Kansas City Stands at key crossroads

For Kansas City, geography has combined with opportunity to make it a logistics center.

There’s no argument that being roughly at the geographic center of the United States has some advantages, but a little luck doesn’t hurt either. When the US was beginning construction of its federally funded interstate highway system, Dwight Eisenhower was president. A native of Abilene, KS, Eisenhower selected Kansas City as one of the first areas to get interstate highways. It didn’t squander that opportunity and it now sits at the crossroads of three major interstate highways (I-35, I-70, and I-29) with a fourth planned (I-49).

The former trailhead for both the Santa Fe Trail and the Oregon Trail, present-day Kansas City has been multi-modal almost from the beginning. As part of the Missouri/Mississippi River system, it is served by no fewer than 11 regulated barge lines. In fact, in true intermodal fashion, the region’s first railroad locomotive arrived by boat in 1864 and went into service on the Missouri Pacific Railroad in September of that same year.

When it was built in 1914, Kansas City’s Union Station was second in volume only to Grand Central Station in New York. Even after the shift away from passenger rail, the region continues to be one of the busiest rail hubs in the US, and claims the position of largest by tonnage.

The Burlington Northern-Santa Fe (BNSF) Union Pacific (UP), and Norfolk Southern (NS) all connect to intermodal (truck/rail) facilities in Kansas City as does its home-grown Kansas City Southern Railroad (KCS ).

Kansas City is connected with the US East and West Coasts and with the US Gulf Coast by rail. In addition, the KCS provides links to Mexico’s West and Gulf Coasts via Kansas City Southern de Mexico SA de CV.

Kansas City Terminal Railway Co. provides centralized traffic control for major railroads serving the area. Kansas City has over 300 daily rail freight arrivals and departures.

The region was also an early adopter of air service, landing its first passenger aircraft in 1927, the same year Charles Lindbergh made his historic solo crossing from New York to Paris in the Spirit of St. Louis. Nearly 40 years later, funding was approved to build the Mid-Continent International Airport, which clearly laid out the aspirations of the region in developing into a major air hub. Now known as the Kansas City International Airport (KCI ), it handles about 400 flights a day and hosts six air freight facilities.

Tops in the 21st Century
One of the top sites in the nation for logistics capability, the Kansas City metropolitan area racked up five stars in the Expansion Management/Logistics Today 2006-2007 Logistics Quotient. The Logistics Quotient measures the 362 Standard Metropolitan Statistical Areas (SMSA s) across the country on 10 major categories related to logistics. Each of those categories is made up of a number of data points which help define a relative position for the SMSA within that category and then provides an overall position among the full list of 362 SMSA s. Kansas City was ranked fifth overall.

Highway Hub
President Eisenhower’s commitment to the region in the form of interstate highway development has helped to keep Kansas City in the top 10 among US metro areas. It ranks ninth in interstate highways, according to the Logistics Quotient.

The challenge of maintaining all those road systems, including state highways and other roadways, takes a toll, but Kansas City maintains a position among the top two thirds of the SMSA s in the country in terms of road infrastructure, and it hovers right at the mid point on road condition.

Kansas City’s dual identity makes it part of the Kansas and Missouri road and rail systems. As such, the Kansas side is part of a network of 872 miles of interstate highways in the state and Missouri accounts for another 1,178 miles of interstate highways. This is part of a larger, combined road network in the two states spanning 257,621 miles. What is important to logistics operations at the crossroads of all of these highways is how the region ranks on road density, congestion, and safety. Here, Kansas City maintains a rank of 67 out of 362 in the Logistics Quotient. That translates into smooth flow.

The benefits of infrastructure extend to the region and, as Alan Kenyon, economic development director for the city of Grandview, MO, points out, an estimated 250,000 vehicles a day pass through the area’s confluence of highways. “There has been a massive highway improvement project over the last several years,” he notes, “and it’s reaching its conclusion in 2007.” The area where those highways come together has been known as the Grandview Triangle, and that didn’t always have a positive connotation. “But the highway department over several years has spent $260 million to make that traffic flow and to take care of the problems,” says Kenyon. (He commutes through that area every day, so he has watched the progress first hand.)

