Cargo Crossroads of the World: Alaska

Throughout history, Alaska has been the crossroads of human migration and exploration. When coastal tribes first ventured over from Siberia into present-day Alaska more than 10,000 years ago, they marked the first evidence of human habitation in North America.

Since the discovery of petroleum reserves in Prudhoe Bay in 1968, and the completion of the Trans-Alaska pipeline a decade later, Alaska has become considerably more accessible thanks to increased investment in transportation infrastructure and the growth of its population.

In the 1980s, transportation pioneers UPS and FedEx brought even more global recognition and credibility to Alaska’s transportation mix when they set up cargo distribution and sorting operations at Anchorage International Airport to accommodate new markets in Asia. In the decade since, freight activity at the airport spiked, and both the Alaska Railroad and the Port of Anchorage experienced complementary growth as a result of increased cargo volume and more demand for multi-modal moves.

Despite these positive trends, however, marketing Anchorage as a place for companies to locate and do business has been a challenge.

“Very few business people, even those in global logistics and air cargo, know Anchorage has the third-highest amount of cargo landed weight in the world or that it has more cargo landed weight than any other airport in the United States,” says Kevin Pearson, vice president of business development, Anchorage Economic Development Corporation (AEDC).

Alaska’s best-kept secret, however, is quickly becoming front-page news all over the world. Given recent global trends, Anchorage’s location on the periphery of the industrial world has made it a key transshipment hub for businesses courting markets in Asia, North America, and Europe.

“Just look at a globe from the top down and you will see we are equidistant to Asia and Europe,” says Pearson. “Anchorage is nine hours by air to 95 percent of the world’s industrial population. With the growing economy of China and the Pacific Rim, Anchorage’s strategic location will only grow in importance.”

Accordingly, numerous other transportation service providers, carriers, and forwarders have followed in the wake of UPS and FedEx. As the wave of trade between the United States and Asia swells, the anticipation is that more businesses will not only ship and transload freight through Anchorage but will also explore the possibility of locating manufacturing, distribution, and warehousing operations there.

“For a variety of reasons, transportation plays a much bigger role in Alaska’s economy than it does in the rest of the nation,” reports a 1999 Economic Trends study conducted by Alaska’s Department of Labor and Workforce Development. “Nationally, only three percent of all private wage and salary employment is tied to transportation, vs. six percent in Alaska.

“This should not come as a big surprise because it takes considerably more effort to move someone or something in this state. What might be a simple drive in a car elsewhere in the nation, in Alaska could involve a boat, a truck, a plane, and a four-wheeler,” notes the report.

Spanning 570,374 square miles—more than twice the land mass of Texas—Alaska has the third-lowest population in the United States (640,000) and the lowest population density at approximately one person per square mile.

Yet despite its magnitude, there are only 1,082 miles of highway, most of which form the triangle between Fairbanks, Anchorage, and Tok, an area that represents one-fifth the size of the state. By comparison, the Alaska Railroad operates more than half as many miles of track (547) as there are of highway.

History in Motion

To even imagine such a scenario in the continental United States would be impossible, especially considering the supply chain’s dependence on the motor freight industry. But Alaska is unique in this regard—each mode of transportation has evolved within its own niche and today plays a vital role in the overall blueprint of Anchorage’s economy.

One niche player in Alaska is Seattle, Wash.-based Lynden—with one caveat. It has a lot of niches. The company comprises 17 separate operating units that incorporate land, sea, ocean, rail, and airfreight movement, as well as a logistics division. Given the myriad demands of Alaskan shippers, a company with as many specialties is a perfect match.

“A huge part of our business is focused around Alaska,” says David Rosenzweig, director of marketing and media, Lynden. “We’ve grown into a global company based on the needs of our customers. That’s why we expanded into Alaska 50 years ago.”

Lynden’s flexibility is especially critical in Alaska because of the transportation obstacles that inevitably come into play when moving shipments. Because of the multimodal capabilities of its operating units, Lynden is one of the few companies in Alaska that can accommodate all transportation needs.

“We’ve come a long way from 50 years ago when we were just a trucking company,” says Rosenzweig. “We now provide every mode of transport including truck, ocean, intermodal, air, and rail.”

