucks, cargo planes and ships. Chicago is as important a hub for logistics and transportation activity in 2003 as it was a century ago.

"Chicago has been and always will be the hub in the United States for all modes of transportation," said Kirk Williams, vice president of freight management for the Americas at APL Logistics, Oakland, Calif. "It's the crossroads."

Chicago is one of APLL's four core markets, along with Atlanta, Dallas and Los Angeles. APLL operates nine facilities in Illinois: seven in the Chicago suburbs and two in Normal, Ill. The company provides intermodal management services out of Oakbrook, Ill. "Chicago is continuing to grow," Williams said. "Nationally our business is growing, but Chicago always seems to have the highest percentage of growth - whether we're talking to, from or through Chicago."

Throughout its history, Chicago has been a city at the right place at the right time. In the mid-19th century, "Chicago turned out to be the spot at the end of the lake that everything came to," said Woody Mosgers, marketing administrator for Chicago's Regional Transportation Authority, the municipal corporation that oversees public transportation in the city and several counties in northeastern Illinois. "It was the furthest point from the other ports in the great lakes. You could ship your goods from eastern New York down the Erie Canal and across the Great Lakes to Chicago, and then ship them west on a railroad. All the western railroads began to develop from here."

As anyone who has ever flown into Chicago knows, the surrounding area is very flat, which allowed industry to build up very quickly and favored the construction of canals, railroads and, much later, interstate highways and airports.

Chicago's location is still advantageous today. The Chicago market is served by almost all the major Class I railroads. A web of state and federal highways feeds truck traffic into and around the city. Chicago's two major airports - O'Hare International Airport and Midway Airport - are invaluable assets. O'Hare was the seventh largest cargo airport in North America in 2002, moving nearly 1.3 million tons of cargo. "It would be hard for us to find any city around the country that would be more transportation friendly," said Vaughn Moore, vice president of sales and marketing for AIT Worldwide Logistics, a logistics provider and freight forwarder based in the Chicago suburbs.

Chicago is a major international hub as well. "There's a lot of business on the import side and some on the export side as well," Moore said. "It's not all LAX or JFK or Miami." Chicago's location also makes it easy to ship goods to Canada, Moore pointed out. "We can easily reach into Canada. We're sending equipment to Toronto every day."

Thanks in large measure to the St. Lawrence Seaway, Chicago remains a leading port on the Great Lakes as well, both for container and barge traffic. The Port of Chicago moves over 26 million tons of goods produced throughout the Midwest and the world annually. It is a crucial link between the St. Lawrence Seaway and the Illinois and Mississippi River waterways to the Gulf of Mexico.

"We have a geographic advantage," said Phil Yeager, chairman of Hub Group, the intermodal marketing, transportation and logistics concern based in Downers Grove, Ill. "Fifty percent or more of the intermodal traffic in the country goes through Chicago, and about 30 percent or more of the truck traffic either originates, terminates or goes through Chicago." Its central location in the nation's freight network also creates a good balance between demand and capacity. "Some parts of the country have tremendous shortages of equipment and some have tremendous overages," Yeager said. "In Chicago there is so much traffic coming through that it has great balance. It's probably the best balanced transportation city in the country."

That balance also is reflected in the broad range of companies based in the Chicago area. "The shipping base in Chicago is a microcosm of the broad Schneider National portfolio," said Todd Jadin, vice president of operations for the Green Bay, Wis.-based trucking concern. "There are opportunities for us in all the customer verticals we're involved in, whether it's retail, automotive or manufacturing." Among the prominent companies based in Chicago are Sears, Roebuck and Co., Kraft Foods Inc., Walgreen Co., Sara Lee Corp., McDonald's Corp. and Ace Hardware.

Chicago's central location is especially advantageous for expedited shipments. "You can get to any place in the country almost next day from here," said Kyle Oslos, managing director of APLL's central region. "Pull out a map and look at Chicago's location - it's right in the center of the country. It's got a very good location for finished goods distribution to Central and Midwestern states. It's also a gateway to traditional manufacturing locations in the Midwest and the Ohio Valley, as well as automotive manufacturing."

The Windy City is an international gateway for Seko Worldwide, a global freight forwarding and logistics company based in Chicago. With 48 offices in North America and 350 agents in its international network, Seko consolidates many air freight and ocean shipments in Chicago. "It's where the freight is going to come to in the Midwest, whether you're importing or exporting," said Steven Goldberg, executive vice president of operations. "Even if you're 300 miles from Chicago, Chicago still has the only airport in reach with capacity to move that 1,000-pound piece of freight."

Chicago is a major consolidation center, Goldberg pointed out. It's within easy reach of many smaller Midwest airports, and Seko often consolidates ocean freight shipped to Chicago into containers that are sent to East Coast ports. In addition, the sheer number of transportation options available benefits Seko. "The number of carriers, domestic and international, that fly into and out of Chicago, gives us flexibility in how we move our customers' goods," he said.

Chicago is an area of "ever increasing importance" to Schneider National, according to Jadin. "The bottom line is the rail network converges there, but it converges there for a reason: geographic proximity." That's still Chicago's strength as a logistics hub. Chicago is not just in the middle of the country, it is central to the history of the development of the distribution network in the United States, he said.

