FROM RUST BELT TO EXPORTING GIANT
ALONG THE OHIO RIVER VALLEY, AMERICA’S ORIGINAL INDUSTRIAL GIANTS ARE BACK
Lowing Westward from Pittsburgh along a winding path nearly a thousand miles, plied by sturdy barges and laden with almost a third of America’s inbound cargo tonnage, the Ohio River spills into the churning Mississippi in southern Illinois, connecting the northeast with the Midwest and forming America’s first industrial corridor—and one that is still among the most vital.
Defined by the snaking progress of what Thomas Jefferson called America’s most beautiful river, the Ohio is today at the center of a resurgent and diversified industrial expansion. At times high-tech and at other times old school, its manufacturers care little for categories; they are too busy making, selling and shipping. In Pittsburgh, young graduates of top-rated local schools like Carnegie Mellon create video games for global markets, an export category rising fast toward the levels of historical export leaders like mining and metal products. In West Virginia, coal miners vie with plastics manufacturers in ringing up record export sales. In Cincinnati, engineers continue to design and factory workers continue to produce a growing percentage of the results designated for sale abroad.
If the Ohio River Valley were defined as a single metropolitan area, it would rank fourth among the nation’s exporting hubs, behind New York/New Jersey, Houston and Los Angeles/Long Beach—and a whisker ahead of Miami. Companies based in and around Cincinnati, Pittsburgh and Louisville collectively exported over $60 billion in 2010, the most recent year for which International Trade Administration numbers are available. Add to those numbers exports that move through maritime ports in other states—New Orleans, Virginia, Maryland and New York—and the Valley might indeed rank among the top three.
A Top Exporting Region
Perhaps the most intriguing business headline of last year was the one reading, “West Virginia Leads Nation in Export Growth.” Goods and merchandise shipped from that state rose 40 percent over the previous year, totaling a state record $9 billion; nationally, the rate of growth was 16 percent.
Leading the state’s export parade was coal; the increase in that fossil fuel export reached $5.3 billion from $2.8 billion the previous year, a rise that accounted for much of the state’s remarkable growth. Non-coal exports reached a record level of more than $3.6 billion. Plastics, the second-largest product sector, surpassed $1 billion.
Sister cities along the Ohio are booming. Greater Cincinnati ranked 16th on the ITA’s list of top exporters, shipping $17.6 billion in 2010. The Pittsburgh metropolitan area ranked 20th and exported $17.6 billion. Meanwhile 39th-ranked Louisville shipped $6.2 billion. Among the top metropolitan exporters, Pittsburgh was one of the fastest growing, with merchandise exports between 2009 and 2010 growing 46 percent over this period.
The region’s top exporter was GE Aviation, a world leader in aircraft engine manufacture. Collectively, transportation products topped the list in terms of industry sector, reaching $9.7 billion in sales in 2010. Other leading sectors were Chemical ($4.2 billion), Machinery ($3.4 billion), Mining ($3.8 billion) and Metals manufacturing ($2.9 billion).
Top export regions by country were Canada ($9.3 billion), Mexico ($3.4 billion) and China ($1.6 billion).
The Natural Gas Boom
The surging natural gas industry has focused the attention of many here downwards, thousands of feet beneath the surface. Here is the ancient home of the shale deposits that have gotten so much attention of late, those vast subterranean beds from which modern mining techniques can now profitably extract ethane gas and other fuel products. The new technologies, including horizontal mining and fracking, drove chemical production up by about 3 percent last year in Pennsylvania alone, a significant rise in a decidedly mature industry.
But clearly, the major impact has yet to be felt. As the growing supply/falling prices scenario lowers manufacturing costs, local manufacturers have been among the first to benefit, making regional exports more competitive.
Perhaps no one is cheering the drop in energy costs as much as the U.S. steel industry. Here, the cost of converting to natural gas reduces steel production prices by an estimated $8 to $10 a ton. With costs running about $600 a ton, that conversion represents a savings of about $133 million per year to a company like U.S. Steel, according to the investment bank UBS. On top of that, Pittsburgh’s iconic steel manufacturer could rack up another $80 million from additional operational savings.
The biggest long-term benefit, however, resides in gas export sales. Federal regulators control access to overseas liquid natural gas markets; but they have already begun to loosen their grasp. To get a sense of the big picture, consider that a single processing plant can supply domestic fuel to last a century. Already, measured in dollars, the nation is on pace to ship more gasoline, diesel and jet fuel this year than any other single export.
