How to become the next big logistics hub, Supply Chain Dive

How to become the next big logistics hub. Lehigh Valley's 4 keys to become a logistics hub: For 50-60 years, Lehigh Valley, Pennsylvania served primarily as a residential neighborhood with big farms, wide open fields and sleepy highways. But if you visit Lehigh Valley today, the landscape is crowded with huge warehouse lots and heavily trafficked state routes that work to support a booming, bustling economy. E-commerce sites such as Amazon, Walmart and Zulily have moved in and are snapping up warehouse space and spurring local economic growth. Right now, FedEx is building its largest North American distribution facility in Lehigh Valley, and XPO Logistics recently announced plans to rent warehouse space in the Logistics Park. The Lehigh Valley Planning Commission (LVPC) approved 9 million square feet of industrial space in 2016 alone, up 168% from 2015 when 3 million square feet were approved — and industrial includes everything from manufacturing to warehousing and logistics. "Right now, there's 32 million square feet in construction or in an approval process," said Becky Bradley, LVPC executive director. What used to be the home of America's second-largest steel manufacturer and the largest shipbuilder (Bethlehem Steel) is now one of the biggest — if not the biggest — logistics hubs in America, serving 40% of American consumers along the eastern seaboard. “We’re really the gateway to the northeast,” Bradley told Supply Chain Dive. Sean Bleiler, vice president for CBRE, said Lehigh Valley's success is starting to replace the import of New Jersey's logistics network. "Ten years ago it was seen as kind of a secondary market to New Jersey, but in the last five years we’ve really seen an institutional focus on this market, started with tenant demand here," he told Supply Chain Dive. "In this last cycle you’ve seen pretty much every national player jump into this market." But how did Lehigh Valley attract so many 3PLs and e-commerce companies? Why is it that Lehigh Valley is the second fastest growing market in terms of prime logistics rent? How did Lehigh Valley’s manufacturing industry — which is the biggest source of the region’s GDP — grow more than 15% between 2011 and 2015? The more pressing question is this: what is it about Lehigh Valley that makes it such a perfect logistics hub, and is it possible to identify what characteristics other companies should look for in other communities to build the next big hub? 1. Perfectly positioned to serve major metro areas. “People love to move here because it’s green and pretty, really connected to two major metros (New York City and Philadelphia), schools are great, taxes are lower,” said Bradley. In September, the Pennsylvania Department of Transportation began expanding Route 22 — which stretches east-west from Allentown through the New Jersey border — from four lanes to six lanes to accommodate the freight and local traffic clogging the highway. It’s a $64.7 million project, and it’s only one facet of the LVPC’s plan to expand and improve the region’s highways and infrastructure. But the region’s growth is about more than that. Lehigh Valley Economic Development Corporation President and CEO Don Cunningham said the local governments haven’t been offering tax incentives — he said the current obsession with Lehigh Valley is entirely market driven. “There are really three main reasons,” he told Supply Chain Dive. “It’s the 3 L’s. The location lends itself as a logistics hub, because 40% of consumers are close by. The No. 2 factor is availability of land. Most of the warehouses are 600,000 square feet to 1 million square feet. You need land to do that. No. 3 is that you need a big enough market that you have labor. Right now they require a lot of people.” Cunningham is certainly onto something with his 3 L’s — location, land, and labor — Lehigh Valley is perfectly positioned as a landing base for big companies like Amazon and Walmart, but also for 3PLs like FedEx and XPO. Lehigh Valley is just 60 miles from the Port of New York/New Jersey, which means it not only serves several major metropolitan areas, but can also handle imports and exports. Furthermore, the Lehigh Valley Airport is one of Amazon’s biggest air freight hubs. “I think it’s hard to replicate the access to populations," Bleiler said. "It’s similar to the Memphis market maybe, that’s driven by UPS Ground. Each market has a different driver." Based on our research and reporting on the Lehigh Valley, Supply Chain Dive identifies four key characteristics — building on Cunningham’s three L’s — that make Lehigh Valley such a perfect logistics hub. Characteristics which we believe can be replicated in other areas of the country: A central location Vast amounts of land A strong labor force High industry diversity. Using those four factors, Supply Chain Dive uncovered some fascinating aspects about Lehigh Valley that speak to the region as a cultural and economic mecca that can help other logistics and e-commerce companies search for the next big hub. Why is Lehigh Valley is so successful? Read on to explore the area’s demographic-driven