Throughout Alaska’s history, each transportation mode has been vital in providing Alaska with a competitive edge in the global marketplace.

Alaska Railroad has helped support the development of the state throughout the 20th century, and today is the lone rail freight carrier operating in Alaska.

Freight transportation is Alaska Railroad’s core business, accounting for nearly 80 percent of total revenue. In 2003 alone, it was responsible for moving more than eight million tons of freight.

Ironically, one the railroad’s biggest areas of business today is as a support vehicle for moving airplane fuel to the airport, says Steve Silverstein, vice president of markets, sales, and services, Alaska Railroad. “It takes about two tank cars of fuel to supply each 747 freighter flight,” he notes.

Export Coal Market Surges

A more recent growth surge has been in the export coal market. In September 2003, Alaska Railroad reached an agreement with Hyundai Merchant Marine and Usibelli Coal Mine to revive a prior trade arrangement for coal exportation to South Korea.

As part of the arrangement, coal is transported from the mining operation by rail, then transloaded onto Hyundai ships at the Seward Coal Facility for shipment to Asia. The railroad expects to move approximately 400,000 tons of coal over the contracted two years.

The Hyundai partnership highlights the growing demand for multimodal sea/rail moves. Eighty percent of inbound freight volume into Alaska moves via water, so having rail connects at the ports is essential for getting product moved over land.

Most of this interline business is served through the Port of Whittier because it is a year-round, ice-free, deepwater port with easy rail accessibility to Anchorage. To facilitate these types of shipments, the railroad’s Alaska Rail Marine service helps move products to and from Alaska and the Lower 48 via rail-water-rail.

There is ongoing discussion about expanding Alaska Railroad’s network further into the interior, and possibly to Prudhoe Bay, to target more freight traffic. For the time being, however, there are more immediate growth opportunities tied to cargo activity in and around Anchorage as increased freight volume at both Ted Stevens Airport and the Port of Anchorage drives more demand for multimodal and intermodal moves.

The Airport: A Global Pit Stop

Anchorage International Airport (renamed Ted Stevens in 2000, after the longtime incumbent senator) officially opened in 1953 and quickly became an important shipping hub.

Today, Ted Stevens Anchorage International Airport is not only the city’s most important transportation resource but it’s an economic driver as well.

“One out of every 10 jobs in the city is indirectly a result of airport activity,” says Mort Plumb, director, Ted Stevens Anchorage International Airport. If the airport were its own separate community, it would be the fifth-largest economy in the state, according to a July 2001 Ted Stevens Anchorage International Airport Economic Significance report.

When both UPS and FedEx migrated to Anchorage in 1985 and 1989 respectively, they not only created strategic inroads into a burgeoning Asian market, but pushed the airport into the global eye as well.

Between 1988 and 2002, cargo landings at the airport tripled from 13,975 to 42,123; landed cargo weight similarly grew from 7.1 billion pounds to more than 16 billion pounds during the same period. In 1998, Ted Stevens ranked number-one in total landed cargo in the United States, trumping Memphis and Louisville for that distinction.

As a result, a number of other major international cargo carriers and forwarders have set up cargo operations in Anchorage, including Atlas Air, Japan Airlines, Korean Air, Asiana, EVA, Northwest Cargo, United Airlines Cargo, Air China, Lynden Air Cargo, and Alaska Airlines.

“Because of the limited road service in Alaska, you pretty much have to depend on air service to get product moved,” says Keola Pang-Ching, director of cargo sales and marketing for Alaska Airlines. The air carrier recently expanded both its passenger and cargo service to, from, and within Alaska.

Service Expands for Seafood

When other carriers were reducing their service after Sept. 11, notes Pang-Ching, “we were going through a huge expansion, adding non-stop flights to many cities on the East Coast.”

The expanded service offerings make it easy for shippers to get product moved to Alaska and fresh seafood shipped into the continental United States. “The expansion allows shippers to move freight with one carrier and get one price on their shipment rather than deal with different rates from multiple carriers,” he adds.

A majority of the airline’s cargo operations include fresh shipments. During the peak seafood season, Alaska Airlines ramps up service to handle the flux of salmon, halibut and other seafood shipments that need to be shipped from Alaska to the continental United States. “Right now we have about 24 non-stop flights between Anchorage and the Lower 48,” says Pang-Ching.

