October 27, 2008

Inland port savings

By Richard S. Allen

During the past 40 years, the United States has enjoyed unprecedented growth in global trade volume with established and emerging trade partners. This increase in the shipment of manufactured goods and raw materials has played a central role in the growth of international trade and economic globalization, forcing the U.S. to seek faster and more efficient ways to move goods throughout the country. One of the most promising solutions is the development of inland ports.

In 1970, U.S. foreign trade volume totaled $84 billion for the entire year. In 2008, U.S. foreign trade volume surpassed S84 billion in the first 10 days of the year. In 2007, international trade accounted for nearly 25 percent of U.S. gross domestic product.

Conversely, domestic production of manufactured goods decreased from 24 percent of our GDP in 1969 to less than 10 percent by 2007. These statistics demonstrate international trade’s role in transforming the U.S. into a service-based economy that sources products from countries where they can be produced more economically.

While Canada remains the United States’ largest trading partner, the Pacific Rim region, whose countries offer inexpensive labor and goods, has become the top source of U.S. imports. More than $600 billion of the $1.9 trillion of total U.S. imports is shipped from Asia, a 91 percent increase over the past decade.

The process of sourcing, handling and transporting goods between raw material suppliers, manufacturers, retailers and consumers across the world is remarkable in both its scale and sophistication.

Heitman, a real estate investment management firm, says an inland port is characterized by seven key attributes: access to a major container seaport, an intermodal facility served by a Class I railroad, at least 1,000 acres of total land, foreign trade zone status, access to a local metropolitan market, accessibility to major interstate highways, and access to a strong local labor pool.

Organizations such as the Texas Transportation Institute and the Center for Transportation Research at the University of Texas define an inland port as any site meeting the above criteria that is located away from traditional land, air and coastal borders.

Inland ports facilitate and process international trade through strategic investment in multimodal transportation assets and by promoting value-added services as goods move through the supply chain. They facilitate the movement of large volumes of goods from congested seaports to major population centers. More than 65 percent of containerized freight arriving at West Coast seaports is consumed by markets east of the Mississippi River.

U.S. cargo volumes are projected to triple over the next 20 years, and by 2020 every major U.S. container port will see its total traffic volume double. Cargo traffic at West Coast ports is projected to grow at an average rate of 5 to 9 percent per year. This growth is straining existing port infrastructure and creating serious bottlenecks in the flow of imported goods.

Seaports such as LA-Long Beach have little room for expansion. The high costs of real estate, safety, pollution and increasing traffic congestion make it apparent that imported goods can no longer be efficiently processed in the immediate vicinity of their port of entry. Much import cargo is transferred directly from ships to railcars at the docks and transported to inland ports for further processing.

As demand for imports overloads capacity at U.S. seaports, the nation’s leading industrial development companies are recognizing that a wider national solution is urgently needed.

U.S. Class 1 railroads recognize the constraints facing the ports and are investing billions of dollars annually to increase the capacity of primary rail corridors.

This will make it easier for import shipments to be delivered by dedicated stack trains from crowded seaports to new inland ports where cargo can be transferred from rail to truck for the final leg of the delivery.

This creates substantial opportunities for savings. For example, let’s compare two companies seeking the optimal location for a million-square foot distribution facility that receives 15,000 containers per year. Company A locates within an inland port next to an existing intermodal facility, while Company B locates at a site 40 miles from the intermodal terminal. Company A will spend $1.1 million in drayage costs per year compared to Company B, which will spend $2.6 million.

As U.S. demand for imported goods increases in the years ahead, the importance of inland ports will continue to grow, especially those located at the intersection of multiple shipping routes with several modes of transportation.

Richard S. Allen is founder and chief executive of The Allen Group. He can be contacted at rallen@,allengroup.com.

October 24, 2008

High Fuel Costs Push Efficiency Efforts to Top of Supply Chain Agendas

Rapid increases in the price of diesel fuel have decimated transportation budgets and forced companies to look for strategic and tactical steps to become more fuel efficient

By Jean V. Murphy

On Jan. 2 this year the price of crude oil broke the psychological barrier of $100 a barrel. After running up to nearly $150 in July, the per-barrel price dropped back, but remains highly susceptible to market changes. This rapid price increase, coupled with sometimes violent volatility, is playing havoc with transportation costs and spurring companies to intensify efforts to make their supply chains more fuel efficient.

“The escalation we have seen in fuel costs this year is unprecedented and goes well beyond what any of our customers budgeted for—or what we budgeted for internally,” says Greg Lehmkuhl, executive vice president of operations at Con-way Freight, San Mateo, Calif. “As a result, our customers are looking at every aspect of their distribution strategy.” Lehmkuhl, previously an officer at Menlo Worldwide, Con-way’s logistics business, says Menlo customers are sending a clear and strong message that “everything is on the table, and that we should leave no stone unturned when it comes to helping them get these costs under control.”

“Customers have taken the handcuffs off in terms of things like co-mingling freight to improve cube utilization,” says Terry Miller, executive vice president–operations at Penske Logistics, Reading, Pa. “They are more open to this type of collaboration than ever before because everyone is feeling the pain.”