Another road serving the region, US Highway 71, is a divided four-lane road which is slated to become an Interstate Highway, according to the Missouri Department of Transportation’s long-range planning, says Kenyon.

Grandview has a significant light manufacturing and distribution base, notes Kenyon, and it hopes to capitalize on its proximity to highway infrastructure and the new CenterPoint intermodal facility as it moves forward. Of like-sized communities, Grandview is probably the leading area in the metropolitan region for distribution, boasts Kenyon. “As a result of the highway activity, we recently were designated for three enhanced enterprise zones,” he adds, saying that a large section of the town has also been designated for pending foreign trade zone status. This has sparked interest from regional as well as international developers. As other highway projects move forward, Kenyon expects the traffic volumes to rise substantially without creating any significant congestion problems.

“This represents a realization that we’ve been sitting on a real asset that’s perhaps under appreciated or under recognized,” says Kenyon. But while many cities are caught up with trying to attract retail business, Grandview’s development director says the community recognizes that it’s road to growth is by creating the jobs and corporate base that create wealth in the community that will support retail. “That represents a broadening of our focus into this real potential that we’re literally sitting on,” he concludes.

Kenyon’s parting words are praise for the attitude that the Kansas City Area Development Council and Kansas City SmartPort have helped to foster.

Extending the effects of development efforts and infrastructure upgrades a little further west, Topeka, KS is capitalizing on some of the same highway and rail access and a strong technology infrastructure (it has as much fiber optics per square mile as New York or San Francisco). A mixed-use business park at Central Crossing Commerce Park has over 300 acres of space accessible to highways and rail and includes a runway suitable for wide-body cargo jets (Forbes Field).

Topeka earmarks $5 million for economic development activities and reports an estimated $9 million per year is used for local roads and bridges.

One recent success for the region is an expansion of a Frito-Lay facility. The expansion includes sufficient land for further development adjacent to the plant to avoid having the plant become landlocked. The $40 million, 40,000 square-foot expansion in Topeka added 75 jobs, bringing Frito-Lay’s total Topeka workforce to 840.

“The Frito-Lay expansion represents two of the five areas we have targeted for growth over the next five years and beyond—distribution and warehousing and value-added food processing,” says Doug Kinsinger, president and CE O of the Greater Topeka Chamber of Commerce/Go Topeka. “With our proximity to food growers, strong transportation network, central location, and location in the middle of the “Knowledge Corridor” of nearby universities for research and development support, Topeka/Shawnee County is a natural fit for food processing, distribution, and research,” he added.

Rail Routes
Supporting the Kansas City area’s claim as a major rail freight center, the SMSA ranks 17th among US cities in the Logistics Quotient. Here again, Kansas claims 4,273 miles of track operated by Class 1 railroads and Missouri adds 3,616 miles.

The largest operator in the two states is the Burlington Northern-Santa Fe (BNSF), followed by the Union Pacific. In addition to the Class 1 operators, regional railroads operate nearly 3,000 miles of track in the two states.

Supporting rail are a number of intermodal facilities and projects which will expand that capability. One of the more significant among these is the Richards-Gebaur complex.

Kansas City and the Port Authority of Kansas City sold the decommissioned military base to CenterPoint Properties. CenterPoint was selected for the redevelopment effort in 2004 and has partnered with the Kansas City Southern Railroad (KCS ) on a 1,400-acre $200 million intermodal facility. KCS has 11,340 feet of mainline track bordering Richards-Gebaur.

