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Bring It Home

Archives, Commentary, Global Trade Daily, Relocation Guide, Site Selection

Bring It Home

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Apple did it. So did Ford and Whirlpool. General Electric even jumped on the bandwagon. The return of production to the U.S.—known as reshoring—is more than a passing phase; it’s a major trend in the global manufacturing sector, economists say.

Various factors have led to a spike in reshoring, according to Greater Houston Manufacturing Association co-founder Jeff Applegate, including heightened transportation costs, shortened product life cycles and rising wages in developing countries.

“Walmart is also a big influence,” Applegate says, with the retailer driving suppliers to move back to the U.S. via its commitment to put an additional $50 billion in U.S. products on its shelves by 2023.
George Calvert, vice president of Supply Chain and R&D at Ada, Michigan-based Amway, says quality also played a key role in his company’s decision to reshore. He reveals that Amway opened a $42 million facility in Buena Park, California, in late May to manufacture and design its Nutrilite dietary products—a move, Calvert says, that illustrates the strength of the American manufacturing sector. Brazil and Mexico currently top Amway’s list of farming destinations, but manufacturing Nutrilite in the U.S. offers one clear advantage: consumer trust.

Health products bearing a “Made in the USA” label instantly conveys quality, Calvert says. “Consumers know that U.S. standards ensure safety throughout the supply chain—from the planting, harvesting, processing and conversion of crops, to the formulation, production and quality control of the finished goods,” he says. And many people are willing to pay for that quality, even if it comes at a premium.

Fortunately, he continues, the U.S. is gaining a leg up over the competition—particularly China—in regards to productivity. Lean methodologies, as well as the investment in advanced manufacturing centers and a greater emphasis on workforce training, have made the U.S. more efficient. Manufacturers, Amway among them, have taken notice. It’s why the company selected America as the backdrop for four of its seven planned expansion sites, despite the nation’s increased labor costs, according to Calvert. In addition to California, Amway has also had success manufacturing in its home state of Michigan.

“The workforce’s commitment to quality and the focus on continuous improvement in Michigan is impressive,” Calvert says.

“You can place facilities anywhere, but nothing replaces dedicated and engaged employees. We have that right here.”

Matthew Elliott, Michigan state president at Bank of America Merrill Lynch, echoes Calvert’s statements, commenting that Michigan offers manufacturers a host of advantages. Companies must invest in skilled labor, Elliott says, and Michigan prepares residents for careers in the manufacturing field via its Michigan Apprenticeships, Internships and Mentoring initiative. The program, launched in September 2014, seeks to address the talent gap by grooming Michiganians for specific jobs—a model that Elliott endorses wholeheartedly.

“When making site selection decisions, manufacturers should identify where there are clusters of talent available, especially where businesses and local governments have already launched programs to address skilled labor training within the manufacturing sector,” says Elliott, who also heads up BofA Merrill Lynch’s commercial banking in Ohio and Indiana. Companies looking to bring production back to the U.S. should also examine the operational infrastructure that must be developed, Elliott maintains, such as the cost of constructing new facilities and the price of machinery.

Besides Michigan, below are four other locations that companies should consider when bringing production back to the U.S.

IOWA
Renowned for its low cost of doing business, Iowa also boasts a booming manufacturing sector. Sixteen percent of Iowa’s jobs are currently related to manufacturing—a figure Elliott expects to grow even more due to the state’s new “Get Skills to Work” initiative. The program, backed by the Iowa-Advanced Manufacturing consortium, trains veterans for highly skilled jobs in manufacturing, such as welding, machining and fabrication. State officials anticipate this resource buoying Iowa’s already illustrious furniture, machinery, plastics and rubber industries.

KENTUCKY
From a logistics standpoint, Kentucky is a manufacturer’s dream. In addition to housing both Louisville International Airport—the seventh-busiest cargo airport in the world—and United Parcel Service’s Worldport hub, the state is served by 19 interstates and highways.

Manufacturers in Kentucky also benefit from a slew of business incentives, such as tax breaks for building new facilities. Kentucky’s manufacturing sector arguably got the biggest boost in 2012, however, when GE Appliances announced its landmark decision to move production of its water heaters from China to Louisville using lean techniques. In return, the Kentucky government provided GE with up to $17 million in incentives—a relationship model other companies hope to follow.

OHIO
The Midwest is undoubtedly one of the hottest locales for manufacturing—more than 70 companies have reshored to the region—with Ohio at the center of the boom. “The regional economy has seen steady growth due to a number of [thriving] sectors,” Elliott says, “including automotive, which has increased production in the region.” Case in point: Ford Motor Co. Last year, the automotive giant announced plans to build its F-650 and F-750 trucks at a Cleveland-area plant, rather than one in Mexico, following a collective bargaining agreement with United Auto Workers.

Economists say such a move speaks volumes about Ohio’s workforce, a population benefitting from top-rated manufacturing engineering programs at the University of Dayton and The Ohio State University.

TEXAS
Numerous companies have been attracted to the state’s low cost of living, loose regulatory environment and business-friendly policies—with Houston, in particular, emerging as a major hotspot for reshoring. In addition to boasting the fourth-largest port in the nation, Houston is centrally located, which allows it to serve as an effective distribution point for manufacturers. The city’s booming oil and gas sector is another key advantage, Jeff Applegate notes.

“Houston is home to the world’s largest oilfield service companies,” he says, “and the recent surge in onshore drilling activity has created opportunities for innovation and demand for services worldwide.” Plastics manufacturing is particularly hot in Texas, Applegate points out, thanks to the availability of low-cost gas feedstock, such as ethylene.

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Made In The USA

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Some manufacturers gravitate toward international markets. Not Red Brick Brewing Co., says Robert Fabbrini, general manager of the Atlanta-based brewery. For 20 years, Red Brick enjoyed considerable success serving the Southeastern market with its selection of craft beers. Then an Italian distributor contacted the brewery in 2013 and the status quo was significantly altered. “Our eyes were opened to the possibilities,” Fabbrini says, citing the 50-percent jump in American craft beer exports in 2012. Since Red Brick’s first international shipment left the Port of Savannah for Torino, Italy, in July 2013, exportation has been a major focus for the brewery.

Red Brick’s location streamlines the transportation process, according to Fabbrini. Not only does Georgia house the Port of Savannah—the busiest container port in the Southeast—the state is home to the bustling Hartsfield-Jackson Atlanta International Airport, as well as an extensive rail network. “[Conducting] international business from Georgia is easy,” Fabbrini says.
Tom Croteau, deputy commissioner of Global Commerce for the Georgia Department of Economic Development, agrees that the Peach State’s transportation infrastructure is a competitive advantage. The Southeast’s low unionization rates and reduced operating costs are other draws, he adds. What truly gives Georgia manufacturers an edge over the competition, however, is the state’s lack of sales tax on energy, Croteau says. “A few years ago, we eliminated the tax on both electricity and natural gas, and it’s one of the reasons we see [so many] manufacturers looking at Georgia.”
In addition to Georgia, below are five other states manufacturers are eyeing.

ALABAMA
Long heralded for its proficiency in steel manufacturing, Alabama is also a top state for automotive and aerospace manufacturing. Steve Sewell, executive vice president of the Economic Development Partnership of Alabama, says there’s a good reason for this: Alabamian officials place a strong emphasis on manufacturing.

“We’re well aware of manufacturing’s significance to our economy and we’re interested in sustaining that,” he says. Alabama’s manufacturing sector got a major boost in 2013 when Airbus broke ground on its $600-million factory in Mobile—the aircraft manufacturer’s first facility on U.S. soil. Assembly of narrow-body aircraft will take place at the plant, which is slated to open later this year; JetBlue Airways will acquire the first A321 in mid-2016. “It’s very exciting for Alabama,” Sewell says.