Schneider National, Green Bay, Wis., is getting similar feedback. “Everybody is essentially blowing through their transportation spend budget this year. And they are getting a lot of pressure from within the enterprise to try to find ways to mitigate those costs,” says Bill Matheson, president of the intermodal division. He predicts that this is just the beginning of a situation that will go on for many years. “Part of the challenge for these managers is to condition the rest of their organization to understand that the trend of recent years is reversed and supply chain costs are going up.”

High and volatile fuel costs also complicate planning going into 2009, says Tom Jones, senior vice president at Ryder System, Miami. “Nobody really knows where the price of oil will be and that means they don’t know what supply chain and logistics costs will be. This is having a cascading impact through organizations as they start developing 2009 business plans. It is very difficult to set a price for the cost of goods that will recover the cost of fuel when you have no idea what the cost of fuel will be.”

While companies can’t control oil prices, there are many things they can do to mitigate the impact of higher prices, both strategically and tactically. One strategic step, which also can reveal short-term opportunities, is to use network planning and optimization tools to assess whether current networks still make sense in light of higher transportation costs.

“We see a lot of companies re-evaluating network design, looking at how many facilities or distribution centers they should have and where those should be located,” says Tom Sanderson, CEO of Transplace, Frisco, Texas.

Sourcing decisions are getting a second look as well, he says. “A lot of manufacturing companies are reevaluating whether it still makes sense to manufacture as much in Asia, with the combination of a very long supply chain and very high level of fuel consumption, as opposed to somewhere like Mexico, which may have a little higher labor cost but also has a much shorter and much more fuelefficient supply chain.”

Lehmkuhl says Menlo already is seeing some nearshoring among its customers, especially in hightech industries. “We see huge growth in the Guadalajara area,” he says, noting that Menlo recently shifted its management office from Mexico City to Guadalajara and expanded its operations there “to better support our customers that are changing their manufacturing footprint from Asia to Mexico.”

While it is wise for people to revisit these questions, as many are, a re-evaluation will not necessarily result in changes on the ground, says Valerie Tardif, vice president of SmartOps, a provider of network and inventory optimization software based in Pittsburgh, Pa. “We are seeing a lot of network analysis being done at the high level, with people mostly trying to understand where the price needs to be for a barrel of oil before it really makes sense to change networks,” she says. “Companies don’t want to rush into decisions because there can be huge fixed costs involved. Redesign might save a few percentages in transportation costs, but the cost of implementing those changes sometimes wipes that out.”

“When I hear all this talk of bringing stuff back from Asia, I have to laugh,” says Chris Ferrell, associate director of the Supply Chain Consortium, a benchmarking group that operates under the umbrella of Tompkins Associates, Raleigh, N.C. “Transportation still only represents 2 percent to 3 percent of total delivered costs so it’s just crazy to think that higher transport costs are going to cause companies to stop manufacturing in China,” he says. “Should folks be taking an opportunity to do a network study and see if there is justification for a second DC or a different distribution center network?” he asks. “Absolutely, because most of these networks were set up at a time when fuel was not even half of what it is today. There probably is a need for incremental changes, but probably not for wholesale changes.”

Long term, however, companies will make many adjustments to accommodate higher fuel costs, says Chris Caplice, executive director of the Center for Transportation and Logistics at MIT, Cambridge, Mass. “I think we will see products and packaging being redesigned for more economical shipping and a greater use of postponement strategies. Thequestion we have to ask is what the price of fuel would have to be for it to make sense to start making these changes.”

“The only way for a company to know when it should start adjusting its strategies is to figure out its tipping point—the fuel price below which one network structure is appropriate and above which a different structure is appropriate,” says David Simchi-Levi, professor at MIT and chief science officer at ILOG, a developer of optimization technology and supply chain software based in Sunnyvale, Calif. “The tipping point is different for every company, he says, and the best way to find it is to run various scenarios using network optimization tools.

Given the current volatility of fuel costs and other factors, these scenarios need to be run more frequently than in the past, Simchi-Levi adds. “In the current environment, companies need to continuously evaluate their supply chain strategy.” Hitachi Consulting, Dallas, advises its clients to reassess their networks on a quarterly basis, says Pete Ward, a principal in the firm. “With today’s technology, once you have built the model, it is not difficult to input new parameters and run different scenarios. You can play with the model and see what you get. At the least, you’ll have something to think about,” he says.

“Our customers have driven us to create models that are effectively dynamic,” says Lehmkuhl. “They don’t just want to know what they should do at this point in time. They want to say, ‘here are the seven variables that determine what we should do, so let’s look at them on a monthly basis by feeding real, current data into the model to see if a different decision is justified.’” In doing that for numerous customers, “we have been able to continuously improve the models and make them even more accurate.”

Jeff Ryan, vice president at BravoSolution, a strategic sourcing and spend management solutions provider based in Italy, agrees that network modeling should be a dynamic process. He warns, however, that “there is a point where you can drive yourself nuts. You don’t want to rethink a brick-andmortar decision every other day. You don’t want to be so nervous about this that you keep taking little steps in all different directions.”

Modal Shifts

One variable that companies can change fairly easily is the choice of transport mode, and these options increasingly are being included in network scenarios, says Robert Schecterle, vice president at Aberdeen Group, Boston. “Network design is not just about where to put facilities, but also which transportation modes to use,” he says. “Companies want to be sure they are using the most fuel-efficient and low-cost mode that will meet their service requirements. With fuel prices going up, we see companies moving away from airfreight and increasing their use of ocean and rail.”

