The Gulf Coast's Rising Tide
Spurred by its advantageous location, international trade prowess, and transportation assets, the Gulf Coast emerges as a new distribution and logistics powerhouse.
Mention the Gulf Coast region, and most Americans still immediately think of Hurricane Katrina and its devastating impact. But in the business world—and in the logistics realm specifically—the region now conjures images of new opportunities and economic prospects. The Gulf Coast is rapidly building a reputation as a growing hub for port activity, warehousing and transportation development, and big-box retail distribution.
Why is the region seeing such a boom in business growth? One reason is the oldest maxim in real estate: Location, location, location. The Gulf Coast region—which comprises coastal Texas, Louisiana, Mississippi, Alabama, and Florida—benefits from its proximity to a number of major U.S. markets, including the rapidly growing Southeast.
"Expect to see strong economic growth in the Gulf Coast area as the Southeast's population continues to grow and Gulf Coast ports garner favor as attractive alternatives to West Coast ports for bringing goods into the United States," notes Garrett Scott, president of the industrial division for Johnson Development Associates, a commercial real estate and development firm with a number of Gulf Coast properties.
The Gulf Coast's international-trade-friendly position along the Gulf of Mexico is another "location, location, location" benefit—one that keeps the region's ports flush with import volume. The Port of Houston, for example, ranks first among U.S. ports in both foreign trade imports (93.8 million tons valued at $61 billion) and total foreign tonnage (153 million tons valued at $114.8 billion) (see chart), rankings it has held for 17 and 12 consecutive years, respectively.
"Because of its location, the Gulf Coast is perfectly situated to handle an influx of business from outside the United States," notes Pat Younger, executive director of the Gulf Ports Association of the Americas, an association of Mexican and U.S. Gulf Coast port authorities.
In addition to the region's natural geographic advantages, three timely factors—a population shift to the southeastern U.S., a warehousing decentralization trend, and the ongoing Panama Canal expansion—are helping boost the Gulf Coast's economic prospects, notes Paul Bingham, managing director, global trade and transportation for economic research and forecasting firm Global Insight.
When it comes to population growth, the Southeast and Gulf Coast states shine. Texas, North Carolina, Georgia, and South Carolina were all among the 10 fastest-growing states in 2007, according to the U.S. Census Bureau. While the West was the fastest-growing region between 2007 and 2008, the South added the largest number of people—1.4 million—during that period. Regions with high population growth attract business development and economic efforts.
The Gulf Coast's economic growth has been sectoral, largely in automotive, aerospace, and technology manufacturing as well as retail. Within the last decade, many manufacturers have erected factories in the Gulf Coast, including Korean automaker Hyundai, which built a $1.4-billion assembly plant in Alabama; ThyssenKrupp, which is currently developing a carbon and stainless steel processing facility in Alabama; and Toyota, whose $1.3-billion plant in Mississippi is set to begin producing Prius Hybrids in 2010.
Spurring Regional Growth
In addition to creating jobs and stimulating the local economy, new manufacturing projects spur growth in area DCs and warehouses. Intermediary companies that supply goods for manufacturing, as well as companies that make finished products for manufacturers, need distribution centers (DCs) close to these new plants. The region's ports also benefit from the factories because manufacturers utilize the ports for bringing in goods—Hyundai, for example, imports auto parts for its Alabama factory through the Port of Mobile.
Regional growth in the manufacturing sector and its feeder companies dovetails nicely with another trend in warehousing and distribution that benefits the Gulf Coast: decentralization.
The once-popular model of utilizing one mega DC to serve a national population is eroding in favor of a multi-DC model. "Following the 2002 West Coast ports lockout and legendary 2004-2005 congestion at the Southern California ports, purchasing and import managers have adopted a diversified gateway strategy for imports," explains Bingham.
This "don't put all your eggs in one basket" approach has led retailers and manufacturers to spread out their distribution networks, using small regional DCs to minimize costs and risks while serving local population sectors. The Gulf Coast becomes a logical area to place a regional DC because it can serve the rapidly growing Southeast population and offers many import gateways.