INDIANA
Manufacturers in the Hoosier State benefit from less regulation, as well as “fiscal predictability,” thanks to the state’s balanced budget, says Victor Smith, the Indiana Economic Development Corp.’s secretary of Commerce. After enacting the largest personal income tax cut in Indiana’s history, state regulators recently reduced Indiana’s corporate income tax rate schedule. Such breaks, Smith says, add up to big benefits for Indiana manufacturers—a group that includes global giants Applied Instruments, Hill-Rom and Franklin Electric. The Midwestern work ethic has also played a role in the state’s manufacturing success, according to Smith, who says Indiana is a state of builders who are committed to building a healthy business climate. “We never settle for ordinary or middle-of-the-pack.”

IOWA
In addition to boasting a world-class agricultural sector, the Hawkeye State is also a leader in advanced manufacturing, maintains Iowa Economic Development Authority Director Debi Durham. Strengthening these industries is Iowa’s focus on eliminating barriers to success for manufacturers, Durham says.

“We’re constantly working with our companies and communities to identify issues that might affect our employers so we can work together to solve them.” One manifestation of this is the recently passed Iowa Apprenticeship and Job Training Act, which expands funding for apprenticeship training, helps reduce student debt and trains locals for successful careers in manufacturing. It’s a win for both businesses and individuals, Durham says, and it ensures companies relocating to Iowa are met with a well-trained workforce.

MICHIGAN
Manufacturing is such big business in Michigan that it employs 14 percent of the state’s workforce—one-quarter of whom are women. The state, home to Detroit—a.k.a. “Motor City”—manufactures more than just cars, however; chemical products, furniture, plastics and rubber also top the list of goods made in Michigan. Noelle Minasian of the Michigan-based consultancy Airfoil credits the state’s “unmatched” infrastructure with its status as a global manufacturing hub. In addition to boasting renowned research and development facilities—375 for automotives alone—Michigan is only a day’s drive from half of the U.S. population, Minasian says, which allows for the easy transport of goods. “Michigan’s extensive network of logistical assets makes moving manufactured products a seamless process for companies,” she adds.

WISCONSIN
Iconic companies Harley Davidson and Rockwell Automation have called Wisconsin home for more than a century—a fact that contributes to the state’s “rich history of manufacturing,” says Wisconsin Economic Development Corp. CEO Reed Hall. “That tradition continues today because of the state’s talented and dedicated workforce, world-class education system, outstanding infrastructure and strong pro-business climate.” Illustrating the merit of the latter is Wisconsin’s new Manufacturing and Agricultural Tax Credit, which will virtually eliminate the state’s income tax from manufacturing activities by 2016. “It’s just one of several pro-business public policies the state has put into place in the last four years,” Hall says. Legislators have also established low-interest loans, tax credits and grants for manufacturers—programs that will allow Wisconsin’s tradition of manufacturing to continue in the future.

Liberty—which distinguishes itself as the only American manufacturer of aluminum water bottles— currently ships to Asia, Europe and the Middle East, in addition to serving its domestic market.
3pls, Archives, Commentary, Global Logistics, Global Trade Daily

Shipping In Reverse

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A relatively new kid on the block, Liberty Bottleworks has only been operating since 2010. Much has transpired in the five years since the Yakima, Wash.-based company opened its doors, however. Liberty—which distinguishes itself as the only American manufacturer of aluminum water bottles— currently ships to Asia, Europe and the Middle East, in addition to serving its domestic market.

Even so, the company’s Operations General Manager Bill Keys says Liberty still retains a small-company feel. “Because of our size, we really are a small business,” Keys says. Operating on a smaller scale has also allowed the company to handle much of its supply chain operations in-house—particularly reverse logistics. It’s just easier that way, Keys says, “since working with a [3PL] requires some level of management and interaction on our part.” Plus, he argues, Liberty has had plenty of success in going it alone.

Recycling is a key pillar of Liberty’s reverse-logistics strategy, Keys reveals. In addition to reconditioning all defective products, the bottle manufacturer recycles all unusable water bottles and all manufacturing-related aluminum waste. Also recycled are Liberty’s bottle caps­, which are fashioned from eco-friendly polypropylene.

“We take great care in minimizing our impact to the environment,” Keys says. Liberty works with a local company to recycle its lubricants—a move Keys says is strategic. “When possible, we try to work with local or at least regional [partners] in our supply chain and recycling endeavors.”

The benefit is clear, Keys says: Increased visibility allows Liberty to ensure recycling initiatives adhere to company policy. “We’re conscious about who we partner with both upstream and downstream.”

Brian Bourke, vice president of Marketing at SEKO Logistics, praises such efforts, commenting how contentiousness can make or break a company’s supply-chain operations. “You can protect the integrity of your brand if you [handle reverse logistics properly],” Bourke says. For manufacturers, this means complying with all regulations surrounding the proper retrieval, reuse and disposal of used or damaged goods. Take mattresses, for example. Since mattresses are breeding grounds for bedbugs, manufacturers can’t simply discard torn or used items; disposal regulations vary from state to state. That’s why Bourke says it’s so important that manufacturers know the specific requirements surrounding the reverse logistics of their particular sector.

Also important, he says, is mapping out the returns process. For retailers, in particular, the way returns are handled can either “turn off a customer or make them a lifelong client.” Bourke says that SEKO Logistics actually consults new customers about returns before they delve into their business plan. “Returns are that significant,” he insists. For instance, SEKO may advise the company to include return instructions with their products, along with labels, packing slips and postage; such a scenario is especially likely if the goods are purchased online. Once the returns procedure is firmly established, Bourke explains, companies can reverse engineer their sales process.

He makes no bones about it: E-commerce has changed the face of reverse logistics. Thanks largely to the advent of web giants like Amazon and eBay, brick-and-mortar retailers are increasingly beefing up their online presence to maximize sales opportunities.

While such tactics may be good for business, they can be tricky from a logistics perspective. What’s critical, Bourke says, is that a company’s returns policy stays consistent throughout all sales channels. For instance, a liberal in-person returns policy, such as that held by Nordstrom, must translate to a liberal online policy. “Whatever philosophy they have in the store, they also have to fulfill online,” Bourke says.

Still, Dave Vehec, senior vice president of Retail at GENCO, cautions that e-commerce presents unique challenges to retailers. Not only is centralizing and handling online returns more complicated—customers typically have the option to ship back the unwanted merchandise or return it to a brick-and-mortar store—there’s also the anonymity aspect. Put simply, Vehec says, people are more comfortable returning items to a faceless entity than to an actual salesperson. Plus, there’s the fact that people often purchase products in multiple styles and sizes when they’re buying them online and then return the superfluous items. Nowhere does this ring truer than in the apparel industry, according to Vehec.

Disparities in clothing sizes make it much easier to find the perfect fit in a brick-and-mortar store, he says, as opposed to online, where sizing is often a guessing game. “A size eight in one style might be a size 10 in another style,” Vehec says. “And it’s the same way with shoes.” Because of this, so much of what goes back into a retailer’s inventory is e-commerce, he explains.

“Even brick-and-mortar retailers who have an online presence make it really easy for consumers to send things back because every item has a return label right with it,” Vehec adds. “They’re basically encouraging that behavior while also trying to build brand loyalty.”
Expediting the returns process also builds brand loyalty, Bourke says.

He describes how SEKO once helped a major furniture retailer replace their customers’ TVs. “If you pick up an old TV and deliver the new TV two days later, how happy is that customer going to be?” Bourke asks, rhetorically. Keeping customers satisfied led SEKO to coordinate the pickup of the old TVs with the delivery of the new sets. “Small things like that can make a world of difference for a brand experience.” After all, Bourke says, customer service is a major component of reverse logistics.