“We have been hearing shippers for the last three years talk about their desire to convert to intermodal and now they are taking action,” says Matheson. “They are being a lot more creative around their transit times and delivery requirements to accommodate a modal shift.”

This renewed interest in rail intermodal may lead to a shortening of the traditional thousand-mile lengthof- haul threshold for use of this mode, Matheson says. “We think there is potential for that to drop down to perhaps 750 or 800 miles in the East, depending on the fuel economics.”

The Allen Group, a San Diego-based developer of logistics parks, is convinced that intermodal will continue to grow and has invested in two large logistics parks close to intermodal rail heads in Dallas and Kansas City. The long-haul savings are compelling, says marketing director Jon Cross, but the Allen Group also provides significant savings on drayage. “We offer a flat $75 drayage fee from the UP intermodal facility to our property in Dallas,” Cross says. “If that same trailer were drayed to a warehouse near the Dallas-Ft.Worth airport the cost would be $200. On 15,000 trailers a year, that would be a $2m savings on the drayage alone.”

If fuel continues to stay at its current level or goes higher, many industry experts believe the future trend will be for companies to establish more DCs and hold additional safety stock closer to consumption points. “Where possible, these will be fed by intermodal service with a regional trucker getting the product to final destination,” says Sanderson. “Personally, I think we may see a lot of that truck distribution using natural gas vehicles,” he says.

The scenario of stocking more inventories closer to consumption points is most likely for companies that built rapid replenishment networks, which rely on frequent small shipments, says Tardif. “The cost of daily shipments or expedited shipments to stores or warehouses has become just too expensive to justify, she says. “We see renewed interest in inventory optimization and the forward positioning of more inventories to meet service needs.”

Jones believes that companies will be looking for more multi-client solutions as a way to position inventory closer to the customer. “It will depend on the value of the product relative to transportation costs—as always, it’s a tradeoff. But as fuel costs make transportation a more heavily weighted factor, I think it will force companies in many instances to carry more inventory.”

Combining inventory optimization with network optimization can help companies determine the best solution for their situations. But the ultimate answer to these issues lies further upstream, says Ferrell. “If you think about the way supply chains are built, you know that a lot of time and energy, in the literal sense, is being used to ship around a lot of stuff that is not needed. If companies spent time more on the inventory planning and demand sourcing side of the equation, they might find that they could make less. That’s where the real fuel savings are.”

That can happen only with “a lot more collaboration and trust” than is typically demonstrated between supply chain partners now, he says. “We still have way too many shippers and suppliers and customers all trying to optimize their individual supply chains and the overall result is far from optimal. These partners need to realize that it’s one giant supply chain and it can only be truly optimized when each participant has visibility to what their partner is doing upstream and downstream and agrees to collaborate around that.”

Asset Utilization

Maximizing asset utilization to ensure, to the greatest extent possible, that trucks run full and via the most efficient route is another perennial opportunity to improve fuel efficiency and lower costs. One way to get there is through load optimization tools that help companies combine shipments into full truckloads or containerloads. The savings potential is great. For one of its newer customers, Menlo increased the average container and trailer load rate from 71 percent to 90 percent, Lehmkuhl says. “That had the same effect as dropping the price of diesel by $1.25 a gallon,” he asserts.

Shippers have an important role to play here, says Jones. “They need to get rid of bad habits like sloppy ways of stacking pallets. They also need to really pay attention to the details of the size of pallets and the quantities they ship. Inefficiencies that used to be acceptable simply are not acceptable at the current cost of fuel.”

Deadhead, non-revenue miles that occur when an unloaded truck has to travel empty to the next pickup location are particularly painful when diesel is $4 to $5 a gallon, says Jeffrey Potts, vice president at LeanLogistics, Holland, Mich. LeanLogistics provides an on-demand transportation management solution to many carriers and shippers. Because all these customers are on a common platform, LeanLogistics has visibility to the macro network, which enables it to identify opportunities for continuous moves, Potts says. “We have visibility into 20 million shipments a year across all of our customers. With that level of visibility we see lot of opportunities to create more efficient moves that none of our customers would be able to see or do on their own. You need the technology and the density to be able to do that.”

With shippers, LeanLogistics looks at traffic patterns and identifies complementary carriers in the system “that are consistently putting empty capacity into that market. The other thing we do is to look at multiple shippers in the aggregate and identify ones with complementary freight lanes that allow us to run carriers in a dedicated fashion with very few empty miles and very high equipment utilization.”

ArrowStream, Chicago, provides a similar service for its customers, most of which are restaurant chains like Applebee’s, Arby’s and Steak ‘n Shake.

Scott Deibert, vice president of supply chain management at Steak ‘n Shake, says that in the past, when it asked carriers to quote a move from point A to point B, they typically would have to build in some premium for deadhead miles because they didn’t know where their next load would originate. “”Using ArrowStream to manage these moves has changed that because of its ability to combine the transportation needs of many similar customers,” he says. “ArrowStream is able to talk to the carrier, not just about a move from point A to point B, but also from B to C and on to the next move after that, and the next after that. It creates a series of consistent moves that can be packaged, which enables the carrier to offer a better deal.” He adds that this all is done with the permission of the companies involved.