The Facilities Factor
Industrial parks and warehousing facilities are sprouting up near ports throughout the Gulf Coast to serve businesses targeting this area for decentralized manufacturing and distribution operations. These facilities, often the result of public-private partnerships and government stimulus packages, are key for economic development officials seeking to win over site selectors. Here, just a few of the many industrial parks in the Gulf Coast:
- Johnson Development Associations' 150-acre Port City Commerce Park in Mobile, Ala., and its 190-acre site near the Bayport terminal at the Port of Houston aim to serve companies looking for alternate inbound/outbound opportunities.
- Port Crossing Commerce Center, a recently opened 295-acre commercial and industrial business park built by Houston-based developer National Property Holdings, boasts a prime location between two Port of Houston terminals, as well as a 900-car rail yard.
- Louisiana's Tangipahoa Parish is home to The Zachary Taylor mega site, a 2,900-acre industrial site and one of only 25 certified mega sites in the United States. It is ideal for automobile manufacturing or similar large industrial projects.
The last of the three converging factors currently impacting Gulf Coast growth will arguably have the most dramatic impact on the region's logistics and distribution landscape.
The Panama Canal expansion—a $5.2-billion project encompassing the construction of two new sets of locks and the widening and deepening of existing navigational channels—will allow large, post-Panamax ships to pass through the Canal. This access will make the all-water route from Asia through the Canal and into the U.S. Gulf Coast an attractive option for shippers and carriers transporting containerized cargo. This route allows its users to bypass West Coast and East Coast ports, which are far more congested than their Gulf Coast counterparts, and provides a gateway that makes sense for companies targeting the Gulf Coast's or Southeast's regional population.
"The current model changes dramatically once shippers are able to realize the advantages of the Panama Canal expansion by bringing product closer to their actual market without congestion and its associated expenses," explains Michael O'Leary, president, The Grimes Companies, a third-party logistics provider based in Jacksonville, Fla. "The growth and expansion of the Gulf Coast area is timed perfectly to capitalize on the Canal expansion."
The Houston Port Authority also expects to see an uptick in cargo volumes as a result of the Canal expansion. "The Port predicts that its container volume will increase 11 percent a year for the next five years as a result of the larger, more efficient ships coming through the Panama Canal," says Jeff Moseley, president and CEO of the Greater Houston Partnership, a member-based economic development organization.
Looking Long Term
While the expansion is not slated for completion until 2014, its impact on infrastructure projects is already being felt at Gulf Coast ports. "All our member ports are looking at widening and deepening their harbors to accommodate the post-Panamax ships," says Pat Younger of the Gulf Ports Association.
Although the U.S. economy is in a recession, many in the area's business community say that the current economic climate will not impede the Gulf Coast's long-term growth and sustainability. For one thing, a recession forces companies to concentrate on supply chain operations, and the Gulf Coast's logistics-friendly environment may appeal to businesses seeking to maximize supply chain efficiency.
"Companies that ignored supply chain costs because of the value of their goods or the margins they were making now realize that attitude is unsustainable. They will need to become supply chain competitive to survive," explains O'Leary. Achieving this goal may entail maximizing regional distribution networks and/or shifting some cargo volume to Gulf Coast ports in an effort to cut costs, he notes.
Imports Stay Strong
U.S. dependence on foreign goods is not abating, so even though consumers are buying fewer goods these days, the long-term view for import-heavy areas such as the Gulf Coast is positive.
"Ports may weather temporary trends where a certain cargo or commodity is down for a year or so, but the general trend is upward. It has to be, because so much of what we consume is produced in other countries," notes Chris Bonura, communications manager for the Port of New Orleans.
Finally, the ongoing social, economic, and demographic trends that have made the Gulf Coast a desirable business area are partly what have insulated it, to a degree, from the crushing impact of the nation's housing and financial crises. Overall, the region's population is expected to continue growing, which will increase its consumer demand and job prospects.
