The Logistics Park of the Future
What you need to consider before getting involved
By Tony Seideman
Common sense and logistics often are not close companions. There are simply too many complexities involved when it comes to getting goods from one place to another.
Few concepts illustrate this better than the logistics park. The common sense proposition is simple — if you want to cut costs, put all the different components of your logistics operations as close together as possible. But today’s economy is so complex that what seems obvious might not actually be rational.
Who should own and operate?
One of the first issues that needs to be worked out is what exactly a logistics park is and who should own and/or operate it.
“People call them all sorts of things, but it’s unclear what they really are,” says one maritime industry executive.
Many logistics parks owners and operators would dispute that. They say their concept is pretty clear — create distribution centers on steroids that connect closely not just with every transportation mode, but with as many retailers and transportation companies as well.
Transportation or real estate driven?
One area of friction may be that real estate rather than transportation companies drive most logistics park development activity. This aggravates some maritime industry members, who say the facilities wind up serving the developers better than they do the shippers and carriers they’re supposed to support.
“It’s a branding of a concept we once knew of as an industrial park. It’s a focus of trying to bring everything together — truck, rail and air, and often not very successfully,” the maritime industry executive says.
Real estate developers seem almost surprised by that criticism. Of course a logistics park is an industrial park, says Larry Harmsen, managing director of capital deployment for North America for Denver, Colo.-based ProLogis. Their focus is just on a specific area of industry — the movement of goods. “They are really industrial parks that are serving the logistics industry,” he says.
Efficient or intrusive?
As industrial needs change, so do industrial parks — and the same goes for logistics parks. And developers and maritime industry members say that, despite current concerns, the rise in energy costs and the slowdown in the economy may well make logistics parks very much more attractive.
“At the end of the day, as the consumer economy continues to grow, it’s still important to have facilities that are effective and efficient around the country,” says John Ficker, vice president, supply chain solutions for Chicago-based First Industrial Realty Trust Inc.
One person’s “efficient,” however, is another person’s intrusion — something that can make putting logistics parks together an absolute nightmare. “The whole NIMBY thing is alive and well,” Ficker says. That’s especially true in an area of the country where the idea of logistics parks seems most logical: Southern California. “It’s difficult to do anything in Southern California,” he says.
Questions all future logistics parks must address
Anyone looking to get involved in logistics parks needs to ask themselves some very specific questions:
No. 1: Are all the modes present, and can they be connected? Multimodal activity is an essential logistics park activity. If any of the modes are missing, then a logistics park’s viability is obviously compromised.
No. 2: Will the neighbors fight your project to its — and your — death? BNSF wants to build a logistics park in Southern California. Virtually everyone in the transportation industry agrees that’s a great idea. The park would take trucks off the highway, reduce pollution and cut costs. The locals don’t agree. They hate the idea of the sound and stink of vehicles. “It is a bit of a tragedy,” Harmsen says.
No. 3: Are carriers willing to jump in and help shoulder the burden? Given that it’s all about moving goods, having carriers take part is an essential part of any logistics park. One reason a ProLogis distribution park in Virginia is working out is because it was done in tandem with NYK Lines.
No. 4: Are shippers close by as well? Mega distribution centers are now a routine part of the transportation equation for major retailers — meaning that they should be included in any plans for logistics parks as well. One reason there is a great deal of logistics park activity on the East Coast is the fact that shippers and carriers alike are concerned about possible transportation tangles due to union negotiations, crowding, strict environmental factors and other reasons. “It’s all about risk mitigation,” Fiske says.
No. 5: Can you afford to wait awhile? Given all the pieces that go into putting a logistics park together, assembling one from scratch can take a long, long time. That’s especially true when public rather than private funds and property are included. On the other hand, true industrial parks are designed with flexibility in mind — so moving into and out of an already existing facility isn’t all that difficult.
No. 6: Have you taken a close look at the realities of the economics involved? Even real estate developers acknowledge that the price of land isn’t as important as the cost of moving the goods themselves. “If you look at a retailer’s total operating costs, logistics is about 10-12 percent,” says Jon Cross, director of marketing, The Allen Group of San Diego, Calif. “Out of that, logistics transportation is 50 percent, while real estate, as in rent, is 4.3 percent.”
“Companies are not locating logistics businesses and centers because they are getting real estate a nickel or a dime cheaper. Companies are locating their infrastructure because they can reduce their transportation costs,” Cross says.
In the end, there’s a reason commercial real estate developers dominate the logistics park equation. “It’s not about real estate costing more. It’s not about who has a nickel or dime cheaper on the leases. It’s about who has the infrastructure, the best leases and land around the infrastructure that we can reduce our transportation costs,” Cross says.