But there is much more to the region than what lies below the surface.
The valley’s location—specifically its accessibility to rail, road, air and river transportation channels—is attracting renewed interest from manufacturers during a time when supply chain management and access to customers and suppliers drive real estate decisions.
This region is well served by the lattice of federal highways built around such key cities as Cincinnati; Interstate 275 converges at times with Interstate 74 as it circles the city slicing through three states.
The region’s three international airports, in Cincinnati, Pittsburgh and Louisville, offer access to key foreign markets. In Cincinnati, DHL Express has just invested $47 million in an expansion focused on export customers in Ohio, Northern Kentucky and Indiana.
“We can get to two-thirds of the United States population within an hour flight time,” says Travis Cobb, a vice president with the jet-delivery service. “We’ve seen 20 to 25 percent growth three years running. It’s export-driven and it’s a pure capacity play.”
Then there’s rail. Railroad giant CSX mainline connects valley-based businesses to customers and suppliers throughout the northeastern states and Canadian markets as well as transportation hubs in New York, Baltimore and Philadelphia—and from there with Europe and the Middle East. Mexico and South America are served mainly through New Orleans port.
Awaiting the Panama Canal Spill-Over
The region is gearing for an upsurge in river traffic anticipated to start in 2014, when the Panama Canal inaugurates its new, larger locks. The change will send intermodal traffic spilling from the ports of New York and Baltimore into inbound maritime channels, producing an expected boom for Ohio River’s barge business.
They’ve been waiting for it.
“River transportation is a fraction of the cost of trucking, and it’s the ultimate green transportation mode,” says Eric Thomas, general manager of Benchmark River and Rails Terminals in Cincinnati, and president of the newly formed Central Ohio River Business Association, a trade group formed to promote river transportation use. “It’s time that river transportation gets the respect it deserves.”
“This has always been a major maritime area,” says Tracy Duke, director of Columbiana County (PA) Port Authority. “With the advent of the shale oil industry, that’s being bumped up to a major new level. Everybody is going to come to the table and be well fed.” Scores of programs run by trade specialists from various levels of government—federal, state, county, municipal—as well as by academic experts, utilities and regional business promoters—offer a whirlwind of export advisory and consultative services, many of them free or minimally priced.
“We’re here to encourage the small- to medium-sized manufacturers to consider possibilities in other countries,” says Patrick Kelly, director of economic development at First Energy in Ohio. “Often our work involves taking them into Canada, Mexico or Europe, and introducing them to companies. Often they already are doing business with those companies here. Once they’re in another country, it’s easier to see how to do business with them over there.”
As manufacturing rebounds, concern shifts from how to help displaced rust-belt workers with how to train a new generation of manufacturing workers. Advanced manufacturing requires computer expertise and the ability to figure out solutions rather than perform assigned tasks and, especially, to work productively in teams.
Ed Hughes, chief executive of Gateway Community and Technical College in Northern Kentucky, says that school’s programs have been revamped to focus on skills needed by the region’s resurgent manufacturers, many of them operating out of computerized plants and dependent on smaller, better-educated work forces.
“We help our students understand the manufacturing process, and see where their skills fit within that process,” says Hughes. “Our teaching approach corresponds to what manufacturers do. For example, our trainers put 10 people in a group and the students have to figure out what isn’t working and what they have to do to fix it. They’ve got two hours.”
He adds, “Everyone passes, or everyone fails.”
A sense of revived opportunity now permeates cities like Pittsburgh, where economic optimism started to leech out around the time the steel mills began shrinking a generation ago. The mills that remained have found the horizon now looks quite a bit brighter. U.S. Steel, for example, having run in the red for the past three years, is looking once again at regaining profitability—and sustaining it, in part due to lower power costs.
But Pittsburgh’s future is no longer yoked to the fortunes of the steel industry. When steel began contracting in the 1970s, the city went into convulsions along with it. Millions of square feet of corporate and commercial space were vacated, remaining empty for years as regional economic activity was more wishful thinking than reality.
Millcraft Industries is an example of a steel company that has successfully reinvented itself for a new era. A former industrial fabricator, the company today is a successful redeveloper of industrial space, converting aging manufacturing buildings and antiquated retail space into vibrant mixed use sites. Lucas Piatt, a son of the founder, returned to his home town a few years ago and today handles the company’s retail operations, including its growing portfolio of business parks and lifestyle centers, where corporate offices, retail space and upscale condominium units not only coexist but enhance each another’s appeal.