culture change, strong manufacturing presence and aggressive approach to addressing the supply chain industry’s talent shortage. Lehigh Valley's rural nature facilitated its growth as a logistics hub. Credit: Kendall Davis/Industry Dive. 2. The logistics boom couldn't happen without enough land. Lehigh Valley’s growth has not been without setbacks. Understandably, a once rural community isn’t totally thrilled about all the redevelopment and urbanization of the area. About 62 municipalities span the two counties that make up Lehigh Valley (Lehigh and Northampton counties), and not all of them are in agreement about how much warehouse building should continue in the area. While the building and the expansion continues to chug along mostly unhampered, the residential backlash is a potential reality for companies looking for the next big logistics hub, because in another state, another county, another township, it could halt developers before they even have a chance to break ground. Bradley said part of the push-back is residents feel like the reason they moved to Lehigh is disappearing; many move to the area to get away from the big cities (like nearby New York City, for example) to start families or retire. They’re looking for someplace quiet, green, relatively secluded and less populated. “Every family that moves here wants to be the last family in,” Bradley told Supply Chain Dive. “They don’t want more people coming in.” The way Bradley puts it, it’s almost as if Lehigh residents have suffered severe culture shock, as big companies have rapidly moved in and started building over the past 10 years. “Where there was once a wheat or corn field is now a warehouse, and people aren’t happy about that, so politically it’s a very sensitive issue,” Bradley said. “It was residential for 50-60 years, and now it’s different.” Don Cunningham agrees, and said the rapid expansion has definitely produced “growing pains.” Kathy Rader, secretary for the Upper MacUngie Township board, said lots of residents have come to township meetings complaining about all of the trucks on the road clogging traffic. “A lot of people are against the warehousing because of the truck traffic,” Rader said. “I asked them, how many of you order online from Amazon? And then I said, well how do you think it gets here?” Because the townships are sovereign, they can stop the warehouse building in some areas if they want to — but they’re likely to run out of space before that happens. “We’re almost filled out and we only have a few slots that are available for warehouses,” Rader said. “Right now the traffic is the big issue.” The LVPC plans to invest $4.5 million 2017-2020 in highways, transit and bridges. While that will help, it’s unclear how much more infrastructure the region will need to accommodate the staggering growth. Regardless, Lehigh Valley is unrecognizable from just 15 years ago. “We’re on the edge of a cultural change,” Bradley said. Multiple generations are evenly dispersed in Lehigh Valley. This data — drawn from the Census Bureau's 2015 community survey of Lehigh and Northampton counties — shows a pretty even distribution of generations in the Lehigh Valley region. (Kate Patrick / Supply Chain Dive) Demographically, the dispersion of generations in the area is balanced — there are as many millennials as there are Baby Boomers and Gen Xers. That means hordes of millennials aren’t moving away to the larger metropolitan areas of NYC or Philadelphia; instead, they’re choosing to stay in Lehigh Valley. That’s mainly because the economy is doing well: the prime logistics rent vacancy rate is plummeting, the Lehigh Valley area is in the nation’s top 20 for export growth and produced $39.1 billion in GDP last year, which according to the LVEDC is more than the entire states of Vermont and Wyoming and 97 other countries. Plus, there are lots of jobs. Total employment in Lehigh and Northampton counties “will soon exceed” 30,000 jobs, whereas five years ago there were less than 20,000, according to the LVEDC, and the downtown areas of the valley’s three cities — Allentown, Bethlehem and Easton — are bustling with new restaurants, bars and music venues. “This generation is more urban, so there is an allure,” Cunningham told Supply Chain Dive. The sharp cultural contrast is representative of what makes Lehigh Valley so successful; millennials like the urbanization (which is a result of the logistics boom), but Gen Xers and Baby Boomers — who may have originally moved to the area as a rural escape — tend to focus on the negative effects of the urbanization. The local unrest is all the more reason for companies moving in to be “good neighbors,” which it seems like has already been a bit of a challenge. According to one local newspaper’s recent coverage, working at Amazon’s Lehigh Valley warehouse can be an unpleasant experience, which adds insult to injury. Where there was once a wheat or corn field is now a warehouse. — Becky Bradley, President of the Lehigh Valley Planning Commission. In fact, warehouses in the area are now reportedly struggling to find enough employees, a problem that came to a head just a few weeks ago when British