Transplace is another logistics provider that looks across its customer base for opportunities to balance carrier capacity with freight moves. “A big part of our value proposition to our carrier base is that we can keep their trucks loaded more fully than might otherwise be possible for them because we manage freight for so many different manufacturers and retailers,” says Sanderson. “We are able to leverage the size and diversity and density of that freight network.”

Having the right technology also is critical, he adds. “Our technology enables us to know where all those trucks are going and to look within the network of freight to find other loads that will keep that truck moving.”

Having good transportation management software, either as a user or through a third-party, is essential to take advantage of many of the fuel saving opportunities out there, says Ferrell. In a recent survey on Fuel Saving Strategies by the Supply Chain Consortium, the need for TMS was a consistent theme, he says. “Whether you are talking about converting truckload shipments to intermodal or LTL shipments to multi-stop truckloads or your pallet configuration or zone skipping for parcel shipments, you need TMS.”

Ferrell says he was “smacked in the face,” to realize how many companies that have a pretty good TMS are not using it to the fullest ability. “We see pretty robust systems where companies have turned off some of the functionality or where there are people whose full-time job seems to be to override the system,” he says. “These are things that could be easily addressed and the savings would be immediate. It’s a ‘no-brainer.’”

One key way that TMS can help is to enable better visibility to both inbound and outbound freight, says Ryan. “We find that many manufacturers and retailers still are focusing all their attention on their outbound freight and not paying attention to their inbound,” he says. “Maybe the inbound move is handled by the supplier or even by their own fleet, but because there is no connection between inbound and outbound freight, those inbound trucks usually go away empty. Managing inbound and outbound together certainly could help fill those trucks up and save a lot of fuel.”

A related step is for shippers to allow carriers to see both inbound and outbound moves so that they can bid on combinations that make sense for their business. “There would be many more opportunities to reduce empty miles and reduce costs if inbound and outbound were tied together,” he says. “I’m surprised at how few companies can actually administer that kind of approach. From a transactional standpoint, the coordination of inbound and outbound is very weak.”

When suppliers control the inbound movement, transportation is often embedded in the delivered product price, which is another practice that companies should look at, says Lehmkuhl. “With transportation costs on the rise, this type of pricing may not be a good idea. Decoupling the logistics expense from the piece price gives more transparency and more control over that expense.” This is a high priority with some customers because their suppliers have increased piece prices and blamed fuel for the increases, he explains. “We could not analyze whether those increases were legitimate because there was no transparency,” he says.

Even if a company decides in the end to allow a vendor to continue embedding transportation in the delivered price, they should at least demand to see a decoupled price when comparing price options, says Ryan. “This allows you to see how efficient the vendor is with their transportation management. If you know the freight component you can see if one vendor is better than another in particular lanes or better than if you controlled the transportation yourself. Then you can decide whether to use their freight arrangement, but it shouldn’t be a default position.”

David Rutchik, a partner at consulting firm Pace Harmon, Vienna, Va., strongly urges companies to decouple accessorial charges as well, including fuel surcharges. “A lot of carriers follow what I call the ‘law firm model’, where the law firm charges $1 per page to make a copy of documents, a charge that has nothing to do with the actual cost,” he says. “These accessorials often are not aligned with actual costs and often are not all tied to the same indices. But people tend to look at them almost like an incremental tax and so they don’t question them. Customers could get a lot more visibility into their freight charges by demanding a la carte accessorials and, of course, the fuel surcharge is the largest of these.”

In managing fuel surcharges, the key is to make sure there is some incentive for the carrier to be as efficient as possible, says Ryan. “If it is a straight pass through, there may be insufficient incentive for a carrier to update its fleet,” he says.

Ward agrees. “A carrier with a good, new fleet, especially one operating in the flatlands, should be getting 6.5 to 7 miles per gallon, he says. “Customers need to ask their carriers about their miles per gallon and anything else that gets to the consumption of fuel.”

This is not just important for cost reasons but also for sustainability programs, which are increasingly important to shippers, he says.

“All of our customers are asking about our carbon footprint and how we impact the environment,” says Miller. “It’s a really big issue for them and we have employed full-time leadership to drive and maintain our focus on sustainability.”

“Right now the drivers for fuel efficiency and the drivers for being green are coming together to support each other,” says Schecterle. “We see those two things going hand in hand.”

Most carriers do not need their customers to challenge them on either fuel efficiency or sustainability because it is to their own advantage to be as fuel efficient and as green as possible. Many already have taken steps such as reducing the maximum miles per hour that trucks are allowed to run from 68 or 65 to 63 or even 60. Other common practices are the use of automatic sensors to check for engine efficiency and proper tire inflation, automatic engine shutdowns to decrease idling and the use of auxiliary power units for heating and cooling.

Sensors also are being used to monitor an operator’s driving habits and increased attention is being paid to driver training and to incentives for drivers to operate vehicles more efficiently.

“I believe that high fuel costs will essentially end up being an inefficiency tax,” says Ferrell. “It will inspire companies to start doing the things they should have been doing all along, but never needed to because the pain wasn’t great enough, and to stop doing silly things they never should have been doing because the added cost was not that big of a deal. Well, at $4.50 a gallon, it’s a big deal.”