Vehec concurs, adding that big-data analytics help retailers understand consumer behavior. Tangible data, such as the peak seasons for returns as well as the percentage of sales items that are returned, allows companies to better plan their supply-chain activities. Acquiring such information, Vehec says, requires increased collaboration between retailers and their suppliers. “Having real data that’s actionable is a key component of the reverse supply chain,” he says. “[Data analytics] have become much more sophisticated over the years.”

He says it’s also important to analyze the environmental component of the returns process. Look at the product life cycle, Vehec recommends, and scrutinize the impact of taking back a discarded item and putting it back into the marketplace. How merchandise goes back into the stores is an interesting topic to explore, he says.

In the case of Liberty Bottleworks, environmental sustainability is the hallmark of the company’s supply-chain activities, according to Keys. Liberty executives are currently mulling the installation of a closed-loop water system, which could reduce the company’s water discharge by more than 75 percent. “The idea of being environmentally responsible for the handling of items that come back, as well as our excess material and waste, is part of what Liberty was founded on.” Keys acknowledges that the company certainly has room for improvement, but maintains that any progress is positive. “We truly believe that if you can make even small changes, everyone ultimately benefits.”

 

HOW ONE TECH FIRM BENEFITED FROM ITS 3PL PARTNERSHIP

There had to be a better way. Executives at the large high-tech firm needed to find an alternative means of retrieving set-top boxes from customers canceling their cable/Internet service. After all, time was money—the recovered boxes could be repaired, refurbished and utilized for future customers.

The firm’s previous retrieval methods just weren’t cutting it. Executives initially tried incentivizing customers to take the equipment to a service center, as well as deploying technicians to retrieve boxes from customers’ homes. They even went so far as to ship empty boxes to customers’ homes in hopes that they would package the equipment and mail it back to them. Such tactics proved to be fruitless, however.

Finally, the firm consulted a third party and employed the help of UPS. Officials at the global 3PL suggested that the firm leverage the retail footprint of The UPS Store network and encourage customers to drop off the equipment at one of the chain’s 4,300 locations. Ken Rankin, UPS marketing director, says it’s a model that has benefited the high-tech firm greatly. With 72 percent of Americans living within five miles of a UPS Store, “The UPS Store network provided service consistency to inspect, pack and ship the recovered assets back to the high-tech firm,” Rankin says. A win-win situation, indeed.

Archives, Relocation Guide, Site Selection

A Cut Below

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AMERICA’S LOWEST BUSINESS-TAX STATES

The residential real estate market is all about “location, location, location.” Commercial real estate is no different, asserts Michael Beckers, director of Taxation at Raven Industries. Raven—a Sioux Falls, S.D.-based shipper of plastic, electronic and special-apparel products—has enjoyed nearly 60 years of success, a feat that Beckers largely attributes to the company’s location.

From a tax perspective, he says, South Dakota reigns supreme. Unlike some states where individual cities impose an income tax, South Dakota has no corporate income tax or gross receipts tax. “The fact that South Dakota does not levy a corporate income tax against our income earned in the state allows our business to enjoy a lower state income burden compared to companies located in neighboring states,” Beckers says.
In addition to South Dakota, below are nine other states that are earning rave reviews for their low-tax environment.

Alaska
Despite levying the eighth-highest property tax in the U.S., the Last Frontier state redeems itself by having no state income tax. Alaska also has a surplus of funds—nearly $12 million in excess—which prevents the tax burden from being placed on businesses and residents. The U.S. Chamber of Commerce lauded Alaska’s tax-friendly business environment in a recent report, praising the state for having two years of state funding for operating and capital budgets; such an amount protects Alaska from fluctuating energy prices, officials say.

Florida
Known more for its balmy temperatures than its business environment, Florida is also garnering praise for its tax-friendly policies. The state has one strike against it—imposing an alternative minimum tax on corporations—but Florida more than compensates for this action by lacking an income tax. Also notable is Florida’s unemployment insurance tax policy, which ranks best in the Tax Foundation’s 2015 State Business Tax Climate Index, as well as the state’s favorable sales tax initiatives.

Indiana
Improvement is the name of the game for Indiana, which recently underwent reforms to lower its tax rates. Under new legislation, Indiana’s corporate income tax rate will fall from 7 percent to 4.9 percent by 2021—an announcement that comes on the heels of the early January reduction of the state’s income tax rate from 3.4 percent to 3.3 percent. Indiana’s excise taxes are also among the nation’s best, Tax Foundation personnel say, despite the state having a high, 7 percent sales tax rate.

Montana
What sets Montana apart from a tax perspective is the support it receives from the local government, says Dan Lloyd, business development specialist with the Governor’s Office of Economic Development. Lloyd reveals that Governor Steve Bullock worked with the Montana Legislature in 2013 to lower business equipment taxes for all companies and completely eliminated the tax for 11,000 of them. Montana also doesn’t levy a general sales tax—another key benefit for businesses, Lloyd says.

Nevada
The Silver State lives up to the gold standard of business practices, according to personnel from the Tax Foundation. In addition to not levying an individual income tax, Nevada also refuses to impose a corporate income tax or a gross receipts tax. Such a policy places Nevada in a unique position since most states compensate for the lost revenue on individuals by taxing corporations, according to Tax Foundation officials. Even so, Nevada’s 6.85 percent sales tax rate is higher than average.

New Hampshire
New England has—rightfully so—earned a reputation as an expensive region for business, but New Hampshire bucks the trend, says Michael Bergeron, senior development manager with the New Hampshire Division of Economic Development. Due to few corporate regulations, businesses from other states are “shocked” to learn how economical New Hampshire is, Bergeron says. Along with not imposing a general sales tax, New Hampshire doesn’t tax workers’ wages or salaries; their dividends and interest are taxed, however. “Our approach? Keep more of what a taxpayer earns with the taxpayer,” Bergeron says.

Texas
They say everything’s bigger in Texas, but that’s not true from a taxation perspective. Texas’ business taxes rank among the nation’s lowest, thanks to the state’s lack of an income tax for businesses and individuals. Still, the Loan Star State imposes a gross receipts tax on business transactions, Tax Foundation officials say, in addition to taxing intangible properties, such as stocks, bonds and trademarks. The latter policy led to the Tax Foundation ranking Texas last among the top 10 states for business taxes.

Utah
Despite imposing all major taxes on businesses except for a capital stock tax, Utah’s low rates make it stand out from the pack. Since 2007, the state has levied a flat, 5 percent tax on both companies and individuals—a move that has streamlined business practices tremendously, asserts Theresa Foxley, managing director with the Governor’s Office of Economic Development. “Transitioning to the single-sales-factor apportionment methodology also signals that we are pursuing economic growth through smart policy,” she says.

Wyoming
The Tax Foundation recently named Wyoming the most business-friendly state—an honor that’s well deserved, says Ben Avery, Business and Industry Division director with the Wyoming Business Council. Not only does the state have no income tax, Wyoming also lacks a corporate income or gross receipts tax. Thank Wyoming’s balanced budget for that, Avery says. The mineral-rich state has no debt, which means that taxpayers and businesses don’t have to compensate for the difference. Sales tax in Wyoming is also a low 4 percent.

Airports, Archives, Global Logistics

Top International Airport Hubs

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SEVEN LANDING SPOTS FOR YOUR GLOBAL AIR CARGO

Global commerce got a big boost at the end of 2014 when airfreight demand rose 4.2 percent, year-over-year, in November. Since air cargo accounts for roughly one-third of the value of international goods, such an increase is a major win for the economy, International Air Transport Association officials say.

