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  May 29th, 2013 | Written by

Memphis: America’s Distribution Backbone

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How the unparalleled logistics infrastructure offered in Memphis is attracting America’s shippers

SURGICAL PRECISION Medtronic located its spinal division in Memphis so FedEx could deliver its surgery kits overnight to any O.R. in the country.
SURGICAL PRECISION Medtronic located its spinal division in Memphis so FedEx could deliver its surgery kits overnight to any O.R. in the country.

Once home to Elvis Presley, Johnny Cash and King Cotton, these days it’s Memphis’ logistics infrastructure that has taken center stage in Tennessee. Standing on a bluff rising from the Mississippi River, the city was chosen in 1973 as the site for an upstart company looking to use Memphis International Airport (MEM) as its distribution hub. That company? None other than Federal Express. The firm that virtually invented the air/ground express industry is today a transportation, ecommerce and business-services behemoth operated by 300,000 workers worldwide. Not only is FedEx a big draw for companies to locate in Memphis, it also helped make MEM the world’s second-busiest cargo airport, after Hong Kong. Add the city’s railroads, highways, Port of Memphis and Foreign Trade Zone (FTZ) No. 77 to the lineup, and you’ve got a quadramodal logistics rock star.

Logistics expertise attracts big-money companies. Richard Smith, director of Life Sciences and Special Services at FedEx Express, explains how FedEx and Memphis draw healthcare and bioscience heavyweights like Medtronic, Advanced Technology, Pfizer, Baxter and GlaxoSmithKline. Smith is responsible for FedEx’s life sciences and specialty services, which have grown dramatically recently and now employs 175 specialized personnel. “Our central location in the country facilitates midnight drop off and 8 a.m. delivery so that medical professionals can depend on our 24/7 mission critical service,” explains Smith.

Robert Carson, vice president of Medtronic, Inc.’s spinal business, says the Minneapolis-based firm began operating in Memphis in the 1980s to be near a “young company named FedEx.” The biomedical engineering company, with more than $16 billion in annual revenues, manufactures and sells device-based medical therapies worldwide. Orthopedic surgeons rely on Medtronic to prepare spinal surgery kits customized for each patient. Carson cites the example of a surgeon in Austin, Texas, requesting a surgical kit in late afternoon to reconstruct a pediatric patient’s spine with nearly 40 implants.

“These are not small packages,” Carson says. “One complex case may require six TV-sized boxes to include all the necessary parts. This is a supply-chain challenge, but because of our central location in Memphis, we prepare the kit, have FedEx put it on a night flight, and it’s in the O.R. next morning.”

Medtronic sells more than 300,000 spinal kits worldwide every year. To enable its customers to have surgical kits at the ready, the company has distribution centers around the world that are restocked by FedEx Supply Chain. North American sites include Memphis, Tennessee; Mira Loma, California; Newark, New Jersey; Louisville, Kentucky; and Mississauga, Canada. The firm’s international sites include Mexico City; Bogota and Sao Paulo in Latin America; Singapore, Mumbai, Delhi, Tokyo, Seoul, Shanghai and Taipei in Asia; and Heerlen and Leipzig in Europe.

Other bioscience firms also rely on FedEx’s Memphis operation to get the job done. Westbrook, Maine-based Idexx Laboratories produces veterinary testing kits, including the popular SNAP test for diagnosing feline leukemia and AIDS. “Much of our lab work requires time-sensitive responses, so our proximity to FedEx’s hub airport is critical for our 35,000-plus a month shipments to both domestic and international providers,” says Adam Boccelli, Idexx’s senior manager of Worldwide Warehousing and Logistics.

RULES OF ATTRACTION The presence of FedEx’s global hub in Memphis has drawn many of America’s shippers looking for fast delivery.
RULES OF ATTRACTION The presence of FedEx’s global hub in Memphis has drawn many of America’s shippers looking for fast delivery.

With 30 percent of its shipments going overseas—Canada, China, Japan, Australia and the Netherlands are its top international destinations by volume—Idexx sends test samples and receives results at its Memphis office five days a week. Utilizing FedEx’s hub-extraction program, a veterinarian in California can send a lab sample until 6 p.m., get overnight delivery and test results by next morning. Boccelli anticipates 15 to 20 percent annual volume growth, noting that Idexx has twice expanded its distribution facilities since establishing Memphis roots in 2007.

All About Logistics

Memphis earned its moniker as “America’s distribution center” thanks to its mastery of logistics’ four Rs: Runway, Rail, Road, and River. Few global cities can compete with Memphis’ riches—air cargo and passenger hubs, four major interstate highways running north/south and east/west, five Class I railroads and America’s fourth-largest inland port. The Center for Transportation Analysis figures show that in 2011, freight originating in Memphis totaled $227 billion via truck, $28 billion by multiple modalities, $9.7 billion by air, $1.1 billion by rail and $368 million by water.

The bottom line? It’s one heck of a logistics center.

“You can get to more metropolitan markets from Memphis faster and cheaper than from any other city, plus it’s less congested,” says Dexter Muller, senior vice president of the Greater Memphis Chamber. Its temperate climate makes it one of the U.S.’ most weatherproof regions, untroubled by hurricanes or blizzards. Top multinational corporations (MNC) have been attracted to the city’s business-friendly environment, logistics strength and low cost of living—the lowest of any major metropolitan area, according to the Council for Community and Economic Research.

