March 2007 | Commentary | EcoDev

Inland Ports Make "Location" Matter More

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It has become a tired axiom that the three most important success factors in real estate are location, location, and location. But this statement has never been more true, especially with global trade and transportation trends driving demand for large, exceptionally well-located distribution and logistics facilities.

Consider the reality of U.S. global trade and transportation patterns.In 1970, the United States imported/exported $84 billion in goods for the whole year. In 2006, it passed $84 billion in trade by the second week of January and exceeded $3 trillion for the year.

Today, Americans produce fewer of the goods they consume than ever before. Manufactured goods produced domestically have gradually decreased from 24 percent of GDP in 1969 to 12 percent in 2005, a 100-year low for the U.S. economy.

At the same time, manufactured goods and raw materials shipments (total U.S. imports of goods alone) have risen to about $163 billion every month, with Pacific Rim countries contributing the largest share of growth.

Historically, most imported goods were processed for direct shipment to their terminal destinations upon entry into the United States, usually at or near a major U.S. shipping port.

But this is changing. Increasingly, containers shipped to the United States are transferred mostly by rail from the port of entry to an "inland port." This distribution process utilizes rail for the initial stage and trucking for the final leg.

Ports Becoming Overwhelmed

Why is transferring goods to inland ports occurring more frequently?

The sheer volume of goods now flowing through the nation's seaports has, in some cases, overwhelmed the capacity to process the goods; there simply isn't space.

Also, many facilities at or surrounding ports have structural limitations or technological shortcomings that render them ill-equipped to meet new goods-processing challenges.

Finally, the cost of land and lease rates around major seaport markets has increased dramatically, creating an over-developed, over-priced market.

New inland ports, on the other hand, are being designed and located precisely to accommodate today's just-in-time demands.

The following factors distinguish a high-performance inland port:

Bigger and more flexible. With the consolidation of warehousing, logistics hubs, and distribution centers comes the need for larger facilities that can be configured to accommodate all manner of users and their picking, packing, and storing processes.

Technologically advanced. The materials handling equipment installed in many newer facilities includes miles of conveyer belts, laser scanners, and laser-guided picking equipment. This equipment can cost as much or more than the total cost of the buildings themselves.

Intermodal. Achieving the highest level of shipping efficiency requires multi-modal transportation. Companies locating DCs next to intermodal connections can save millions in annual drayage costs.

Located at the nexus of air, rail, and highway systems.Distributors, shippers, and manufacturers need to operate from locations that intersect multiple shipping routes via several transportation modes, and be within reach—days, if not hours—of customers or other end users.

Notably, only a few prime locations can accommodate true inland ports. Highway systems have mostly been built out, and large land positions are limited, expensive, and difficult to assemble.

Logistics success in the coming decades will belong to those who capitalize on large facilities with sophisticated materials handling equipment located near intermodal facilities and at the nexus of interstate highways.

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