Those flights come in and out of Ted Stevens Anchorage International Airport’s 4,500-acre complex, situated adjacent to Cook Inlet and five miles from downtown Anchorage. The facility comprises three primary runways—each in excess of 10,000 feet—and two main terminals. There are four cargo airparks providing a total of 45 hardstands, each with in-ground fueling and more than 1.2 million square feet for cargo transient parking.

“We have more than 300 acres available for aviation development as well as additional adjacent land acquisition opportunities,” says Plumb. The airport is also home to the largest floatplane base in the world and U.S. Customs and Immigration operates 24 hours a day.

The airport is presently in the middle of a major redevelopment project to expand and attract further cargo activity. Construction on a new extension of the South Terminal is ongoing, as are tentative plans to build a new North-South runway and further cargo facilities within the airport.

With an estimated 90 percent of cargo between North America and Asia passing through Ted Stevens, and global trade expected to grow, its incumbency as a premier global cargo hub is likely to remain secure.

It took the greatest earthquake ever recorded to push the Port of Anchorage to the forefront of Alaska’s transportation matrix, but it’s no accident that today it is one of the major transshipment facilities in the state. Initially opened in 1961, the port moved approximately 38,000 tons of cargo in its first year of operation, well behind the pipeline-driven volumes of the ports at Whittier and Seward.

Today, the port is no less important to the livelihood of Alaskans as it serves 90 percent of the population and 80 percent of the geographic area, generating more than $750 million each year in direct economic activity. In 2003, it moved more than 4.4 million tons of freight.

The port operates a five-berth terminal with cargo facilities that cater to containerized freight, bulk petroleum, and cement, among other commodities. Three primary ocean-going carriers call at the port: Totem Ocean Trailer Express (TOTE), a roll on-roll off carrier that calls at the port twice a week; Lykes Lines (CP Ships), which provides direct container service to Asia, and Horizon Lines, a lift-on lift-off carrier.

“We began serving Anchorage in May 1964, one month after that earthquake hit, and we have extended our services continuously since then,” says Ken Privratsky, vice president of Anchorage-based Horizon Lines. The shipping company calls on ports in Kodiak and Dutch Harbor as well as Anchorage.

Expansion on the Horizon

Horizon Lines operates three ships out of Tacoma into the Port of Anchorage twice a week. “The majority of the cargo that comes here is from the Pacific Northwest,” says Privratsky.

To accommodate increased freight traffic, the port is in the process of expanding and developing its existing facilities. Currently the port has a 35-foot draught that will be dredged to 45 feet to accommodate larger ships. One of the advantages for ships operating in Anchorage is that the port remains open year round because of the high tides in Cook Inlet.

Those high tides, however, can make Cook Inlet a rough place to operate at times, says Privratsky. “From November to April, tides are 28 to 30 feet high and between three and five knots. We also have to deal with ice buildup in Cook Inlet every time our ships come in during this time, which can make this an intimidating place to operate,” he adds.

Horizon Lines’ employees are no strangers to less-than-optimal conditions, however. “We are fortunate to have a team of people who are well-versed in dealing with the operational requirements of loading and unloading the ships in these challenging conditions,” says Privratsky. “Many of our employees have been here for more than 30 years and are very accustomed to the environment.”

Future plans to expand the dock and create a new North Terminal will likely make operations more fluid. The expansion is intended to improve the port’s capabilities to accommodate larger container ships, enhance bulk freight and petroleum handling, and facilitate cargo transshipment between barges and container ships.

To support more freight traffic through its facilities, the port is also looking at ways to improve and expedite cargo flow, particularly enhancing road and rail connects between the airport. Greater accessibility will enhance the port’s value proposition as a multimodal facility, says Kevin Bruce, director of communications and business development, Port of Anchorage.

“We are very interested in developing an air/sea connection with CP Ships and some of the airport’s freight/logistics customers that fly Asian routes. We are told that capacity from Asia to Alaska is full, but that capacity from Alaska to the lower 48 states is available. The idea is to ship high-value freight to Anchorage by sea, where it can be transferred to the airport for a just-in-time delivery system to the continental United States,” he adds.