In 2007, sports giant Nike made Memphis its chief retail and wholesale distribution operation for North America by investing $107 million to build a one-million-square-foot distribution center on 125 acres of land, creating nearly 600 jobs in the process. In early 2013, Nike announced plans to expand its Memphis operations with a 200-acre, $2.2 million land purchase that will add yet another 250 jobs. The company plans to spend $301 million on the expansion of one facility and $25 million to upgrade another, adding 1.8 million square feet to its existing footprint. Mike Brewer, Nike’s vice president of North America Supply-Chain Operations, commented from his Twitter account on March 12: “Memphis is centrally located, with easy access to FedEx and the railroads. We came to Memphis because it’s a great logistics city.”

Memphis’ FTZ No. 77 offers reduced processing fees, quick movement of goods, duty-free exports and deferred-duty payments on imports sold domestically. The FTZ has attracted major companies including FedEx Supply Chain, Baxter Healthcare, Sharp Manufacturing, Brother Industries, Cummins, Inc. and Flextronics Logistics.

Flextronics Logistics, located in the FTZ, exemplifies what Memphis’ world-class transportation infrastructure can do. The firm repairs all of Apple, Inc.’s laptops, utilizing late drop off times and extended work days to provide same-day service. “This is the type of high-value service that Memphis is noted for, which other companies, including Hewlett Packard, also use,” says Muller from Greater Memphis Chamber.

Other firms have located or expanded in Memphis based on logistics. New Breed, a High Point, North Carolina-based 3PL, is investing $23 million to expand its warehouse and distribution facilities, adding 468 new jobs. Mitsubishi Electric put its largest U.S. investment—$207.7 million—into its Memphis factory, making 400-ton boxcar-sized electrical transformers.

Appliance maker Electrolux recently went big in Memphis. Lured by a $132 million incentive package of city, county and state money, the Sweden-based company opened a 700,000-square-foot manufacturing facility in late 2012, leading to 1,200 new manufacturing, engineering and supply-chain jobs. Another industrial powerhouse, Nucor Steel, put the U.S.’ largest domestic steel mill in Memphis because of access to raw materials, rivers, roads and rails. Last year, the company turned 750,000 tons of scrap metal into specialty bar products.

Cargill, a privately held MNC based in Minneapolis, was also lured to Memphis. The company produces food, agricultural and industrial products, and utilizes Memphis’ port and railroads to export approximately 50,000 metric tons of liquid sweeteners annually. The viscous sweet stuff is poured into 4,000-gallon bladders nestled in 20-foot containers, which are then shipped to Asia, Latin and South America, Africa and the Middle East. “Visualize a big bag in a big box,” explains John Thompson, Cargill’s logistics director and international business development manager.

Memphis is Cargill’s southeast distribution hub, with 300 workers filling about 10,000 containers a year with liquid fructose. “Because it’s home to five Class I railroads, Memphis is close enough to our Corn Belt facilities in Iowa and Nebraska to be a distribution hub. It’s also accessible to the ports of Los Angeles, Savannah and Charleston, which are departure points for our overseas markets,” adds Thompson. Although Dayton, Ohio, is Cargill’s other major U.S. hub, Thompson positions Memphis as his firm’s future: “Our long-term strategy is to keep investing in Memphis as we continue growing our exports.”

JUST SHIP IT Nike announced plans this year to expand its Memphis distribution operations with a 200-acre, $2.2 million land purchase.
JUST SHIP IT Nike announced plans this year to expand its Memphis distribution operations with a 200-acre, $2.2 million land purchase.

The Welcome Mat

Memphis provides substantial incentives for relocating or expanding companies. Economic Development Growth Engine (EDGE), Memphis’ agency that tracks its incentive programs, estimates $1.2 billion in capital invested, 5,746 jobs created and $450 million in annual added tax revenues have flowed from the various incentives. The PILOT (Payment in Lieu of Taxes) program, which freezes property taxes in targeted business districts at a pre-development level for a specified time period, has proven popular. It is often combined with state incentives such as jobs tax credits, integrated supplier tax credits and industrial machinery tax credits.

A less quantifiable incentive for locating in Memphis is that it’s a pleasant place to work and live. “With 120 people in our lab and 50 in distribution, Memphis is an excellent place to attract and retain staff,” says Idexx’s Boccelli. “We have less than 2 percent annual turnover.” Medtronic’s Carson, a transplant from colder climes, is a board member of the Wolf River Conservancy, involved in implementing a 26-mile greenway to the Mississippi River. “Housing is reasonable and the climate is mild, allowing us to attract both scientific and supply-chain talent,” he says. Muller notes that Memphis doesn’t have the beach or the mountains, “but we’ve got plenty of hiking and fishing, plus good colleges—not to mention theater, ballet, six genres of music and the No. 1 rated zoo in the U.S.”

Despite its acumen in attracting and retaining business, Memphis won’t rest on its laurels. Leaders have rallied around the concept of an “aerotropolis,” an airport city. Funded by $2.2 million from federal and local sources, the Aerotropolis Master Plan is currently being drawn. When done, it will detail how the 50 square miles surrounding MEM will morph into a logistics, distribution and bioscience capital of commerce with urban redevelopment of residential and commercial property included. Dexter Muller sees his city’s future: “We’re building on our logistics strength. Access, agility and speed are the currencies, and we’ve got them all.”