"That factor, combined with supply chain and logistics strategies driven by fundamental economics—namely, using a diverse strategy to feed distribution networks and minimize cost and risk to serve a market—add up to a bright prospect for the Gulf Coast," says Bingham.
Following is a snapshot of three Gulf Coast cities—New Orleans; Mobile, Ala.; and Houston—that believe their economic development climates will keep them thriving despite the economy's woes.
New Orleans: Rebuilding Stronger
No city was more affected by Hurricane Katrina than New Orleans, but the Big Easy and its surrounding parishes are rebounding slowly but surely. In fact, recovery programs put in place after the 2005 hurricane have ironically helped New Orleans stay afloat amid the current recession.
"Thanks to billions of recovery dollars and the counter-cyclical nature of our regional economy, we are relatively better off than many other areas," says Austin Marks, chief of staff, Greater New Orleans, Inc. (GNO), a regional economic alliance. "We are not rebuilding the same, we are rebuilding better."
The memory of Katrina has not scared away companies looking for Gulf Coast operations. Rooms to Go is constructing an 800,000-square-foot distribution center in Pearl River, La., just outside New Orleans in St. Tammany Parish. The Seffner, Fla.-based furniture retailer will use the DC to serve the Gulf Coast, allowing for expanded next-day delivery for customers from Panama City, Fla., to Baton Rouge.
Rooms to Go selected the Pearl River site for a variety of reasons including: a readily available workforce, proximity to four interstates and the Port of New Orleans, and access to a Norfolk Southern rail route, says James Hartman, communications director for the St. Tammany Economic Development Foundation.
GNO's international trade assets have also lured major firms such as Wal-Mart, Winn Dixie, and Folgers Coffee to locate distribution operations in the area. Indeed, expanding the state's share of distribution and manufacturing operations is a key element of the Port of New Orleans' 2020 Master Plan, notes Gary LaGrange, the Port's CEO. Port officials are working closely with economic development and government groups to make that happen.
"Our new leadership is pushing for policy changes to improve our business climate and creating incentives that will encourage business development in the region," explains GNO's Marks. GNO officials expect four new target business sectors—international trade, distribution, and logistics; advanced manufacturing; energy, petrochemicals and plastics; and creative and digital media—will join the area's booming oil and gas sector.
Port at the Ready
The Port of New Orleans plays a key role in the region's growth picture. As with other Gulf Coast ports, the Port has been preparing for increased container trade from the Panama Canal expansion. Its recently completed Napoleon Avenue container terminal was built with the expansion in mind and gives the Port 366,000-TEU capacity. And the Port is looking to help New Orleans branch out into trade throughout the United States.
"The Port of New Orleans follows a different business model than some other ports," Bonura notes. "Because of its transportation infrastructure, it can look beyond the Gulf and serve as a hub for cities such as Memphis, St. Louis, and Chicago using intermodal rail service."
Mobile: The Little Port Area That Could
"Where else can you find five class-A railroads, two interstate highways, an 11,000-foot runway, and a deep-water port all within a half mile of one another?" asks Garret Scott of Johnson Development Associates (JDA), explaining the appeal of Mobile, Ala., where JDA has just completed a 150-acre industrial development called Port City Commerce Park.
The city's robust transportation infrastructure is one of its key assets, and a principal reason that JDA decided to build Mobile's first speculative class-A industrial facility, confident it can lure 3PLs, retailers, and manufacturers.
"Mobile is a dynamic market with a diverse economy—from shipbuilding to aerospace to the steel industry—and we think it is a great distribution hub," explains Andy Halligan, who oversees JDA's Mobile office.
Halligan is not alone. Major companies such as Hyundai, ThyssenKrupp, and Northrop Grumman have all put down roots in Mobile thanks to its solid lineup of transportation resources. At the top of Mobile's infrastructure checklist is the Port of Mobile's new 135-acre container terminal, which boasts an 800,000 TEU capacity.
With carriers including Zim Lines and CMA CGM adding Mobile to sailings from both Asia and Central America, port executives are confident that the new terminal will attract business. "The port provides companies a competitive alternate import and export gateway," says Jimmy Lyons, CEO, Alabama State Port Authority.
