Tuesday, January 19, 2010

Driving Economic Development in the U.S. Southeast

by Ken Krizner

The Southeast U.S. has a number of critical site location factors that make it a highly attractive region for expansion and relocation projects. The region’s manufacturing sector has been transformed during the past two decades by a number of foreign automaker production plants. Leading retailers have located distribution centers in the Southeast to receive inbound shipments from overseas.

Those factors include a high quality of life, states that have right to work laws and ample funding for workforce training programs and other incentives, low taxes, and a moderate climate.

The region also has a well-suited infrastructure in place, with numerous ports on the Gulf of Mexico and Atlantic Ocean, rail access via CSX and Norfolk Southern, a highway system that can accommodate heavy truckloads, and airports. As opposed to other regions of the country, the metro areas of the Southeast are connected to each other by just a few hours’ drive, says Tim Feemster, senior vice president, director of global logistics for commercial real estate advisory firm Grubb & Ellis Co.

Europe- and Asia-based automakers continue to drive economic development in the Southeast, creating a region-wide phenomenon that has transformed the manufacturing landscape. South Korea-based Kia Motors is the latest foreign automaker to launch production in the Southeast, beginning operations in West Point, Georgia in November.

Germany-based Volkswagen has begun installing equipment at its new plant in Chattanooga, Tennessee, which is expected to being production in 2011. The automaker received more than 65,000 applications for the production work force and about 30,000 applications for skilled maintenance and professional positions. Hiring will begin in early 2010, and Volkswagen expects the plant to generate about 2,000 jobs.

Mercedes is expanding its complex in Vance, Alabama, where it will spend $150 million for a 200,000 square-foot expansion of the body shop, and it will spend $140 million for equipment and process upgrades, including more robotics, in other parts of the facility. Toyota, meanwhile, is building a $1.3 billion plant in Blue Springs, Mississippi, which will employ about 2,000 workers to build the Prius. Toyota currently has production facilities in three Southeast states—Alabama, West Virginia, and Kentucky.

“The [automobile] industry has an economic model that generates jobs—both direct and indirect,” Feemster says. “The cost of labor [in the region] is good, as is the demographics of the labor. There is a skilled workforce.”

A solid distribution and logistics foundation

Retailers, too, are finding an attractive environment to expand their distribution facilities in the Southeast. Many retailers have distribution centers near the Port of Savannah (Georgia). Savannah is the nearest port to Atlanta, the largest metropolitan area in the region.

“[Savannah] is the closest port to the largest consumption zone in the region,” says Jeb Atkinson, vice president of the Corporate Services Group for ProVenture, a Brentwood, Tennessee-based national real estate advisory and corporate services company.

Wal-Mart operates a distribution center inland from the port and leases substantial warehouse space within about 5 miles. IKEA operates a 1.7 million square foot facility.

Other retailers, such as The Home Depot, Dollar Tree Stores, Lowe’s, and Target, also have distribution facilities at or connected to the Port of Savannah.

Other ports in the Southeast are also home to retail distribution operations. Supermarket chains Winn-Dixie and Publix have major distribution operations at the Port of Jacksonville (JAXPORT) in Florida. In addition, the Port of Miami is the gateway to inbound and outbound cargo shipments to and from South America, Central America, and the Caribbean.

The Southeast ports are more frequently receiving cargo shipments from Asia via the Panama Canal or Suez Canal. Retailers cite cost—ocean freight is less expensive than rail or truck—avoiding the congested California ports in Los Angeles and Long Beach, and more direct access to the heaviest U.S. population areas as the reasons.

Southeast ports are servicing the eastern seaboard and markets between 250 and 500 miles away, Feemster says. “An all-water route is less expensive,” he points out. “The longer you can extend your supply chain through the cheapest mode of transportation, the better it is. We’re producing a lot of consumer goods in China and 77 percent of the U.S. population is east of Texas.”

Logistics has been a primary economic driver in Charleston, S.C., for more than 300 years. That has led to a deep and growing pool of workers involved in all aspects of transportation and logistics. The region’s employment in transportation and materials handling occupations grew 12 percent between 2000 and 2008, compared with a 1 percent decrease in such employment nationwide, according to the Charleston Regional Development Alliance (CRDA).

Area colleges offer a number of programs relevant to the industry. “We have a full spectrum of education that allows for the training of a good work force,” remarks David Ginn, president and CEO of CRDA.

The state of South Carolina offers companies an infrastructure and market access that allows them to transport product to national and international markets by way of an expansive network of railways, airports, and highways.

There are about 260 distribution and logistics operations in the state. A distribution site in South Carolina is located within 1,000 miles of 35 states and roughly 75 percent of the total U.S. population.

Retailers such as Wal-Mart, Target, QVC, The Home Depot, Starbucks, and Walgreens have established distribution operations in the state. Wal-Mart has two distribution centers in South Carolina, which serve as super-regional distribution centers. They were chosen because of the strategic location to the company’s Southeast U.S. operations, with easy access to several interstates.

At least 30 percent of distribution facilities operate through the Port of Charleston, which is able to serve ships of up to 8,000 TEUs with only a 20-minute turnaround time for truckers. All terminals at the Port of Charleston are within 2 miles of interstate highway access.

Intermodal hubs are also a key component for the state, and Jafza International will create such a hub for its international operations at a 1,300-acre complex in Orangeburg, S.C.

Dubai, United Arab Emirates-based Jazfa’s hub will include facilities for warehousing, manufacturing, and distribution. The company expects to make an investment of between $600 million and $700 million in its Orangeburg operations during the next 15 years. wt


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