October 22, 2008

Report: Dallas Metro Area to Grow As Logistics Hub

By John McCloud

DALLAS-A new report distributed by Colliers International predicts the Dallas-Fort Worth area will continue to gain prominence as a logistics hub. According to the study, written by Dr. Terrance Pohlen, associate professor of logistics management at the University of North Texas, the area’s mid country location, abundance of affordable real estate and extensive rail networks make it an ideal location for 21st century distribution purposes.

“The strategic location of the area has attracted many businesses seeking short transit times from a single point to the US market,” says Pohlen. “Intermodal freight from Asia can reach the Metroplex within three weeks as opposed to four weeks to arrive in Houston or the East Coast. Trucks departing Dallas-Fort Worth can reach over 75% of the US population within a two-day drive time.”

According to Colliers executive vice presidents Tom Pearson and Chris Teesdale, increases in fuel costs are prompting distributors to reexamine how they do business. “We think that has a big impact on why a lot of decisions aren’t being made on new distribution centers,” says Teesdale. “They are trying to figure things out.”

As the UNT study shows, a decade ago, $500 worth of diesel fuel would have taken a truckful of merchandise all the way across the country, but at current prices the cargo would get only about 700 miles. Consequently, say Pearson and Teesdale, distributors are likely to opt for multiple warehousing locations closer to the markets they serve rather than rely on central depots. Though the shift will benefit multiple major distribution markets, they maintain it will benefit Dallas-Fort Worth more than most.

“That’s certainly a strategy these distribution operators are considering,” says Teesdale. “We are certainly going to see a lot more facilities being built here, although they would maybe not be the big million square-footers.”

According to the study, Texas has the second greatest number of railways among US states with 44 systems, including four class I systems – BNSF, Kansas City Southern, Union Pacific and CSX. It ranks first in the track mileage with close to 15,000 miles of track. BNS, Kansas City South and Union Pacific alone have more than 12,000 miles in the state.

The study also points out that Dallas-Fort Worth International Airport is the 11th largest cargo airport in the world, having moved up several points in the past decade, while Fort Worth Alliance Airport is the nation’s fastest growing cargo airport, with an average annual growth rate of 28%.

In addition, it notes the region’s strategic position at the confluence of north-south interstates 45 and 35 [the NAFTA Highway] and east-west interstates 30 and 20. As a result, the market is served by nearly 600 long-distance trucking companies, offering maximum two-day service to the 48 contiguous states.

According to Global Insight Inc., Texas handled 20.35 million 20-foot-equivalent-unit (TEU) containers in 2000 and is projected to handle 48.4 million TEUs by 2020, a 137.8% jump.

“The Metroplex is among the best positioned markets in the country for logistics growth,” Teesdale tells GlobeSt.com. “It has the land, it has the infrastructure, it has the location and it has the momentum.”

October 20, 2008

Beyond the Business Card

By Mandy Jackson

Richard Allen, chief executive officer of /san /diego-based office and industrial development firm The Allen Group. comes by his entrepreneurial streak naturally.

Allen’s parents started five different businesses in a 21-year span, ranging from candy distribution to paper cup manufacturing. After graduation from Bowling Green State University in Ohio in 1971, it was the paper cup business that brought Allen to California in 1985 and Visalia in 1986.

The paper cup business was sold three years later and the Allen family got into real estate. During the early ’90s, they had capital to invest at a time when others did not. They bought empty industrial buildings in Visalia, fixed them up and sold them.

The Allen Group built a very large portfolio of office buildings and eventually sold the assets to Los Angeles-based real estate investment trust Kilroy Realty Crop. Allen turned his attention to distribution centers and single-family homes in the Central Valley.

The homebuilding business was sold in 2001 to San Diego’s Corky McMkillin Cos., allowing The Allen Group to focus on building large master-planned industrial parks next to major inter-modal rail facilities.

While Allen maintains a home in Visalia, he lives most of the time in San Diego County’s Rancho Santa Fe community with his wife Jane. The two have been marries 37 years, but have been together for more than 40 years since high school in Ohio. Their son Luke works for The Allen Group as the company’s California Development Coordinator.

What intrigued you about logistics real estate?

I had developed on industrial focus early on in Visalia and maintained that. It was ongoing since we sold the cup business back in ’89. I had come across a project in Shafter, the International Trade and Transfer Center.

As part of my due diligence, I visited the Alliance Project, Ross Perot Jr.’s project in Texas. The ITTC was adjacent to the Burlington Northern Santa Fe railroad and there was some talk about intermodal development. What was driving customers to the Alliance Project was the intermodal center.

The ITTC ended up evolving from 150,00 square feet to more than 1 million square feet. Those buildings needed to be – and the tenants wanted to be – located next to where these thousands of containers of goods were coming from.

How is your business changing as fuel prices and the economic slowdown impact trucking companies accessing major distribution centers?