Below are seven airports that are handling the bulk of these cargo loads:

7. Frankfurt Airport
Europe’s top cargo gateway is on a serious growth trajectory, as evidenced by the German airport’s 1.7 percent, year-over-year jump in freight volumes in 2014. Meeting heightened demand for cargo services led Frankfurt Airport officials to recently commission the four-lane expansion of the access road to its CargoCity hub and open a new truck lot for freight.

6. Louisville International Airport
Processing more than 10 billion pounds of freight each year, Louisville Airport is home to UPS’s expansive Worldport hub. The 5,200,000-square-foot facility—the size of 80 football fields—enables UPS to sort 416,000 packages an hour, helping Louisville retain the title as the world’s second-busiest domestic cargo airport. Freight volumes at Louisville airport were particularly high in 2014, with traffic rising 8 percent, year-over-year, in September.

5. Ted Stevens Anchorage International Airport
Situated 9.5 flying hours away from 90 percent of the industrialized world, Anchorage is a major spot for carriers to transfer cargo. The airport sits halfway across the Pacific Ocean on the Great Circle route, which provides a technical stop for the 450 wide-bodied freighters that land at Anchorage airport each week.

4. Dubai Airports
For decades, Dubai International Airport was the United Arab Emirates’ premier airfreight hub; now, Dubai World Central (DWC)-Al Maktoum International Airport is assuming that role. The latter airport opened to freight operations only in June 2010 and witnessed triple-digit freight volume growth less than four years later. As of April 2014, all freighters must operate from DWC; only the integrators are permitted to fly cargo from Dubai International.

3. Shanghai Pudong International Airport
The world’s most-populated city also houses the third-largest airport for cargo. Easing air traffic congestion led Chinese authorities to construct a fourth runway at the end of 2014—a project that expands Pudong airport’s annual freight and mail capacity to 4.75 million tonnes. Shanghai Pudong International Airport Cargo Terminal Co., Ltd. (PACTL) will handle the majority of these loads in its 443,000-square-foot facility, which features freight terminal buildings and a dangerous-goods warehouse.

2. Memphis International Airport
Despite relinquishing its 18-year title as the world’s top cargo airport in 2010, FedEx Express hub Memphis International Airport is still a major player in the global airfreight arena. Freight contributes roughly $23 billion a year to Memphis’ economy—a volume that has been propelled by the city’s strong cargo infrastructure. In addition to major rail thoroughfares, Memphis boasts the third-largest river port in the U.S. and the convergence of highways.

1. Hong Kong International Airport
November was a record-breaking month for the world’s top cargo hub, with freight volumes at HKIA surging 5.5 percent, year-over-year, to 421,000 tonnes. Exports performed particularly well during this period—a testament to Hong Kong’s position as a major exporter of Asian goods. No longer is the region simply the “world’s factory;” however; it has emerged as one of the fastest-growing markets for Western consumer goods, particularly high-fashion items.

Archives, Relocation Guide, Site Selection

Where To Warehouse

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STATES TO CONSIDER FOR YOUR NEXT DISTRIBUTION CENTER

Direct Relief, a Goleta, Calif.-based nonprofit, was running out of space. Since 2009, the global relief organization has distributed $1.5 billion of humanitarian supplies from its 52,000-square-foot warehouse. And in the wake of the West African Ebola crisis—Direct Relief has sent 19 emergency shipments to Liberia, Guinea and Sierra Leone to date—the organization needed room to grow.

Such demands prompted Direct Relief personnel to search for new warehousing facilities, reveals Bhupi Singh, Direct Relief’s executive vice president, chief operating officer and chief financial officer. Singh admits that California’s high real estate costs made him briefly consider a move, but he says that relocating didn’t make sense logistically.

After all, Singh says, California has a lot of perks. “The current location’s proximity to the largest ports in the U.S.—the Port of Los Angeles and the Port of Long Beach—is a very strong logistics advantage,” he says, since Direct Relief often ships its supplies via ocean containers. This key benefit, as well as employees’ desire to stay put, led Singh to scout another California location for Direct Relief’s new distribution center. He says he has high hopes for the company’s new plot of land, which will soon house a “larger, state-of-the-art warehouse” to meet Direct Relief’s growing needs.

Linda DiMario, senior director of Economic Development at the Irvine Chamber of Commerce, applauds Direct Relief’s decision to stay in California. “We’re an economic powerhouse,” DiMario says, citing California’s strong talent pool—thanks to a myriad of local universities—and its proximity to key Asian markets. Plus, she says, the California Competes Tax Credit divvies out more than $150 million in incentives to local businesses looking to expand, as well as companies wishing to relocate to California. “Like the real estate industry always says, it’s all about ‘location, location, location,’” DiMario says. “California gives [shippers] the strategic location, the economic eco-system and the opportunity to succeed.”

In addition to California, below are five states shippers should consider when building a distribution center.

GEORGIA
Logistically speaking, Georgia has several key advantages, asserts Tom Croteau, the Georgia Department of Economic Development’s deputy commissioner of global commerce. Not only does Georgia boast one of the nation’s most extensive rail systems—5,000 miles of track to haul freight—the state’s sea and air infrastructures are also top-notch. “Companies setting up a distribution center want a good market, as well as access to a port,” Croteau says. Georgia offers both, he points out, with the Port of Savannah ranking as the fourth-largest containerport in the United States Shippers also benefit from a range of tax incentives, including Georgia’s low 6 percent corporate income tax rate—a figure that hasn’t budged since 1969.

NEBRASKA
Sitting squarely in the middle of the U.S., Nebraska is at the center of the North American Free Trade Agreement transportation corridor, notes Kate Ellingson of the Nebraska Department of Economic Development. The Midwestern state is a one-day truck drive away from 26 percent of the U.S. and a two-day drive from 90 percent of the states. Geography aside, Nebraska is also friendly to business and offers a slew of incentives to both logistics companies and state-based shippers, Ellingson says. Some of the most-lauded incentives include a lack of state property and inventory taxes, as well as no personal property tax on intangibles.

MISSOURI
Ranking among the five states with the lowest diesel and gasoline taxes, Missouri’s cost-friendly environment helps businesses succeed, says Missouri Partnership CEO Christopher Chung. The centrally located state is also within 600 miles of 52 percent of U.S. manufacturing centers and boasts an extensive rail and highway network, in addition to the cargo-friendly Lambert-St. Louis International Airport. The Show Me State’s new Missouri Works initiative is also attracting business, Chung says, with the program providing qualifying companies with fully refundable tax credits against Missouri’s low corporate tax rates. State officials are also bullish about Missouri’s single-sales-factor apportionment formula, which dramatically lowers shippers’ business tax.

TEXAS
Housing America’s largest highway and longest railway systems, Texas has one of the strongest transportation infrastructures in the U.S. The state is also home to the most foreign trade zones—33. Further propelling success is Texas’ central location, which enables trucks to reach 93 percent of the U.S. from the Dallas/Fort Worth region within 48 hours. Business-wise, Texas benefits from one of the best tax environments in the nation, according to the Tax Foundation. Texas-based companies enjoy no corporate nor individual income taxes, as well as no state property taxes. Real estate rates in Texas are also among the nation’s lowest.

UTAH
Shippers wanting to serve California without paying California’s hefty real estate costs should consider moving to Utah, says Jeff Edwards, president and CEO of the Utah Governor’s Office of Economic Development. Logistically, it makes sense, Edwards says, since three major freeways converge in Utah—two of which go directly to California. Such an advantage has led numerous companies to the Beehive State, including cosmetic giant Sephora, which had no Utah-based stores when it opened its Salt Lake City distribution center in 2008. Further incentivizing shippers to Utah is the Economic Development Tax Increment Financing (EDTIF) program, which provides businesses relocating or expanding in Utah a tax credit of up to 30 percent over five to 10 years.