Road Warrior

Though Alaska’s dependence on rail, air, and water transportation is much celebrated, trucking remains an integral part of the state’s transportation picture, especially as innovations in technology and improvements to road infrastructure make motor freight a more efficient, accessible, and reliable option.

Today, all over-the-road freight traffic between the Lower 48 and Alaska follows the Alaska-Canadian Highway (ALCAN).

Carlile Transportation Systems is among a select number of motor freight operators that have created their own niche moving freight into and out of Alaska via the ALCAN. Founded in 1980, the Anchorage-based company has evolved from a locally driven LTL carrier into a full-service freight transportation provider with facilities in Alaska, Canada, and the continental United States.

“In Alaska, you have to be all things to all people,” says Linda Leary, vice president of sales at Carlile. “Most of Alaska is only reachable by water or air and there is a limited amount of road. We cover the entire road system and provide all modes of transport—from LTL and truckload to water, air and rail.”

Nearly 70 percent of Carlile’s business is connected with oil field activity. Much of this business includes moving heavy freight—drill site modules, pipes, and camps—along the Dalton Highway to Prudhoe Bay, says Tom Hendrix, vice president of business development, Carlile.

Because of the oversized nature of much of the freight moving to the oilfields, Carlile often has to customize trailers to safely accommodate loads.

One such example is the 125-ton Cozad trailer, custom-built to convey oil-drilling modules to the North Slope. These oilfield production modules, parts of oil and gas trains that are designed for field installation, require what Hendrix calls a logistics convoy.

“We travel with a support shop, a 12-man crew, and four push trucks for some of the steeper grades,” he says.

“On one project we hauled a custom platform from Houston, Texas, to the North Slope of Alaska. The platform was affixed to legs so that it did not disturb the tundra, animals, or the environment. This way, our customer was able to access the tundra for 10 months a year as opposed to using current methods that only allow access for three and a half months, or use gravel roads and pads that scar the tundra,” says Hendrix.

Anchorage’s location and transportation infrastructure are discernably its two strongest assets. Perhaps what is less clear are the myriad options and advantages transportation providers and manufacturers can leverage to cut costs, enhance speed, improve flexibility, and ultimately streamline the supply chain.

Here’s a look at some of those options.

Cutting costs. Ted Stevens Airport has the lowest landing fees and terminal rental rates among major cargo airports. The cost of landing a 747-400 widebody aircraft in Anchorage is $550, compared with $4,373 at JFK, $2,807 in Hong Kong, $2,439 in Seattle, and $7,147 in Tokyo.

Similarly, terminal rental fees in Anchorage—$49.80 per square feet for a year—are the lowest of all major airports in the United States.

Enhancing speed. A second advantage is the speed and efficiency of moving freight through Anchorage, a concern that became readily apparent during the West Coast port lockout when congestion and bottlenecks impacted profitability.

“During the West Coast lockout, cargo activity through Anchorage increased significantly,” notes Mort Plumb of Ted Stevens Airport. “During October and November 2002, Anchorage saw 1,232 additional international all-cargo flights, an average of 725 per week.”

While Plumb doubts whether further congestion at West Coast ports would necessarily translate into additional air cargo traffic, continued bottlenecks at U.S airports could have a positive benefit for Anchorage.

“Many carriers providing international air cargo service to the United States currently use Anchorage as a transfer and transloading hub,” says Plumb. “Legislation granted by the U.S. Department of Transportation and expanded by Congress late last year allows foreign and domestic carriers to reconfigure loads and transfer cargo to other carriers.

“This allows all carriers to operate direct flights with cargo only for that final destination,” he adds.

Improving flexibility. A third benefit is the modal flexibility Anchorage affords shippers. With convenient access to the airport, railroad, port, and highway, shippers can mix and match modes depending on the needs of their customer. Alaska Railroad’s main terminal and the Port of Anchorage are each six and seven miles respectively from the airport, ensuring quick and efficient intermodal movement. LAX, by contrast, is approximately 20 miles away from both rail and sea connects.

Dowland-Bach, an Anchorage-based specialty manufacturing and alloy distribution company that distributes products to the United States and around the world, has benefited from the transportation options available not just in meeting the immediate demands of its customers, but by helping it court business opportunities in global markets, too.