Phase 1 of the redevelopment plan is underway and includes any necessary ground remediation. The engineering is done, says Matt Tramel of CenterPoint. While the infrastructure and utilities are being prepared, CenterPoint is aggressively pursuing some build-to-suit opportunities. “We’ll be able to build these on a parallel track with the infrastructure build,” says Tramel.

KC Tops in LQ The Logistics Quotient developed by Logistics Today and Expansion Management magazines measures 362 standard metropolitan statistical areas (SMSAs) on 10 logistics criteria and ranks those cities from Five Star to One Star in “logistics friendliness.” Kansas City not only scores five stars, it ranks among the top cities for logistics.

Transportation and distribution industry (20) based on business and employment base providing transportation, distribution warehousing and related services, Kansas City ranks 20 out of 362.

Workforce cost (25) examines costs and availability of logistics-related workers in the area.

Road infrastructure (242) measures factors like available lane miles per capita, interstate highway access, miles of paved roads, etc.

Road density, congestion and safety (67) ranks the city on traffic volumes and delays as well as accident statistics and other factors affecting the smooth flow of traffic.

Road condition (190) draws on state performance and includes condition of highways and bridges, among other measures. Interstate highway (9) includes access to interstate highways, spending on highway construction and maintenance.

Taxes and fees (127) provides a measure of logistics-related costs, including highway and fuel taxes and related business activity taxes.

Railroad (17) offers a state-based rank of access to Class 1 and other rail services and miles of track.

Waterborne commerce (42) includes ocean port capacity as well as inland waterways.

Air cargo (25) ranks the city on its access to cargo services, including wide-body passenger service by combination carriers, international, and expedited services.

CenterPoint would put up a speculative building if the market demand is there, says Tramel. Often, a good speculative development is based around road transport, “but this would be even better. This would be based on rail and road transportation, so it really would be an ideal location,” he comments.

In earlier statements, CenterPoint executives expected to prepare the site for up to 3.5 million square feet of warehouse and distribution facilities. Kansas City Southern Railroad is operating the rail yard and they have plans to build it out, says Tramel. As the KCS builds out the intermodal facility, Tramel believes it will generate even more demand for warehouse and distribution center capacity.

CenterPoint is in Kansas City for a reason, says Tramel, and it worked for about three years to reach this point with the KCS and KC SmartPort. “We firmly believe this will be a global inland transportation hub for North America,” adds Tramel, “and CenterPoint will be there long term.”

Though Richards-Gebaur is a former military air facility, it is no longer a functioning airport. KCS has developed an automotive distribution facility on the property which currently handles 70,000 cars a year, including operations of Mazda North America.

Volumes at West Coast ports may have hit a temporary slowdown for now, says Tramel, but everyone, including the Department of Transportation, shares the opinion that volumes will grow exponentially through 2020 and there's a need to prepare for that. One of the alternatives that is developing is the port of Lazaro Cardenas on the west coast of Mexico. With additional traffic coming north on the KCS , says Tramel, Kansas City will become the new inland port to get that cargo to the center of the country.

Another major player, Hunt Midwest, operates the SubTropolis underground industrial facility and will participate in development of similar facilities at Richards- Gebaur.

A separate intermodal project is underway in Gardner, KS which involves the BNSF Railway and The Allen Group. The Logistics Park Kansas City (LP KC), 25 miles southwest of Kansas City will have an estimated 1,000- acre intermodal facility with 7 million square feet of distribution and warehouse facilities. The property is adjacent to Interstate 35, the designated trade corridor extending from Mexico to Canada.

Over 400 acres of the site are expected to be dedicated to a new BNSF intermodal facility which is slated to be operational in 2009. While the I-35 connection focuses on a north-south flow, Allen Group President and COO Edward Romanov pointed to an expanded role for the region saying, “As a result of the increase of trade with the Pacific Rim nations, rail movement and intermodal development has become a vital component in the international supply chain.”

