TRANSPORTATION – THE TAIL THAT WAGS THE DOG

Fifty years ago, when you wanted to expand your distribution network and build a new distribution center, you didn’t call an industrial real estate broker; you called a railroad.  Most large companies shipped their product – whether it was boxes of cereal or rolls of carpet – by rail, which meant they needed access to a rail siding.  The nation’s railroads owned plenty of raw land, much of it located along the rail rights of way, thanks to government land grants handed out in the mid-1800s to encourage development in the nation’s heartland.  And the railroads were only too eager to sell off plots for nominal amounts in exchange for a contractual promise of carloads of freight.  Some even threw in extras like extended rail sidings, rate discounts and extra services to snag a desirable account.

But those days have vanished with the steam locomotive.  Today’s distribution center site selection teams want to know about a site’s access to highways, not railroads; very few distribution centers today even have rail sidings.  And most of these teams are more concerned about labor supply and tax incentives than about transportation rates and availability.  Unless they have experienced transportation professionals aboard, they’re likely to see “transportation access” as just another entry on an extensive A to Z site-selection checklist that runs the gamut from “availability of labor” to “zoning requirements”.

That would be a mistake.  “Transportation access” is about much more than the distance to the nearest interstate highway, and a potential site’s transportation profile deserves careful review.  For most corporations, transportation still remains a big budget item – freight bills account for anywhere from 70 to 85 cents of every dollar spent on logistics, depending on the product mix.

With that kind of money at stake, you don’t want to stumble.  Yet all too often, that’s what happens.  Many times, for example, companies compare the pros and cons of potential locations by running a sophisticated network analysis model using current transportation rates to and from the sites.  Sounds like a reasonable place to start, but there’s one problem:  Although the model will crank out a fairly accurate analysis of the situation as it stands today, it tells them nothing about how things will look in the future.  For that, logistics and managers need to do some digging.  Once they’ve gotten to the shortlist stage, managers should arrange to meet with the carriers serving the cities under consideration.  These meetings often yield some unexpected information and may even result in price breaks.  It’s important to keep in mind that almost any traffic lane represents some trucker’s backhaul, and your ability to fill those empty trailers could prove a powerful bargaining chip.

Another trap for inexperienced site selection teams is failure to consider transportation equipment availability.  Even cities that are widely considered to be major distribution points and boast service from a large number of carriers may be plagued by equipment shortages.  That’s particularly true if the local distribution centers handle large volumes of products that originate offshore and are hauled to the cities in ocean containers rather than trailers, creating an imbalance between the number of trucks going out and the number coming in.  Analyzing the market dynamics in advance could keep you from signing a contract you’ll live to regret.  It could also give you more clout when negotiating rates if you can demonstrate that your inbound traffic will help correct that imbalance. It is a good idea to look beyond the big cities, as well. Cities such as Cedar Rapids for example, have excellent transportation access without the congestion of the larger markets.

In the end, of course, the decision will hinge on more than transportation.  Real estate, environmental, labor, community and other site location factors must be brought to bear on the choice.  And it would be foolhardy not to investigate tax structures and zoning regulations.  Even so, keep in mind that in the final analysis, it’s all about getting your products into the facility and then on out to your customers.

Written By: Clifford F. Lynch