“The pioneering things that have happened in the region the last several years make it more attractive for young people who might have left to come back,” says Piatt, at age 35 representative of the development’s target demographic. “Pittsburgh is an attractive urban environment now, and we are competing for young people who might look at Boston or New York to look here. Industries are coming back, jobs are coming back, and people are coming back. Our developments are for people who want the hustle and bustle, who like the excitement of living in a place like New York or Boston.”
While people “laughed at us” a few years ago for investing in downtown development, Piatt says, no one is chuckling now. Rather, Millcraft’s developments have waiting lists.
“After 20 years of people leaving the region,” he says with pride, “now they are coming back.”
The region to which those people are coming back is one that was always globally oriented. That global outlook was pretty limited to the few giant corporations that produced raw material, steel and heavy equipment for the world. Today, there’s a new globalism, an export ethos that characterizes thousands of smaller companies, too. They can rely on a variety of trade specialists—federal, state, county, municipal, as well as academic experts, utilities and regional business promoters—offering an encyclopedic array of export advisory and consultative services, many of them free or minimally priced.
“We’re here to encourage the small- to medium-sized manufacturers to consider possibilities in other countries,” said Patrick Kelly, director of economic development at First Energy in Ohio. “Often our work involves taking them into Canada, Mexico or Europe, and introducing them to companies. Often they already are doing business with those companies here. Once they’ve in another country, it’s easier to see how to do business with them over there.”
The USA’s Lowest-Cost City For Business
Not just in the Ohio River Valley, but in the entire nation: Cincinnati is the lowest-cost city for business in the U.S., says KPMG’s Competitive Alternatives study.
The 2012 study, released this spring, ranked Cincinnati the most cost-efficient city for companies among the country’s 27 largest metro areas, all of which have over 2 million inhabitants. KPMG cited Cincinnati’s low costs for facility leasing, transportation and property taxes in ranking the city ahead of Atlanta, Orlando, Tampa and Dallas-Fort Worth. Those cities finished second, third, fourth and fifth, respectively.
Cincinnati had a cost index of 95.9, representing business costs 4.1 percent below the national baseline of 100. Atlanta followed at 96.2, Orlando 96.3, Tampa 96.4 and Dallas-Forth Worth 96.5. Pittsburgh, the other major Ohio River Valley city that ranked Top 10, finished ninth, at 97.2.
The study, released every two years by the audit, tax and advisory firm, measured 26 significant cost components in each market, including labor, taxes, real estate and utilities, as they apply to 19 industries over a 10-year analysis horizon. Cost index figures were created by measuring the combined impact of 26 cost components that are most likely to vary by location. More than 1,900 individual business scenarios were examined, analyzing more than 50,000 items of data.
The study measured business-operating costs in more than 110 cities in 14 countries.
First in “Wins” on Ohio River
Greater Pittsburgh finished first in an analysis of corporate facility growth along the Ohio River last year, notching 66 new plants and expansions in the 12-month period between July 2010 and August 2011, according to a report published by Conway Data.
Cincinnati finished second with 54 “wins,” to use the term favored by economic development specialists.
The report, published in Site Selection magazine, tracked corporate real estate growth in all markets lining the Ohio River. This year marks the eighth straight year the report has been published. Behind the two leaders were Jefferson County, KY, with 17 wins; Clark County, IN with 10 wins; and Boone County, KY, with 10 wins. This was the first year a West Virginia county cracked the top 5, the research firm said.
Gained the Most Last Year
Greater Evansville, the metropolitan area spanning Indiana and Kentucky, was among the biggest gainers in the latest Milken Institute Best-Performing Cities Index ranking urban areas based on job creation, employer retention, job quality and technology growth.
Evansville MSA rose to 79th ranking in 2011 from 144th in the 2010 study, the institute reports. The study cited the metro area’s job growth, wage and salary growth, and increasing technology sector productivity in noting the rising rating. From 2009 to 2010, Evansville sustained the seventh-highest job growth rate in the United States among large cities. Recent expansion has included such companies as Legacy Plastics, Matrix Composites, Sunrise Tool and Die, Berry Plastics and Global Blade Technology.
State of Emergence