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Logistics Infrastructure

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Jacksonville, Florida

Population: 836,507
Unemployment: 6.40%
Key transportation mode Sea & Rail: JAXPORT and two freight railroads

Jacksonville boasts strong sea, air and rail connectivity, thanks in part to cargo-friendly Jacksonville International Airport as well as the presence of two major freight railroads: CSX Transportation and Florida East Coast Railway. The Port of Jacksonville (JAXPORT) is another big name in the global cargo sector, providing nearly $27 billion in annual economic output. The 24,340 jobs supported by JAXPORT have also helped lower Jacksonville’s unemployment level to 6.4 percent.

Los Angeles, California

Population: 3,858,000
Unemployment: 9.10%
Key transportation mode Sea & Air: Port of Los Angeles and Los Angeles International Airport

The home of many Hollywood heavyweights is also a major player in the global logistics arena. In addition to housing Los Angeles International Airport—one of the top 15 cargo hubs in the world—Los Angeles also boasts the Port of Los Angeles, the busiest container port in the U.S. The latter facility employs nearly 1,000 people and is helping to lower Los Angeles’ currently high unemployment rate.

Louisville, Kentucky

Population: 262,764
Unemployment: 7.20%
Key transportation mode Air: Louisville International Airport

Logistics is big business for Louisville, which houses Louisville International Airport—the seventh-busiest cargo airport in the world—as well as UPS’ Worldport hub. No doubt the latter has buoyed the former, with UPS able to sort 416,000 packages an hour at its expansive, 5,200,000-square-foot facility. Worldport is also a major employer in the Louisville region, hiring many of the city’s 262,764 residents. Even so, unemployment in Louisville remains at an elevated 7.2 percent.

Memphis, Tennessee

Population: 655,155
Unemployment: 9.70%
Key transportation mode Air: Memphis International Airport

Thanks to Memphis International Airport—the No. 2 cargo hub in the world—freight contributes roughly $23 billion a year to Memphis’ economy. Although unemployment remains at 9.7 percent, the 655,155-resident city is bolstered by the presence of FedEx Express’ global headquarters, as well as a favorable logistics infrastructure. In addition to a world-class airport, Memphis boasts key north-south rail lines, the convergence of major highways and the third-largest river port in the United States.

Miami, Florida

Population: 413,892
Unemployment: 8.40%
Key transportation mode Air: Miami International Airport

Cargo is hot in Miami, and it has nothing to do with the city’s heat index. Thanks to its prime locale, Miami houses the 11th busiest cargo airport in the world. Latin American freight comprises the majority of Miami International Airport’s loads, with the airport handling 83 percent and 81 percent of all Latin American/Caribbean imports and exports, respectively.

New Orleans, Louisiana

Population: 369,250
Unemployment: 6.90%
Key transportation mode Sea: Port of New Orleans

Nearly a decade after Hurricane Katrina, New Orleans is once again recognized as a major transportation hub. The city straddles the Mississippi River and capitalizes on its location via the Port of New Orleans—the only U.S. deep-water port served by all six Class I railroads. The port handles about 62 million short tonnes of cargo annually and employs many locals.

Orangeburg, South Carolina

Population: 13,850
Unemployment: 8.40%
Key transportation mode Road: U.S. Highway 301 andI-95

Orangeburg is emerging as a global logistics leader, helped by the U.S. Department of Transportation granting the city $12.1 million in 2012 to prepare its highways for the city’s transformation into the “Global Logistics Triangle.” The goal is to turn Orangeburg into a world-class trade hub—a plan that got a major boost when the UAE-based Jebel Ali Free Zone Authority established its U.S. headquarters nearby.

Peoria, Illinois

Population: 115,687
Unemployment: 8.50%
Key transportation mode Air & Rail: General Wayne A. Downing Peoria International Airpor & Five Class 1 railroads and six short-line railroads

Other Illinois locales may receive more attention, but Peoria shouldn’t be discounted. The city boasts strong cargo connectivity, thanks to a variety of transportation modes. In addition to being situated on a major interstate, Peoria is served by an extensive rail system and the emerging cargo hub General Wayne A. Downing Peoria International Airport. Barge access via the Illinois River further propels Peoria’s freight operations.

Savannah, Georgia

Population: 142,022
Unemployment: 9.20%
Key transportation mode Sea: Port of Savannah

The hospitality of Savannah—a.k.a. the “Hostess City of the South”—has extended to the global transportation sector. Many goods that enter the city via the Port of Savannah (one of the city’s major employers) are simply passing through, with the port moving more than 20 percent of the East Coast’s export containers; on-terminal rail services further expedite the transportation process.

St. Louis, Missouri

Population: 318,172
Unemployment: 9.50%
Key transportation mode Air: Lambert–St. Louis International Airport

For St. Louis, it’s all about “location, location, location.” Situated in the geographic center of the U.S., St. Louis is within 48 trucking hours of 70 percent of U.S. businesses. Lambert St. Louis International Airport is trying to capitalize on this centrality and maximize the city’s highway, rail and waterway connections to boost freight volumes. Such efforts may also improve St. Louis’ economic position, with 9.5 percent of its 318,172 residents currently unemployed.

Archives, Global Logistics

Do Less, Get More Done

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FOUR SUPPLY-CHAIN FUNCTIONS SHIPPERS SHOULD OUTSOURCE 

Some shippers prefer to go it alone, keeping all of their end-to-end supply-chain functions in-house. After all, they reason, nobody is as knowledgeable about their company’s needs as someone on the inside. While such an attitude may seem judicious, it can be bad for business, warns Joe Carlier, senior vice president of Sales at Penske Logistics. Although Carlier concedes that certain operations can be properly performed in-house, he questions why shippers would want to “spread themselves thin” by handling them all.

“When a customer asks me why they should outsource, I throw back, ‘Why on earth would you not want to?’” he says. To Carlier, it all comes down to one key distinction: whether the supply-chain operation is core or non-core. He urges shippers to eliminate functions that aren’t essential to one’s business and invest capital in critical operations. Distributors, for instance, should keep all warehousing activities in-house since they’re core to their business, Carlier says. “Focus only on what’s important,” he advises, “such as introducing a new product to the market, [finding] additional revenue streams, limiting your overall capital investment and using that capital in other core areas of your business.”

Such a model has certainly served eSecuritel well, says Phil Mitchell, the company’s senior director of Logistics. Mitchell says outsourcing certain supply-chain operations to UPS frees up the North American telecommunications company to focus on its core purpose: keeping customers’ mobile devices operational. “Our [relationship with] UPS allows us to remain in control of our supply chain,” he says, “which provides us the flexibility to quickly expand our operations as we onboard new customers.” UPS handles all of eSecuritel’s warehousing and fulfillment operations in the U.S. and assumes responsibility for the company’s warehousing, fulfillment and reverse logistics activities in Canada.

Mitchell calls the outsourcing relationship a win-win situation for both UPS and eSecuritel. In the U.S., for instance, the Alpharetta, Ga.-based shipper was able to achieve industry-best order cutoff times—a feat Mitchell directly attributes to UPS. “eSecuritel operates in an industry where our customers can’t afford to be without their mobile devices for even a day,” he adds, “so it’s incredibly important for us to be able to take an order any time during the day and guarantee delivery of a replacement device to that customer the very next day.”

Subcontracting select logistics functions also propelled eSecuritel’s Canadian operations, Mitchell says. He reveals that UPS helped bring the cellular goods shipper to Canada—a nation where it had previously lacked a physical presence. That’s not to say that eSecuritel has played a passive role in its supply-chain management, Mitchell points out. “We still [control] the entire supply chain,” he says, and handle procurement, supply and demand planning, order management, vendor management and repair operations in-house; the company also manages reverse logistics in the U.S. The arrangement has been so successful for eSecuritel that Mitchell encourages other shippers to follow suit.