Interestingly, as fuel prices go up and the economy becomes more challenging, that really has been helpful to us. We have a 1.1 million square-foot facility in Kansas City and we’re talking to a nationally known company that is recieving the majority of their goods from overseas. They are in 16 different facilities in the Kansas City area. Now they have to be more efficient because the margins are being squeezed. They’re looking at relocating to a 1.1 million-square-foot facility near the new intermodal Burlington Northern Santa Fe project. As fuel prices go up, it becomes more and more important to locate these mega facilities close to where the goods are coming in.

What do you see as the biggest opportunities and challenges for commerical real estate in California?

The capital markets are the biggest challenge right now and the economy. The recession that is occurring, if that’s how we’re now describing it, has caused everybody to pull in their horses. The shortage of capital is making it difficult for everyone to do business.

What non-real estate experience is in your backgroun that you find yourself drawing upon in your real estate work?

I was fortunate to grow up with my parents starting five different businesses. The one thing I learned in that process is the key to do business is hiring the right people. You hire the people with the experience and skills to do the work. If you have a better team you’re going to do better.

What is the one thing people should know about you before doing business with you?

I think the thing we have really prided ourselves on is honesty and integrity and being able to do a deal on a handshake – kind of the old school of doing business. It’s not all about making money. We’ve been fortunate enough to do good business over the years and we are well-capitalized, but it’s more important to us to take care of our clients and our employees and maintain our reputation that we have built over the years.

If you weren’t doing this, what would you be doing?

My problem is I have the same problem my father has and that is a propensity to go out and start other businesses. If I weren’t in the real estate business, I have about three or four other ideas for businesses that I’d go out and start.

Where do you like to vacation?

My wife and I really enjoy riding our bicycles. I really wanted to ride my bicycle across America. I asked my wife to drive the car behind me and she said she wanted to do it with me. We rode from San Francisco to Portsmouth, N.H. (in 2000). We’ve been talking about doing it again next year because we both turn 60, but I have a couple months off to do it.

I ride my bike to and from work every day. I like to ride my bike, but I also don’t have a driver’s license because i have poor vision.

If you could have any super power, what would it be?

I wouldn’t want a super power. Super powers would be pretty scary and I’m not sure I’d want that responsiblity. I wouldn’t like to play God. I wouldn’t like to have the responsibility of making the decisions that go with that power.

If i had a super power, I would want it to be the ability to make people happy. If you could wave a wand and do that throughout the world, that would solve every problem that ever existed.

October 14, 2008

Allen Group secures bridge loan for part of Dallas Logistics Hub

By Steve Brown

Investment banker Holliday Fenoglio Fowler LP said Tuesday that it has arranged a $20 million bridge loan to recapitalize part of the 6,000-acre Dallas Logistics Hub.

Developer Allen Group secured the financing for the 1,031-acre portion of the project from American Bank of Texas.

“Despite a complex transaction and a historic level of disruption in the capital markets, they never wavered in their focus or in their commitment to this deal,” Holliday Fenoglio Fowler’s HFF John Ahmed said in a statement.

The land is located near Union Pacific Railroad’s Southern Dallas Intermodal Terminal and a similar terminal planned by Burlington Northern Santa Fe.

The Dallas Logistics Hub is planned to eventually contain 60 million square feet of industrial office and retail developments.

October 10, 2008

The Allen Group gains approvals from development of Logistics Park Kansas City

The Allen Group, one of the nation’s leading Inland Port development companies, received final approval from the Johnson County Board of Commissioners for a public infrastructure Plan of Finance supporting the new intermodal and logistics park development. This came on the heals of the City of Gardner’s approval of the same Plan of Finance, Annexation and Development Agreements supporting the creation of Logistics Park Kansas City (LPKC).

The Annexation and Development Agreements, in combination with the public infrastructure Plan of Finance, set forth three separate stages of public infrastructure improvements totaling approximately $52 million. The first stage of improvements willinclude $14 million to connect 191st Street to

Interstate 35 allowing the first 200 acres to be developed. Construction for the road improvements on 191st Street will begin in early 2009. The State of Kansas has also made an initial commitment of $3 million to improve the existing Gardner Road and Interstate 35 Interchange. A new interchange is planned by Kansas Department of Transportation (KDOT).

Logistics Park Kansas City is a 600 acre Inland Port logistics park separate from, but adjacent to, the future BNSF Intermodal Facility in Gardner, Kansas. At full build-out, the park will have more than 7.1 million square feet of LEED certified distribution and warehouse facilities, creating over 7,000 new direct and indirect jobs and providing a one billion dollar economic impact for the State of Kansas.

October 1, 2008

Can Warehousing Really, Truly Be Strategic?

You bet. Innovations and value-added DC services are helping shippers leverage their supply chains to compensate for a weak economy, by bail button Warehousing has come a long way from a place to store product. Value-added services combined with some savvy upgrades are making them strategic players in shippers’ quest to do more with less.

During the past decade, “companies may have shifted their manufacturing base, and demand patterns may have changed, but not their warehousing,” points out Bob Spieth, president of OH Logistics. To prosper in tough times changing the way you do things to become more effective in the existing reality vital.

On the technology front, software as a service (SaaS) is a fairly new offering with great potential, especially for cash-tight businesses. With SaaS, users can access the software they need from an application service provider, when they need it, with the same ease as accessing a desktop application, and only pay for what is actually used. This means that users can access software to build highly complex, dynamic models of their supply chain at a small fraction of the cost of buying the application or the heavy duty computing power needed to run it. SaaS also avoids the headaches of installing and implementing an application that may be needed once every few years.