“We use an array of surface and ocean freight, as well as the ALCAN express, to move product,” says Lynn Johnson, president, Dowland-Bach. “Our location in Anchorage is definitely a plus—particularly on the very large pieces of equipment that we have built for South America—because it is a global transportation hub.”

Managing inbound logistics. Finally, and perhaps most importantly, because most of the volume at Ted Stevens is moving from Asia to the United States, Anchorage is an ideal location for businesses to set up inbound logistics hubs to sort and transload freight, as well as perform other value-added activities. For these reasons, UPS and FedEx both established transshipment facilities in Anchorage.

Strategically, UPS’s presence in Anchorage has enabled it to expand services into Asia and create a niche market there. With China becoming very high tech, and the cost of labor still cheap, export volume has been saturated coming inbound into Alaska, notes Peter Nieuwland, international manager, UPS.

The company has successfully cornered this market by acquiring direct rights with China that enable it to service cities there directly. “All the cities in Asia are slot-driven, so the ability to land there is worth a great deal of money,” he says. Moving 25,000 to 30,000 shipments daily, the primary concern for UPS now is being able to accommodate growing volume.

“We’re focused on ramp expansion to make sure that we have enough space to shift and move assets,” adds Nieuwland.

FedEx Gains Strategic Advantage

For FedEx, the opportunity to move its Asia Gateway clearance location from Portland, Ore., to Anchorage in 1989 resulted in a huge strategic advantage, especially given its planned expansion into Asia and the purchase of Flying Tigers, notes Mike Hooyer, senior manager international clearance, FedEx.

The numbers validate the company’s move. “Between 1989 and 2002, the average number of monthly flights has risen from 263 to 465, a 39-percent increase,” Hooyer notes.

FedEx has similarly capitalized on its Anchorage location to target converging global markets as well as help shippers and consignees expedite shipments through its hub facility.

“Anchorage gives us the capability to flex with the Asia/U.S. markets,” says Hooyer. “In Anchorage we are equidistant to major cities such as Tokyo and New York and that gives us strong transpacific and North American lift capabilities.”

FedEx’s International Priority Distribution System enables businesses to bundle multiple shipments together and clear customs as one unit with a single consolidated commercial invoice. Then, individual packages can be broken down and delivered separately to their final destination.

“For example, 10,000 Dell computers can be cleared as one shipment. Because it doesn’t require warehousing, this is both more cost efficient and faster for shippers,” adds Hooyer. This efficiency also allows businesses to better account for shipments in transit, reduce the need for warehousing, streamline documentation, and lower the risk of product obsolescence.

These efficiencies are equally as significant for local manufacturers. Dowland-Bach, for example, relies heavily on local transportation connects to source components from overseas.

“A lot of our shipments move via next-day air on a daily basis because we source components from all over the world,” says Johnson. “We receive about six to eight small boxes and shipments a day via air.”

For manufacturers in the Lower 48 that are sourcing parts from Asia, it’s very likely that their shipments are already moving through Alaska. Having a facility in Anchorage then, where product can be assembled, tested, and distributed worldwide, makes sense both financially and logistically.

In addition, both Ted Stevens Airport and the Port of Anchorage have Foreign Trade Zones that allow businesses to assemble goods and pay duties on finished products rather than individual components.

The New Business Hook

One of the hangovers of not having much manufacturing or agricultural activity in state is that there is very little demand for warehousing, aside from retail inventory being shipped into Alaska.

Product that is moving through Anchorage is quickly being sorted and transloaded for distribution elsewhere. In a JIT environment, this fluidity lends itself well to businesses with high speeds of throughput. But for a state that has three times as much import activity as export, it poses a problem.

“We want origin volume here in Anchorage to send to Asia. Freight that stops here leaves holes in the supply chain because there isn’t as much volume going to Asia,” notes Peter Nieuwland, UPS.

While Anchorage will likely never be a center for heavy manufacturing activity, its well-developed IT infrastructure, talented labor pool, and proximity to Ted Stevens Airport are attractive qualities for smaller manufacturing industries, notes AEDC’s Pearson.

“There are real opportunities to attract some light assembly and distribution activity for high-value, time-sensitive, low-weight goods such as electronic components or even apparel,” he says.