Many logistics experts also endorse a partial-outsourcing model. Instead of handling all supply-chain operations in-house, shippers should consider subcontracting certain functions to third-party logistics (3PL) providers, they say. Deciding which functions to outsource, however, is entirely dependent on the company. Even so, below are four activities that may give shippers the most bang for their buck:

 1. Warehousing

Maintaining a brick-and-mortar facility is no small task. Along with requiring adequate physical space, operating a warehouse necessitates sufficient capital—and manpower. Penske’s Carlier estimates that labor accounts for 80 percent of warehousing costs, in fact. “Why tie up those dollars in nothing but labor?” he asks, rhetorically.

Labor expenses aside, shippers must also consider the cost of warehouse management systems (WMS). Logistics experts agree that these technologies are integral to managing the flow and storage of goods within a warehouse, as well as processing the associated transactions. They’re also expensive. Employing a 3PL, however, can mitigate these costs and lead to better outcomes for shippers, Carlier asserts. “If you don’t have warehousing technologies inside your four walls, more often than not a third-party provider will provide you with a better [value] with their warehousing management system,” Carlier says. He explains that the systems employed by 3PLs often feature advanced technologies, such as labor management, which in turn boost company productivity.

Joy Taylor, CEO of TayganPoint Consulting Group—which counts Aramark, Johnson & Johnson, Merck and Bristol Myers Squibb among its clientele—cites a similar benefit. Warehouse management systems are quite complex, she explains, and leaving them to the experts can prevent a lot of headaches for shippers. “Although a basic functionality of distribution, process fail points and system limitations are usually found more around WMSs and mechanical/automated handling systems,” Taylor says.

Not that such limitations necessitate total outsourcing, she points out. Taylor explains that shippers operating multiple warehouses often run some facilities in-house and then outsource the rest. This tactic provides companies with continuous benchmarks of how their outsourcing partner is performing, she says, which enables them to sustain best-in-class performance standards for their self-operated locations. “Having these outsourced warehouses is also one way to minimize business risk,” Taylor adds.

2. Transportation-related technologies

Technology is always evolving, and staying abreast of these changes can seem like an insurmountable task. By the time most shippers complete an IT installation, Carlier says a “newer and better” product usually comes to market. It’s a vicious—and often frustrating—cycle. “Not only that,” Carlier says, “but being able to integrate your supply-chain technologies into functional areas, such as warehousing and freight payment auditing services, is a pretty large undertaking for an organization that doesn’t [already] have one in place.” Again, he asks, “Why tie up that capital?”

When companies handle IT capabilities in-house, the costs are fixed; such expenses are converted to variable costs if companies outsource their IT services. Carlier says freeing up this capital enables shippers to invest in core areas of their business—which impacts their bottom line. Plus, he adds, outsourcing may elevate shippers’ IT capabilities. “In many cases, outsource providers really do execute at a higher level [than their clients],” Carlier says.

George Abernathy, president of transportation management services and logistics technology provider Transplace, agrees that outsourcing IT services can lead to better outcomes for shippers. But instead of advocating a full outsourcing model, Abernathy endorses a hybrid approach. He says the percentage of outsourcing versus insourcing is entirely company-specific, however.

“Each shipper needs to determine the optimal blend of outsourcing based on the size and ease of their network,” Abernathy says.

One exception is shippers managing multiple transportation modes. In that case, he says, “It’s likely that the sophistication necessary to have the service at cost goals being met would probably not be best met by outsourcing.”

3. Returns handling and processing 

Thanks to the advent of e-commerce, reverse logistics is big business. Gone are the days when people primarily returned goods to a brick-and-mortar store; nowadays, purchases are often made online and returned by mail. Such a transition may be good for business, but it also presents a host of challenges for shippers, logistics experts say.

It’s why TayganPoint Consulting Group’s Joy Taylor encourages companies to consider outsourcing. Instead of managing reverse logistics in-house, shippers should employ a 3PL to handle returns processing, she asserts. Outsourced tasks can range from picking up products from dissatisfied customers to repairing or disposing of unwanted goods. 3PLs can also handle customer calls, Taylor says, which enables them to manage the returns process from start to finish. “Those who make this their core business sometimes do best outsourcing this functionally,” she adds.

Even so, she admits that entrusting a third party to handle customer calls isn’t without risk. Taylor says before handing over the reins to a 3PL, shippers should determine whether they want to outsource any functions that involve direct customer contact. If the answer is yes, she says companies should proceed forward—albeit with caution.

“Apart from the customer contact aspects, there are many parts of [reverse logistics] that are either commoditized or too specialized, and outsourcing them can provide the benefits of scale and flexibility, which might not be there if kept in-house,” Taylor says.

UPS handles eSecuritel’s returns in Canada, and Phil Mitchell says the process has worked extremely well for the telecommunications company. In addition to minimizing headaches, subcontracting eSecuritel’s reverse logistics operations has led to better customer outcomes. And happy customers mean repeat customers.

4. Manufacturing

The supply-chain sector is undoubtedly in flux, with a lot of production moving from China to South Asia, Mexico and even back to the U.S. Effective supply chains are responding to this change and adapting to the shift in market demand. “Inefficient supply chains, on the other hand, tend to respond very slowly, which costs much more money and ultimately impacts production and service,” Penske’s Carlier says. Avoiding this fate has led many shippers to forgo in-house production facilities and outsource their manufacturing operations.

Taylor says it’s a trend she’s witnessed in her work with global shippers. “Certain parts of the world have access to specific resources or expertise, and others are just cheap,” she says. Although this doesn’t mean that factories must be outsourced, Taylor says it enables shippers to tap into such expertise without making the long-term commitment of an in-house facility.

“Manufacturing outsourcing can be done for reasons of speed to market, flexibility and cost,” Taylor adds. Many shippers also employ third-party manufacturers for tax purposes, hoping to take advantage of different corporate tax rates across the world. This tactic isn’t just opportunistic, Taylor says; it’s good business.

Along with manufacturing, more complex supply chains often include assembly, or late-stage configuration, Taylor says. “There is then a debate about whether or not these assembly operations should be in-house or outsourced.” The answer to that, she says, lies in the degree of business risk involved and how core these operations are to the success of the product. Like with any supply chain function, however, companies must carefully weigh the pros and cons of relinquishing an in-house operation and outsourcing production capabilities. After all, doing so can make or break a manufacturer. “So choose wisely,” Taylor says.

Archives, Site Selection, State Spotlight

Michigan’s Renaissance

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THE ECONOMIC RESURGENCE OF THE GREAT LAKES STATE LEADS OVERSEAS

It wasn’t a clear-cut decision, admits Shilpa Patel, CFO of Testek Inc. Although Testek—a manufacturer of custom test equipment for the aerospace, automotive and nautical sectors—could benefit financially from attending the 2013 Dubai Airshow, the expense of the exhibition was considerable. “There was the cost of the trade show itself and then there were the hotel costs,” Patel says. She places the expense between $8,000 and $10,000—a lofty figure for the Wixom, Michigan-based company. Fortunately, it was an expense Testek didn’t have to shoulder alone.

Thanks to Michigan’s State Trade Export Program (MI-STEP), Testek only had to shell out half of the cost of the Dubai Airshow—a quantity Patel could get behind. She calls MI-STEP, which aims to increase Michigan’s pool of small business exporters by assisting them with marketing-related expenses, a game changer for Testek. “MI-STEP has really helped us quite a bit,” she says, enabling Testek to introduce its test components to new global markets.