The new terminal is also helping Alabama shift from a mining, forest, and agricultural economy to a manufacturing state. "We expect to see more distribution activity in Mobile because the new terminal supports the needs of our growing manufacturing sector," Lyons notes. And because the facility is new, it is well- equipped to handle the larger ships that will sail through the expanded Panama Canal in the future.
In addition to the container terminal, the Port is solidifying plans to build a rail intermodal facility to help extend its reach as a distribution hub. Public and private entities in Alabama are also working together on other infrastructure improvements such as a bridge project and a possible new highway construction plan. These developments give the area appeal for businesses looking for the right site to locate new facilities.
"Without the Port, Mobile would not have won the $3.7-billion ThyssenKrupp project, or the Northrop Grumman advanced tanker project awarded earlier this year," says Win Hallett, president, Mobile Area Chamber of Commerce.
Furniture manufacturers looking to bypass West Coast ports in favor of the Gulf Coast have also shown interest in Mobile, and numerous regional supply and service distribution companies, including ACE Hardware, Blue Bell Creameries, and Sherwin Williams Paints, have locations in the city.
As for the current economic slump, JDA's Halligan believes Mobile will be able to ride out the storm.
"A number of factors make Mobile less affected than other locations—it didn't have the big runup in housing prices, and it has a diverse economy and favorable labor environment," Halligan says.
These upcoming projects, Mobile's existing infrastructure, and the Port's overall strength have already been a boon to business development efforts, making Mobile one of the fastest-growing metro areas in the country.
Houston: Bigger is Better
Everything is big in Texas, as the saying goes—and Houston is no exception. With a population of more than two million people, the city is the fourth largest in the country. And its list of attractive business attributes is big, too: the city boasts the largest container port in the Gulf Coast, as well as the 11th-biggest international air cargo gateway in the country; comprises the second-largest state economy in the United States; and has one of the largest concentrations of industrial space in the nation.
These favorable conditions have enticed many companies to make Houston their Gulf Coast home. "Between 2004 and 2007, the Greater Houston Partnership assisted 90 companies in relocating or expanding to the Houston region, producing a $7.9-billion impact on the local economy," says Jeff Moseley, president and CEO of the economic development organization.
The city's network of highway, rail, intermodal, and air connections, as well as the Port of Houston's longtime leadership in foreign trade, also helps boost its site selection activity.
"Many businesses, such as cold storage warehousing company Preferred Freezer, have built new facilities near the Port of Houston," explains H. Thomas Kornegay, Port of Houston Authority executive director. "Also, speculative construction of multi-tenant distribution centers and warehouse space is taking place to accommodate a growing market."
Area industrial parks such as Port Crossing Commerce Center, Port 225, Cedar Crossing, and Chambers County Industrial Park represent some eight million square feet of available industrial space.
The Port is also in a prime position to capitalize on the expected increase of traffic through the Panama Canal, thanks to the $1.4-billion expansion of its Bayport Container Terminal—a big draw for businesses looking to make the Gulf an import distribution hub.
One such company is Arizona Tile, a distributor of stone, ceramic, porcelain, and glass tile that imports products from Brazil, Peru, Italy, China, India, and other countries. The firm opened a 300,000-square-foot facility in the Port Crossing industrial park in July 2007.
"We decided to have a port of entry in Houston to help facilitate material imports for our locations in Colorado, New Mexico, and Arizona," says Gary Skarsten, Arizona Tile's executive vice president. "We view the Port of Houston and our new facility as an important location to help meet our importing needs now and in the future."
Other companies that have selected Houston as an ideal site for a logistics hub include Cardinal Health, Home Depot, and Igloo Products. And Wal-Mart is currently constructing a two-million-square-foot facility, its largest regional distribution center in the country, in the Houston Ship Channel area.
New Orleans, Mobile, and Houston are just three of the many Gulf Coast areas reaping the unexpected logistics benefits of a changing global economy.