Three Strategies to Capitalize on Logistics Boom

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.  In fact, demand for logistics space drove down the U.S. industrial real estate space to 4.3%– a historic new low in 2018.  Three clear strategies exist to capitalize on this boom in logistics. 

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 through the use of 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 Kansas City have been capitalizing on logistics for decades driven by a major BNSF rail investment.  Logistics Park Kansas City (LPKC) is a 1,700-acre master-planned distribution and warehouse development in Edgerton, Kansas — just southwest of downtown Kansas City.  Served by global intermodal transportation leader, BNSF Railway, LPKC is a world-class inland port with capacity for 17 million square feet of industrial buildings. There are 7+ million square feet of new distribution facilities at LPKC, with speculative and build-to-suit opportunities available.  NorthPoint Development serves as the developer for LPKC and they are driven unprecedented industrial growth in the Kansas City region with 5.1 million square feet of new industrial space delivered in 2018 – and 4.2 million square feet under construction (Q4, 2018). 

 The area is now accommodating many large global brands as they relocate or expand, including Amazon, Dollar Tree, CVS Health,, Turn5 and Hy-Vee Aisles. With a transportation and warehouse employment growth rate of 3.5% for nearly a decade, and 10 new freight-based companies that have brought nearly 1,000 jobs to the region, it’s clear that Kansas City is becoming a key business destination for many logistics managers.  Capitalizing on a strategic location, rail infrastructure and a skilled industrial developer is a formula for economic success.  LPKC also benefits from a logistics workforce development program. The Learning & Career Center (LCC) at Logistics Park Kansas City (LPKC) is a collaborative effort between private industry, educational institutions, community and workforce partners focused on developing a highly trained workforce for the logistics and supply chain industry in and around LPKC. The LCC strives to create training programs that produce excellent employees and deliver employment services to job seekers and companies within the LPKC Business Park and surrounding Southwest Johnson County, Kansas area.  Finally, LPKC benefits from a strong regional economic development group, the Kansas City Area Development Council that promotes the park and regional economic development.  LPKC is the total package from a logistics park standpoint and is expected to create 13,000 more jobs in the coming years.