Logistics Driven by E-Commerce Growth will Focus on Regions with PPP in 2021

Shifts in consumer behavior to more e-commerce, increased industrial production and increased imports are all driving tremendous growth in the U.S. logistics, distribution, and fulfillment center industry.  Today’s fulfillment center is replacing the job losses in the manufacturing industry as automation driven by technological advances and reduced costs of Artificial Intelligence and robotics.  COVID 19 has not slowed the growth of industrial development tied directly to the changing consumer behavior to shop via e-commerce rather than in person.  Logistics is a booming industry driven by the growth of the $340 B e-commerce industry expected to grow to $476 B by 2024[i] transforming the retail industry into the fulfillment center industry which will drive annual net industrial absorption to more than 333 million sq. ft. by 2022 continuing the expansion of the logistics industry.[ii] Based upon this expansion of a 10-year trend, CBRE estimates 2021 will see the absorption of 300M square feet of new industrial space driven by e-commerce.  These logistics facilities will locate in regions with a clear strategy to capitalize on this boom through the development a Public-Private-Partnership to prepare sites for development, develop infrastructure and prepare the regional workforce.

First, develop sites.  Nothing new here—communities have been developing industrial parks for decades in the hope that “if you build it, they will come.”  The difference is the capital markets are interested in capitalizing on the logistics boom as well and national industrial developers are building industrial centers, often with million square foot buildings designed for modern logistics centers, as fast as they can.  Communities interested in recruiting these industrial developers to town need to create a smooth land use process, provide competitive tax rates or abatements, tools for funding schools and local governments as well as the infrastructure needed to enhance the regional transportation system.  This capital market interest in developing logistics space also likely means communities should not build their own speculative space.  Instead, get land under control—these industrial parks typically located in rural communities often range in size from 100 to 1000 acres and everything in between.  Understanding construction, transportation, and infrastructure costs to prepare the site for development. Zoning for the logistics industry is often specifically created and a public-private-partnership developed to eliminate the property tax but capitalize on other taxes such as income or sales to build a local government and school district revenue stream.

Second, build infrastructure.  Logistics parks do not exist without the roads, rail, airport, water, and sewer service need to let them operate.  The fewer logistical challenges the better for communities wishing to capitalize on the logistics boom.  49 states have Tax Increment Financing or TIF programs that capture the future growth or increment of property and potentially other taxes spurred by development to fund the infrastructure needed for a site to development.  States with income taxes often have programs know as Joint Economic Development Districts that permit townships to jointly capture income taxes created by economic development projects that can fund public infrastructure.  Infrastructure for the logistics industry is not just located at the industrial park.  Interstate highway access, major rail links and logistics-based airports are often at the center of a logistics park operation.  Many successful logistics centers create an intermodal, defined as the movement of containerized (unitized) cargo over air, land, or sea using different transport modes (aircraft, truck, rail, boats, ships, barges, etc.) capable of handling containers.  Railroads are usually at the center of intermodals. 

Third, but certainly not last, is workforce.  Logistics parks cannot succeed without a skilled workforce ready and available.  A DHL funded study found the U.S. Bureau of Labor Statistics reports that jobs in logistics are estimated to grow by 26 percent between 2010 and 2020 while one global study estimates that demand for supply chain professionals exceeds supply by a ratio of six to one, and that some studies assert that 25 to 33 percent of the current supply chain workforce is at or beyond retirement age, and the backfill pipeline is inadequate to satisfy replenishment demand.  The logistics industry is not alone with workforce development challenges.  Full employment and a demographic shift with Baby Boomers retiring and Millennials struggling somewhat to fill this substantial workforce gap create workforce skills gap in nearly every occupation.  Regional workforce development programs are working in overdrive to address this economic challenge but it may take more than a village to take care of this issue.  Regions looking to capitalize on the logistics industry growth need to create customized workforce development programs for this industry.

Communities like Columbus, Ohio have become a logistics leader hosting 83,000 logistics jobs built around three hubs in rural counties just outside of Ohio’s largest city that is home to nearly 1 M people.  The Columbus logistics industry was created based upon a Public-Private-Partnership that provides a 100% 15-year property tax abatement of industrial or logistics companies that often includes the use of Tax Increment Financing and Joint Economic Development District and state of Ohio funding for infrastructure development as well as negotiating compensation agreements with local governments and school districts to provide funding through Payments in Lieu of Taxes from the developers to assume companies as well as communities win when jobs are created.  The result has put Central Ohio on the logistics map to compete with regions across the Midwest for logistics jobs. 

[i] https://www.statista.com/statistics/272391/us-retail-e-commerce-sales-forecast/#:~:text=In%202019%2C%20U.S.%20online%20retail,dollars%20in%20revenue%20by%202024.

[ii] https://www.cbre.us/research-and-reports/US-MarketFlash-Annual-Industrial-Demand-to-Hit-333-Million-Sq-Ft-by-2022