SmartTurn Inc. launched the first SaaS global inventory collaboration platform last June. “It runs over the Internet. You just need a browser,” notes Richard Yim, vice president of products and marketing. Designed for small warehouses and large supply chains, the SmartTurn Inventory Grid offers joint logistics planning, real-time visibility, permission-based inventory visibility, adaptive fulfillment, exceptions management and multiwarehouse inventory planning and distribution.

To determine who can see what information, the information owners set the security and access levels in much the same way Linkedln or Facebook users determine access—levels of permissions. For a price of $500 per month per warehouse, SmartTurn lets clients support an unlimited number of users. Yim says it’s becoming a popular option for 3PLs, who can now get their clients up and running in two to three days, compared to about three weeks for a traditional system.

RFID is becoming increasingly common for highend goods. Although the “let’s tag everything” mindset is employed by only a few major chains, according to Scott Burroughs, director of IBM’s Sensor and Actuator Solution Software Strategy, RFID is entering the business transformation stage where the question is, “how can RFID help businesses gain an advantage from technology?”

Airbus is at the forefront of RFID implementation. “Airbus made a strategic decision to look across multiple areas in the supply chain,” Burroughs says. At an April Webinar, Carlo K. Nizam, the head of value chain visibility and RFID for Airbus, outlined the enterprise-wide rollout plan. Initially, it implemented RFID to track containers and to manage received goods in the warehouse. The company plans, eventually, to integrate RFID into manufacturing and to use that information to automatically generate billing based upon the actual materials used to build each plane. In the pilot project, Airbus found it lowered labor costs and increased accuracy. “The biggest benefit,” Burroughs says, “is that it decreased inventory requirements.”

Harvey says some companies are sitting down with their supply chain partners, including logistics organizations, carriers and warehouses, to develop a system that is effective for all players and then automate it for a fully integrated supply chain. “The goals are to move information faster, ensure information is correct and put a business system atop data flow to allow exception management so you have actionable information,” he says.

In the movement towards a “touchless” inventory information system, shippers, carriers and 3PLs often found that integrating their stand-alone systems rarely yielded a seamless supply chain information system. Bill Harvey, director of logistics for Elemica, says the disparity among systems is causing noticeable delays. The current challenge is to take advantage of the built-up IT infrastructure, optimizing it for enhanced visibility throughout the supply chain.

Supply chain reinvention

Technology is just one part of the solution, though. One of the goals is to minimize the time to get products to the shelf. “The product life cycle—the time between new model introductions in-house or from competitors—has shrunk to a few days or weeks from six months to a year,” notes Steve Sensing, VP Operations, Supply Chain Solutions, Ryder System, Inc. To maximize sales opportunities, “Retailers are demanding products reach their shelves within days,” he says. The luxury of a six week ocean transit is reserved for less time-sensitive goods.

“The objective is to get warehousing closer to the customer,” emphasizes Walter Gruener, partner at Grant Thornton. Doing so has the overall effect of lowering shipping costs and speeding delivery by using more direct routes; having warehousing in similar time zones also helps the manufacturer and the customer work with the warehouse in real time. Carriers know this and are improving their routes into Mexico, and their facilities near the border. And to relieve the acknowledged congestion around major ports, some carriers and developers are expanding facilities near secondary ports like Tacoma or moving into more rural areas. By moving to places like California’s Moreno Valley, about 30 miles from Riverside, companies avoid die moratorium on freight movement during much of the day and gain more affordable and more available real estate.

The Allen Group, a private real estate development company, is buying land in strategic positions for warehousing and industrial parks near major transportation corridors. “Having land in Kansas City or Dallas near intermodal facilities is as sexy as oceanfront property,” Jon Cross, director of marketing, says. The heartand’s ‘inland ports’ as he calls these hubs, can reach 70 to 80 percent of the population within one to two days and the remaining percentages in four to six days. And, he says, labor is more stable in the U.S. interior because unemployment typically is higher than on the coasts.

In Dallas, The Allen Group is building a 6,000-acre project with 60 million square feet of vertical storage. The industrial park is expected to create some 60,000 new and indirect jobs for the regions by the time it’s built out 30 to 35 years from now. It has the benefit of being near Interstates 35,45 and 20, and the Loop 9 rail corridor around Dallas, as well as the Dallas-Fort Worth airport. “It will be the first industrial park in the U.S. to have two intermodal facilities,” Cross says, as Union Pacific and BNSF both have hubs there.

Near-shoring

To deliver shorter transit times, near-shoring is very attractive,” Sensing adds. It puts manufacturing closer to the customer in time zones that are more amenable to normal business hours and in countries that share a common basis in Western philosophy and have more similar cultures.

“Some companies are coming back to the U.S.,” Sensing says, while others are locating nearby. Although the topic of near-shoring arises in nearly any supply chain conversation, there’s broad agreement that this strategy is, so far, the subject of more talk than action. “Such decisions involve contractual relationships and so are held close to the vest and normally aren’t divulged until the decision is made,” notes Robert Gahagen, managing director of operations for Latin America at Menlo Worldwide Logistics. “Things don’t change overnight,” he says.