Chicago's location led to the rapid development of its transportation infrastructure, which attracted business, which in turn encouraged transportation development. "As business attracts business, it just snowballs," said Goldberg. The process continues today, as the city and surrounding communities debate the expansion of O'Hare International, and intermodal facilities, warehouses and truck terminals push further and further out into the Chicago suburbs.

One company that has grown with that network is RR Donnelley, the $5 billion communications printing, packaging and logistics company. RR Donnelley has been doing business in Chicago since Abe Lincoln was president. The company was founded in 1864 as a printing operation, said Haddon Allen, senior vice president of strategic operations. "Donnelley grew up in Chicago and fanned out from there," he said. Today it has 55 plants around the globe, with about 25 plants in the United States. Although it no longer has a printing plant in Chicago, its headquarters is there and Chicago remains a crucial part of its supply chain.

"We're large users of intermodal, which makes Chicago a great hub for us," Allen said. "I've always said it's the greatest freight town in the country." The ready availability of diverse transportation options helps RR Donnelley keep its costs low and competively price its own third-party services, such as package and postal logistics. RR Donnelley increasingly is involved in the direct-to-consumer publishing and marketing business. It plans to ship 180 million packages to consumers' homes for its clients this year.

"Everybody says shippers buy on service and price, but I tend to believe it's low cost that's important," Allen said. "Today everybody is focused on getting their costs down. Being able to access many different modes of transportation gives us the ability to provide a low cost, reliable solution to our customers." For example, RR Donnelley ships magazines printed at a plant in Kentucky to the West Coast via Chicago. "We truck the product into Chicago, put it into ocean containers and rail those to the West Coast," Allen said. "That route would not be intuitive, but it's cheaper than if we trucked it directly out of Kentucky to the West Coast."

With all those silver linings, you should expect a few clouds. The big one for Chicago is congestion, exacerbated by the nearly continual need to repair, expand and improve its infrastructure. In addition to the level of truck traffic on city streets, highways and Interstates, there's the chronic cross-town drayage issue for intermodal traffic that must be placed on a truck to get to an interchange carrier. "Bring a trailer in from New York and chances are it hits the ground between the eastern road and the western road," said Mosgers. "When the railroads get to the edge of the city they lose a day and a half, and they see the trucks go right by them."

A new partnership among six Class 1 railroads, the city of Chicago and the state of Illinois signed in June will use trackage rights and grade separations to eliminate some of that rail congestion and delay. In addition, more and more transportation facilities of all types are being built further away from the city to avoid congestion.

Schneider National, for example, has a major operating center in Gary, Ind. "What the industry is trying to do is get out of the congested areas and create more fluidity in the network," Jadin said. The 50-acre operating center - Schneider's largest in the Midwest - has six fuel lanes, a maintenance shop, cafeteria, driver training facilities and a gym. The center opened in 1992, and Schneider spent $5 million upgrading and expanding it last year.

"We position our operating centers in locations where there's a good intersection of interstates," Jadin said. "We look for those locations where we can capture significant flows of traffic that enhance our network efficiency. From Gary, we have access to I-80, I-94, I-57, I-55 and I-65."

About 600 Chicago-area drivers are based at the terminal, but drivers from throughout Schneider's network pass through its gates. "We have 20,000 gate transactions a month, about 1,000 per workday," said Jadin.

In serving Chicago from its periphery, Schneider is simply following its customers. "Shippers are moving into the more suburban areas to get out of the urban congestion. The reason we set our operating centers at those interstate interchanges is that you can get out of that congestion and eliminate some of the inefficiencies and off-route miles."

For similar reasons, APLL is consolidating some of its Chicago-area operations at a built-to-suit logistics campus, a three-building facility with 1.169 million square feet. "The campus concept helps us leverage resources and reduce overhead to create efficiencies," said Williams. "You can consolidate freight right there on site."

Whatever the problems may be, Chicagoans have a way of tackling them head on. After all, the city actually did lift most of its early buildings - jack them up and create new foundations - to ensure proper drainage. It reversed the flow of the Chicago River - making the river flow away from its mouth - to resolve a sewage problem. And it rebuilt itself rapidly, securing unprecedented business and investment in the process, after its worst disaster - the Great Fire of 1871. It's not called "the City of Broad Shoulders" for nothing.

About 100 years ago Chicago dealt with urban congestion by creating an underground two-foot electric railroad, managed by the Chicago Tunnel Co., 40 feet below street level to deliver coal, packages and mail to businesses in the downtown Loop. The system had 60 miles of track. "The movement of freight in the tunnel (each day) is about equal to 5,000 motor truck movements on the streets," the company wrote in a brochure published in 1928.

The underground railroad was abandoned and the tunnels sealed in 1959, but it illustrates Chicago's determination to tackle transportation problems. "I don't see anybody dragging their feet," said Mosgers. "It appears that the industries involved do see the future and the future does require some change." To be successful, "everybody has to be involved," he said, both industry and government. "Chicago will maintain itself as the transportation hub of the nation," said Mosgers. "We're not going to go away."