Increasing contention among American pundits about offshore outsourcing has similarly magnified Anchorage’s potential as a place for businesses to locate telecommunications support centers or even high-tech manufacturing facilities.

Because of Anchorage’s remoteness, the city relies heavily on its IT capabilities and telecommunications infrastructure to keep pace with the world. The city’s globally central time zone similarly has its advantages for businesses that are operating overseas.

Preparing for the Future

That Alaska’s history is a story about transportation and trade is clear. The state’s economic livelihood has long been driven by resource management, and accordingly, the transportation infrastructure that has evolved to support the growth of industry within the state.

Moving forward, however, the focus will be on how this wealth of experience and resources can foster and accommodate future growth of industry in Anchorage and Alaska.

Ted Stevens Airport, the Port of Anchorage, and the Alaska Railroad are all currently in the process of redeveloping and equipping their facilities and assets to better streamline cargo operations in anticipation of more freight activity. Anchorage’s business community is equally as ambitious about the impact of globalization and the role transportation and logistics will play in developing future economic growth.

All these factors weigh into the reality that Anchorage’s potential as a global cargo hub is no longer hanging in the balance. Rather, the shifting equilibrium of global markets has positioned Anchorage as a pivotal cargo crossroads for the present and the future.

“Many outsiders think Alaska and Anchorage are in the middle of nowhere,” notes AEDC’s Pearson. “I like to say we are in the middle of everywhere.”

A Land of Paradoxes

If you think everything is big in Texas, consider this:

* Alaska is the largest state with a land mass of 570,374 square miles—one-fifth the size of the contiguous United States and twice the size of Texas. Yet it also has the third-smallest population, with less than 640,000 people, and lowest population density at one person per square mile.

* Temperatures in the interior can plummet to -100 degrees Fahrenheit in the winter and soar to 90 degrees in the summer.

* Where automobiles and trucks are the staple transportation in the Lower 48, boats and planes are the transport of necessity in Alaska. Consider:

• It’s estimated that Alaska has about six times as many pilots and 16 times as many aircraft per capita as the rest of the United States.
• Alaska has 76 of the 570 commercial service airports in the United States, representing 13 percent of the national total.
• Alaska’s ferry system is unique among the 50 states, operating eight 24-hour/day long-haul vessels covering 3,500 miles.
• Of the 177 major ports in the United States, Alaska has 11, or six percent of all such ports in the country
• Approximately 30 percent of Alaska’s population cannot be reached by road without using some other mode of transportation to make the connection.
• Alaska has more than 5,497 miles of inland waterway.
• Juneau, Alaska’s state capital, is only accessible by air and water.

Despite 70 inches of snow a year, the airport hasn’t closed in five years. In fact, in 1998 and 2000, Ted Stevens Airport was the winner of the Balchen/Post Award, presented by The International Aviation Snow Symposium for outstanding achievement in airport snow and ice control. In 2002 it received Honorable Mention status. Airlines and airport users choose the award nominees.

Did You Know?

• The Port of Anchorage serves 80 percent of Alaska’s populated area, including the major military installations, via rail, road, and air cargo connections
• More than four million tons of materials move across the port’s docks each year, which equates to nearly five tons of goods for every person in Alaska.
• Despite Prudhoe Bay’s celebrity, oil was first discovered on the Kenai Peninsula in 1957. Seventeen oil companies set up headquarters in Anchorage and spent $30 million on exploration.
• In 2000, according to the U.S. Bureau of Transportation Statistics, there were 8,638 active pilots in Alaska. With a population of 600,000 people, that equates to one pilot for every 68 Alaskans. In the United States as a whole there were approximately 593,218 licensed pilots, or one for every 421,430 Americans.
• In spite of its low population density, Alaska’s population in 2000 was 74 percent urban (places with greater than 2,500 persons) with 42 percent living in Anchorage. In contrast, the U.S. national average is 80 persons per square mile and is about 75 percent urban.
• Alaska’s export market, which contributes $2.5 billion to the state economy annually, is largely driven by seafood processing. In 2002, the seafood industry generated more than twice as much export revenue ($1.3 billion) than that of oil, gas, and coal and minerals combined, and accounted for more than half of all export volume (53 percent), says Alaska’s Division of International Trade and Market Development.