Another government-sponsored program that has contributed to Testek’s success is Michigan’s tax abatement policy. The company relocated from Lavonia, Mich., to Wixom in 2008, an expense that exceeded $9.5 million. “Luckily,” Patel says, “the state of Michigan kicked in a tax abatement so that we would get some reduced property tax and personal property tax.”

These programs signal good news for a state that has been inundated with bad press in recent years. Although for decades, Detroit—Michigan’s largest city—was characterized by its contributions to the music and automotive sectors, some believe the flashing lights of Motor City have all but faded. The decentralization of the automobile industry, coupled with rising unemployment and crime rates, have crippled the once vibrant city. But have Detroit’s—and by extension, Michigan’s—problems been overblown? Can the Great Lakes State reclaim its greatness? All signs point to yes, numerous economics experts say.

Luis Canales, director of Global External Affairs at Saginaw, Mich.-based Nexteer Automotive, doesn’t claim to be an economics expert but says he’s witnessed Michigan’s renaissance first hand. Right now, the state is undergoing a “once-in-a-generation” transformation, according to Canales. “Bold changes have made Michigan more business-friendly than ever,” he says, “and the state has economic development tools that are available to all types of businesses.”

He reveals that Nexteer—a global automotive parts manufacturer—has benefited from Michigan’s “low,” 6 percent corporate income tax, as well as the state’s “overwhelming” support for exporters.

“The state has significantly helped us improve the competitiveness of our business through a basket of assistance that includes talent acquisition and retention, business development missions, and various forms of economic incentives to create jobs and encourage investment,” Canales says.

The Michigan government currently doles out more than $150 million in incentives and financial assistance, a figure Canales says highlights the state’s “robust” economic development program. Simply put, he says, no U.S. state could provide a better avenue of growth for Nexteer than Michigan.

Timothy Nash, vice president of strategic and corporate alliances and the Fry endowed chair in free-market economics at Northwood University in Midland, Mich., is similarly optimistic about Michigan’s economic situation. Pointing to the number of big-name companies that call Michigan home—including Ford Motor Co., Kellogg’s, Dow Chemical and Whirlpool—Nash says Michigan houses a variety of industries. “We have a strong, diverse economy,” he says, “a bit stronger than many people may think.”

Nash credits Michigan’s “extremely friendly” tax system with bringing businesses to the state. Under the tutelage of Governor Rick Snyder, Michigan has developed a single business tax—turning what Nash called a “very complicated system” into a highly transparent one. Previously, businesses were required to maintain several accounts to ensure that they fulfilled all of the tax requirements. Fortunately, Nash says, “We have cut more than 600 regulations over the last couple of years, and we’ve become a right-to-work state, which certainly makes it a lot easier to manufacture as a company and, quite frankly, as a producer of a company.”

Entrepreneurs, it seems, have taken note: More than 200,000 new jobs have been created in Michigan since Governor Snyder took office in 2010.

In addition to praising the governor for this achievement, Nash recognizes the Michigan Economic Development Corp. (MEDC) for making great strides toward economic recovery. “What the governor and the MEDC have done is promote all the positive changes that have been made and the business-friendly environment that made Michigan one of the great economic states, especially in the first half of the 20th century,” he says.

Nearly three years ago, state officials launched a major campaign to help small- and medium-sized companies (SMEs) tap into international markets. What the MEDC found is that many of these Michigan-based companies were too domestic-focused and had missed key opportunities for business growth. Armed with this revelation, the MEDC compiled a team of experts to help these businesses expand their reach.

“Our export focus is really about existing companies that are trying to grow their businesses by reaching international markets,” MEDC President and CEO Mike Finney says. Michigan promotes this strategy through Pure Michigan Business Connect, a program designed to identify both international and domestic companies interested in taking advantage of Michigan’s supply base. “We’ve done a lot of homework, and there’s a lot of data that suggests Michigan is probably the top location in the U.S.— and maybe even one of the top two or three locations in the world—for making things,” Finney says.

It’s no surprise, he maintains, considering the state’s rich automotive history, as well as its proficiencies in the food-processing and furniture sectors. “Because of that, Pure Michigan Business Connect has become a neat way for us to facilitate business-to-business activity,” Finney says. Last year, the MEDC facilitated roughly $1.6 billion of B2B activity via Pure Michigan Business Connect;

Michigan companies accounted for the majority of this figure.
Along with helping businesses grow through Pure Michigan Business Connect, Michigan incentivizes companies financially.

Companies are offered property tax abatement for equipment and real estate at the local level—a benefit Testek enjoyed, Patel says—and access to equity capital, debt and grants on a statewide level. “We have programs to help with the [latter] three,” Finney says. Whether it’s a start-up company looking for investors or an established company needing capital, the MEDC can help, he maintains.

Finney says he regularly encounters companies looking for debt as they take on new business. Debt markets have been extremely tight since 2008, he explains, so Michigan has programs to help companies—particularly SMEs—get access to the capital they require. “We also have about $200 million a year in grants that are available to help companies be successful in a way our equity and debt programs hadn’t sufficiently been able to before,” Finney says.

Finally, the MEDC helps local companies with personnel needs, consulting them on everything from talent recruitment to training protocols. It’s a key incentive, Finney says, since without the necessary talent, businesses’ growth opportunities are stifled.

Fortunately, the agency doesn’t have to look too far to find top talent. Testek’s Patel says one of the biggest draws to Michigan is its diverse talent pool. “We have a lot of skilled workers and engineers in Michigan, thanks to the great universities that are out here,” she says, citing East Lansing’s Michigan State University, Houghton’s Michigan Technological University, Ann Arbor’s University of Michigan and Detroit’s Wayne State University as key examples.

“The other reason is that the Midwest tends to have people who are hardworking, with a great work ethic, so it’s also easier to do business if you have good people,” Patel says.

Geography is also enticing people to the state, Timothy Nash asserts. He points out that Michigan is located in the heart of the bi-national Great Lakes region, a trillion-dollar economy. “Even though we’ve gone through tough times in the last 20 years, [the Great Lakes] still has some of the biggest economies in the U.S. and in the world as trading partners,” Nash says, including New York, Illinois, Ohio, Indiana, Wisconsin and, obviously, Michigan. Canada is also included in the profitable region, with Michigan boasting numerous access points to its northernmost neighbor. Nash points out that this proximity makes Michigan a key beneficiary of the North American Free Trade Agreement.

In addition to Canada, many Michigan companies are also eying the BRIC countries—Brazil, Russia, India and China—for growth. Recently, the Midland Chamber of Commerce trekked to China to learn about manufacturing and export opportunities in Asia; local chambers have also visited Brazil, Russia and India for these reasons. To Nash, such actions illustrate Michigan’s proactive approach to reaching new markets, as well as the state’s new business-friendly environment. Governor Snyder should be proud, he says.

“I don’t want to speak for the governor,” Nash says, “but one of the things he has done is say, ‘Look, we are very interested in creating a great environment for everyone—domestic producers, importers and exporters.’ So what we need to do is be a highly competitive state as it relates to the [economic] environment.” After all, Nash says, if the right environment is cultivated, all parties benefit.

Both Nash and Finney are optimistic that with enough work, Michigan will reclaim its glory from the mid-20th century. A renaissance has come, they believe, and judicious companies should take advantage of Michigan’s many opportunities for economic growth while they’re still available.

3pls, Archives, Global Logistics

Colossal Logistics Collaborations

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HOW 3PLs ARE HELPING THE NATION’S EXPORT GIANTS

Lino Santinelli, senior supply-chain consultant at DuPont, admits that his company was in a bit of a bind. The Wilmington, Delaware-based chemical giant needed to move critical shipments from the U.S. East Coast to the Asia-Pacific, but inclement weather thwarted DuPont’s plans. The solution, Santinelli reasoned, involved employing a third-party logistics (3PL) provider.DuPont tasked Miller Transporters Inc. of Jackson, Miss., with shipping the chemical products from a warehouse in Ohio to a facility in Los Angeles, transloading the truck into an ocean container and floating the goods across the Pacific Ocean. What could have been a crisis was quickly averted, Santinelli says.