fast-fashion e-tailer ASOS declined to build a warehouse in Lehigh Valley, citing fear of labor shortage. "You’re starting to see pressure on wages for retention," Bleiler said, referring to the labor concerns. While the labor problem is fairly recent and may straighten itself out over time, it could be indicative of some of the cultural tension simmering beneath the surface. That’s something to look out for when choosing where to build your next warehouse, distribution or fulfillment center. But when scouting locations, not only is it critical to evaluate the potential local response on a cultural level, but it’s also important an area have a couple of main industries that are already doing pretty well and lubricating the economy. In Lehigh Valley, that’s the manufacturing industry. Manufacturing also thrives when logistics infrastructure is strong. Credit: Kendall Davis/Industry Dive. 3. The local economy hosts robust industries besides logistics. Manufacturing is struggling in some parts of the United States, but it’s booming in Lehigh Valley. Despite the rise in warehouses and logistics companies in the area, manufacturing still hires more people, with a second quarter estimate of 31,865 jobs in manufacturing to 28,772 in transportation and warehousing. Why is that? The area’s manufacturing history is best known as the home of Bethlehem Steel, the country’s second largest steel manufacturer, whose products built the Golden Gate Bridge, the Chrysler Building and Madison Square Garden, in addition to military use in large caliber guns and armor plates during World Wars I and II. The plant closed in 1995 after 120 years in operation. It may be out of business, but Lehigh Valley residents recall that history when visiting the SteelStacks ArtsQuest Center, built in 2011. Bethlehem Steel’s five large furnaces tower over the 10 acre campus, where locals enjoy concerts, festivals and other community programming. The steel plant may be gone, but manufacturing continues. There's been strong new job growth in fabricated metal product manufacturing and electrical equipment, as well as manufacturing of machines, appliances and components, wood products, plastics and rubber products, and the job growth is expected to continue at least through 2020. Output and productivity is rising, due to technology and advanced productive machinery. Location is perfect to serve close-by major metros. Part of the draw is Lehigh’s location. “Lehigh Valley is a desirable place to live,” said Jan Brna, director of postsecondary and workforce education at the Lehigh Career and Technical Institute (LCTI). “We’re in a great location, close to Philadelphia, New York and New Jersey. The cost of living here is a little higher than some areas of the state, but not as high as the Philadelphia and Bucks County area. It has a lot to offer. When people are looking to relocate, there are good schools, from elementary to college.” There’s also easy access to major highways and ports, good for logistics companies. Plus, “We’re in good proximity to a lot of land developed into warehousing,” said Vicki Phillips, a supply chain and logistics instructor at LCTI. Lehigh Valley targets four specific industries to set up shop: high performance manufacturing, high value business services, life science research and manufacturing, and food and beverage processing. For the latter, they tout their access to agricultural products, including preserving 26,000 acres of farmland and providing farmer training. In recent years, the Lehigh Valley attracted Bimbo Bakeries. The facility, which produces under the Entenmann’s, Sara Lee and Thomas brands, bakes bread and buns for Northeast stores. Last year, they announced that the French company Norac was opening its first U.S. manufacturing location in Lehigh Valley, making French-inspired snacks and baked items under the Bakerly name. The list of companies either opening up shop here or already established is a mix of familiar and unfamiliar names. Have you heard of Just Born? That’s the company that makes Peeps and Mike and Ike candies. They moved from Brooklyn to Bethlehem in 1932 and continue to employ locals at their factory. On the newer side, Ocean Spray opened a 315,000 thousand square foot plant in Upper Macungie Township in 2014. This is what makes Lehigh Valley such a prime logistics hub: the region discovered its niche industry (manufacturing) and honed in on the region's unique talents and offerings. By focusing on the local economy, Lehigh Valley started doing well on its own, so naturally other companies — Amazon, for example — saw a booming, developing economy as an attractive new location. The LVEDC actively recruits companies to come to the area. Along with the Pennsylvania Department of Economic Development, the LVEDC hit the road a few years back, touring western Europe to spread the word about Lehigh Valley. Of the 19 major business expansions or new additions to the area, eight were international, including companies from France, Ireland, Japan and China. For manufacturing, that included a plastic flatware manufacturer, Fuling Plastics, and a medical device manufacturer, Nihon Kohden.