Third-party resources

In a similar vein, though, Steve Bullard, director of logistics services for Pilot Freight Services, says more companies are performing final assembly in the U.S. from sub-components manufactured overseas. One, an international MRI manufacturer, works with about 34 suppliers and keeps their parts in a warehouse near its U.S. factory. This provides the benefit of inventory reduction without affecting availability, because the shippers maintain ownership of the components until they actually are needed. In that situation, the MRI manufacturer has complete visibility to the entire warehouse, but individual shippers can only access information about their own goods. For this instance, Pilot created a third party mixed-use warehouse that handles about $10 million in inventory annually.

Such shared warehousing is most common among suppliers to a particular company in mature industries with mature product lines, and almost never among competitors. Although suppliers get paid later, it does help them transport more of their inventory by lower-cost carriers, saving more expensive modes for the last miles.

Using carriers’ resources is a good way to optimize the supply chain—that approach is driven by retailers that are converting their own storage space to shelf space, pushing the storage burden, oftentimes, onto the vendors.

Crowley, for example, offers pick and pack services for its apparel customers, as well as quality control, retagging, re-labeling and cargo segregation for shipping. “We’ve been doing this about ten years,” Carlos Rice, general manager, says. “Interest is picking up,” and now constitutes about 50 percent of Crowley’s revenue.

CellMax uses Pilot’s value-added services to help it more effectively distribute cell phone tower equipment in the U.S. It exchanged air shipping on a per order basis with ocean transit and full container loads stored in local warehouses.

Shipwire, an e-commerce order fulfillment company, offers a similar service in the U.S., Canada and UK. “Companies send us inventory and we help move it globally, shipping it from the nearest warehouse to the buyer,” explains Nick Gilmore, VP Marketing. This “store, sell, ship” model, he says, helps small companies compete globally with a level of shipping comparable to that of their largest competitors. That allowed one U.S. wind turbine company, RE Trade, to offer two-day delivery to its UK customers for the price of local ground transport.

Another option is “merge in transit” or “merge and delivery” services. Pilot Freight Services can hold components at Pilot’s facilities until an end customer’s order has completely arrived. Delivering everything to the customer at once minimizes the potential for misplaced components at the receiver’s location and increases efficiency for Pilot by allowing one larger delivery rather than several smaller ones. Taking that a step further, Gruenes says, involves coordinating deliveries so they arrive at the warehouse simultaneously for consolidation, so nothing is actually warehoused. That’s most useful for high end products, and is likely to be a growing trend.

Prospering in tough economic times is possible, but it requires taking a hard look at your own organization, your options, and the willingness to act. Warehouses aren’t just for storage anymore and carriers don’t just transport goods. Value-added services are making them strategic partners with skills that savvy shippers can leverage to their own best advantage.

Contributing Editor Gail Button writes often about logistics and supply chain issues. She is based in Washington State.

October 1, 2008

Commission approves infrastructure financing for intermodal

By Jack Weinstein

Johnson County commissioners approved financing last week for public infrastructure improvements to accommodate the Gardner Intermodal Hub and Logistics park.

Commissioners voted 5 to 1 for the improvements ” dubbed the Public Infrastructure Financing Plan ” needed for the more than $700 million project developed by Burlington Northern Santa Fe Railway and The Allen Group on 1,000 acres at 191st Street between Waverly and Four Corners Roads. Commissioner John Toplikar was the only dissenting vote. Commissioner Ed Peterson was absent when the vote was taken.

A $14 million design contract with Lenexa-based engineering firm Shafer, Kline and Warren, Inc. to remodel 191st from Gardner to Four Corners Roads was authorized by commissioners.

They also approved a measure to assist Gardner with finding funding to improve Waverly Road from 191st to U.S. Highway 56 and the South Waverly Bridge at an estimated cost of $12.2 million. The Public Infrastructure Financing Plan and intention to annex the land was approved by Gardner city council members the week before. The annexation will take place within 45 days of approvals by all participants including the city, county, railroad and developer.

After the meeting Thursday, Commissioner John Toplikar, released a statement explaining his opposition.

“Never before in the history of this county have the people been asked to pay so much for a private development they never asked for, ” Toplikar said.

“For this reason I call for a public vote and referendum on public participation on any county financing plan concerning this development. “

Toplikar added that more than 600 Gardner residents had signed a petition to oppose tax abatements granted to private developments at more than 30 percent. A 50 percent abatement has been proposed for the development.

In June, the Gardner Alliance for Equitable Taxation filed a civil suit against Gardner in Johnson County District Court to force the limitation of tax abatements provided by the city. That case was dismissed Sept. 24.

Another aspect of the Public Infrastructure Financing Plan called for the county to work with Gardner during the upcoming session of the Kansas Legislature to obtain an additional $50 million in state bonds to fund other infrastructure around the development.

During the last session, Gov. Kathleen Sebelius vetoed a financing package that contained the bonds because it was included with legislation to build two coal-fired power plants near Holcomb. Construction of the Intermodal Hub and Logistics Park, which will include more than 7 million square feet of warehouse development, is slated to begin in early 2009 with completion in late 2010.

To accommodate increased truck traffic as a result of the development, the construction of a new interchange at an undetermined location will be paid for by the Kansas Department of Transportation.