That wasn’t the only time DuPont sought help from a 3PL, he says. After the Fortune 500 chemical company lost its warehousing lease in Atlanta, DuPont quickly relocated to one of Jacobson Companies’ facilities—a move Santinelli says tremendously boosted DuPont’s operations. The Des Moines, Iowa-based 3PL also took over DuPont’s largest warehousing activities in Virginia, where the company is currently manufacturing textiles. Although Santinelli acknowledges that some exporters prefer to handle their logistics in-house, he fully endorses the utilization of a 3PL.

“By using a 3PL, we’re not responsible for having to maintain the assets, whether it’s a warehouse, a truck or an ocean vessel,” Santinelli says. “All of that responsibility is put on the third-party logistics provider.” The 3PL must also staff and maintain the operations, as well as ensure that the shipper’s products are packaged, shipped and handled correctly. To Santinelli, allowing logistics providers to shoulder these shipping responsibilities enables manufacturers to focus on their core purpose: making quality products.

Pilot Freight Services’ Vice President of Logistics Services Steve Bullard agrees wholeheartedly. He says his company regularly works with big-name U.S. exporters and has often jumped in to save the day for shippers. One example that particularly sticks out in his mind is when Pilot set up a Miami distribution hub for a U.S.-based Fortune 100 company. (Confidentiality laws prevent Bullard from disclosing the company’s name.)  The company’s South American logistics team came to Pilot to run warehouses in-country, since they were no longer supported by their U.S. multinational parent.

Establishing a hub in several developing countries—core markets for the global manufacturing and service organization—was one option, albeit a rather costly one. Bullard explains that national authorities add surcharges on companies that are not established legal entities in those companies. Those value-add taxes can be as much as 40 percent of the services being contracted. Maximizing their client’s resources led Pilot officials to create the Miami shipping point and then move equipment in and out of Latin/South America on demand. “I know it’s almost counterintuitive that shipping from Miami to South America is cheaper than operating within those countries, but that’s not always true due to the VAT taxes that can be applied to the services in those countries,” Bullard says.

Under the new deal, Pilot stores tools and key parts in Miami and then services and calibrates them.

“We manage the entire process for them,” Bullard says. If the company experiences a critical need, Pilot will immediately ship the replacement equipment to the job site. “We coordinate the delivery to the site that quickly gets used,” Bullard says, “and then we literally bring it back to the U.S. to reconfigure, restock and recalibrate it and then get it ready for export back out to South America.” It’s a process that has worked seamlessly for Pilot and its valued client, he maintains.

Bullard says Pilot has also streamlined the export process for MarquipWardUnited, a Phillips, Wis.-based designer and manufacturer of machinery for the corrugated box and paper converting industries. Prior to MarquipWardUnited’s involvement with Pilot, the company was suffering from lengthy delays and downtimes in Mexico—one of its key export markets. The problem centered on Customs clearance, Bullard explains. Mexican Customs authorities only operate on weekdays during standard business hours, and MarquipWardUnited’s customers often demanded parts during off-hours. Bullard says Pilot overcame this obstacle by establishing a pre-clearance process for the U.S. manufacturer.

“We warehouse an assortment of products in Mexico City, which means their Mexican customers now all have 24/7 access to those parts,” he says. In fact, Bullard adds, Pilot can perform same-day or next-day shipping for MarquipWardUnited intra- or extra-Mexico, which has significantly bolstered trade links.

To Bullard, Pilot’s work to simplify the Customs clearance process for MarquipWardUnited, as well as its efforts to set up the distribution hub for the company, illustrate the 3PL’s ability to respond to differing client needs. He argues that it’s an advantage Pilot has over some of its larger competitors, because it can be very nimble due to its smaller size and compact company structure. “We can react very quickly to changes,” Bullard asserts.

Jerry Verghese, UPS’s director of International Marketing, argues that size can also be an advantage for a 3PL, citing UPS Supply Chain Solutions’ “unmatched” global network and full-service logistics portfolio. For starters, he says, UPS personnel have expertise handling electrical and industrial machinery, as well as high-tech goods, apparel, textiles and medical and optical equipment; plus, the company boasts a partnership with U.S. Commercial Service, the trade promotion arm of the U.S. Department of Commerce’s International Trade Administration.

The latter benefit is particularly advantageous to U.S. shippers, Verghese says, since the agency develops national export strategies. He says UPS’s affiliation with the organization highlights the company’s commitment to strong customer growth. “Our goal for [U.S.] customers doing business internationally is to help simplify the process so they can actually do more international business,” Verghese says. Not that he advocates a one-size-fits-all approach to global logistics.

Verghese explains that UPS tailors its 3PL services to their customers’ specific needs. U.S. retailers, for instance, benefit from UPS’s proficiency in managing the intricacies of international logistics—such as tariffs and compliance issues—and returns services. “E-commerce may not have borders,” Verghese says, “but the real world certainly does,” which means exporters must be well versed in international regulations. He reveals that UPS Supply Chain Solutions also caters to industrial manufacturing and high-tech companies, introducing them to multimodal transportation channels and getting their products to market faster.

One way UPS is achieving the latter is through UPS Standard to Mexico, a door-to-door, small-package ground service from theU.S. to Mexico. With commerce between the nations surging 113 percent since 2003, Verghese says the UPS offering enables U.S. exporters to maximize trade opportunities with their southern neighbor. The service, launched in June 2013, has already seen strong volumes of U.S.-manufactured computer and electronic parts on Mexico-bound routes. To UPS officials, the big draw is that it enables more U.S. exporters to take advantage of Mexican demand for U.S. goods—not just companies located in the Southwestern border states.

Verghese’s colleague John Miltenis says the idea for UPS Standard to Mexico came after a company survey revealed that U.S. high-tech shippers need help navigating the complexities of emerging markets. “[We] recognize that in order for our customers to meet Mexican demand for U.S. goods, they require a partner that can provide international expertise, reliability and end-to-end visibility,” Miltenis says. “UPS Standard to Mexico does just that—while increasing supply-chain and cost efficiencies.”

Pilot Freight Services is similarly looking to gain share of the profitable U.S.-to-Mexico market. Steve Bullard reveals that the 3PL has developed stations where Pilot can scan freight and then build its own consolidations to put on commercial aircraft. Customer demand drove the development of such stations, Bullard says, since they lower the cost of hauling goods to Mexico. “The fact that we can scan allows us to tender directly to the [plane], which is really generating exports and allowing us to [offer] more competitive rates to our customers,” he says. “It’s significant.”

Also significant, Bullard says, is the way 3PLs like Pilot are improving outcomes for exporters across the globe. U.S. shippers, however, comprise the bulk of Pilot’s customer base. Bullard says ensuring that these clients remain satisfied requires Pilot to develop workable solutions for each company and overcome key logistical challenges. It’s where Pilot’s size comes into play again, he says. “Our mantra has always been that we’re kind of the ‘three bears’ of the industry, meaning that we are large enough that we have the global bandwidth to really support the Fortune 500 companies and up.”

Fortune 500 companies are undoubtedly taking note. Increasingly, more of these export giants are relying on 3PLs, and experts believe that the number of U.S. companies that outsource their logistics operations will only surge in the future. In the case of DuPont, forging a completely in-house operation led to better outcomes, shorter downtimes and fewer headaches. Lino Santinelli encourages other companies to follow DuPont’s lead.