Sunday, April 19, 2015
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The new dynamics of site selection

It's no longer all about the rent. When shippers evaluate DC sites nowadays, their top concern is transportation.

By Peter Bradley

The CenterPoint Intermodal Center in Joliet, Ill., faces fierce competition for distribution center business, but it has an edge that's proving tough to beat. And it's not shy about promoting it. Visit the center's website and you'll find a calculator that shows customers what they could save in drayage costs by locating a DC at the 2,500-acre industrial development, which boasts on-site access to Burlington Northern Santa Fe's Logistics Park–Chicago. A drayage calculator might not sound like a killer marketing tool. Yet that's precisely the kind of sales tool CenterPoint used to attract high-profile tenants like Wal-Mart and Georgia Pacific.

To understand why drayage costs would carry so much weight with customers, you have to know a little bit about the new dynamics of DC site selection. The days when companies chose DC sites largely on the basis of cost per square foot are long gone. Today, transportation costs will likely be the principal driver when a company goes to pick a site within its target region. Small wonder developers like CenterPoint are anxious to promote their properties' transportation advantages.

That's not to say that industrial developers haven't played the logistics card in the past. Leasing companies and developers have long touted access to markets and transportation infrastructure in their marketing pitches. Many industrial developments, like the Rickenbacker Global Logistics Park, part of the Rickenbacker Inland Port in Columbus, Ohio, focus specifically on their potential logistics advantages in their marketing. (The Rickenbacker Inland Port even publishes an online newsletter called "Logistically Speaking" that highlights the development's advantages.)

What's different today is the increased emphasis developers are placing on all things logistics. Part of the explanation lies in cost: While real estate expenses amount to 4 to 5 percent of operating costs for most DCs, transportation costs are now close to 50 percent, according to experts in the industry. Another part lies in the transportation challenges facing shippers, like tight trucking capacity, an aging driver workforce, regulations that could reduce carrier productivity, and an increasing focus on carbon footprints. All this has led industrial real estate developers and their transportation and public sector partners to zero in on transportation and logistics when they go to market their properties.

That's mainly good news for those responsible for finding the best sites for their companies' DCs—it means that brokers speak the language better than ever. If there is a downside, it's that they also understand that a site that can offer lower transportation costs than nearby competitors can demand a premium price.



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Bob Cudnik
Logistics Engineering, LLC
517 Patterdale Lane
Columbia, South Carolina 29016

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