Jon Cross of The Allen Group notes that while growth had slowed at the ports of Long Beach and Los Angeles, the 2% reported for the third quarter was still 2% of 16 million containers, and that is substantial. “We’re excited about Kansas City because they are at the gateway to the population and a large portion of the containers being loaded on the BNSF at the ports are sent along their transcontinental route and the first stop is Kansas City and Gardner.”

The Allen Group is going to develop about 7 million square feet in total down in Gardner, continues Cross, “but we’re looking at other opportunities throughout the Kansas City market as well.”

Allen Group is also involved in a 6,000- acre logistics park development near Dallas, TX and a 700-acre international trade and transportation center in California. Its 480- acre logistics park development in Visalia, CA is already open.

In Gardner, the BNSF and The Allen Group held public meetings, which included the US Army Corps of Engineers, to discuss a variety of water safety and land use issues. The Kansas legislature had earlier approved a request to add intermodal transportation areas as eligible for tax increment financing. This will allow the City of Gardner to consider use of that financing option in planning for the development of the intermodal hub.

BNSF points out that the facility in Kansas will compare with similar BNSF developments in Fort Worth and Chicago. BNSF will bring freight from Pacific Coast ports to be offloaded onto trucks. The rail company says investment in the site could top $1 billion.

The way trade patterns are developing and the need for rapid west-to-east container movement combine with a need for some relief from Chicago, says Cross. The Allen Group plans to add a drayage calculator to its Web site covering Kansas City. Cross explains it will be similar to one on the company’s Dallas site and will allow shippers to enter their building size, the number of containers they receive in a year, and they will be able to click on a map of the Kansas City metro area and compare costs of other locations to locating in the LP KC. “It’s not just about land and lease costs any more,” says Cross, “when site selectors are looking for locations, it’s about total cost savings.”

Cross sees the west-east and south-north orientations of the two major intermodal facilities as complementary. Shippers want alternatives, he says, and Kansas City is positioned to deliver them.

Strong Workforce
Kansas City has a strong core of transportation and distribution industry representation extending beyond the transportation modes and earning a rank of 20 in the Logistics Quotient under Transportation and Distribution Industry. That equates to a hefty supply of logistics facilities and services in the region. And, its workforce in the fields of transportation and distribution place it in the top 25 metro areas in the country as well.

The tax structure in Kansas City is also generally supportive of logistics. Taxes and fees related to transportation, distribution, and logistics operations are more advantageous than two thirds of the country, based on a ranking of 127 in the Logistics Quotient.

Inside an Inland Port Truly a multimodal center, Kansas City ranks 42nd in “waterborne commerce,” according to the Logistics Quotient. And here, it is worth noting that top-ranked cities in waterborne commerce typically include a deepwater ocean port. But, for Kansas City, the concept of an inland port isn’t dependent on water access. It rests on or near major trade corridors, most notably Interstate Highway 35, also known as the NAFTA Highway. That corridor extends from Canadian border crossings in the North to the border with Mexico.

Furthering its position as an inland port, Kansas City has been working to bring Mexican customs officials to the KC SmartPort so exports can be cleared in Kansas City and move in bond directly across the Mexican border. Simple in concept, the plan requires government approvals in both the US and Mexico.

A recent study by TransSystems Corp. identified 11 states falling within the hinterland of KC SmartPort based on its review of transportation corridors.

Surface exports to Mexico from the 11-state hinterland defined in the Kansas City report are expected to grow from 19% of US surface exports to Mexico in 2004 to 28% by 2015. Export truckloads from the region were forecast to double in the same period.

A Breath of Air
Kansas City’s surface modes – road, rail/intermodal, and inland waterway – and the allied facilities (including foreign trade zones) continue to expand. Capitalizing on a trade attitude and a wealth of logistics services, Kansas City has another card to play.

KCI , the Kansas City International Airport, boasts Category III instrument landing systems and three 150- foot-wide runways, six air freight facilities, and ready access by surface modes to 18 states within a 700-mile radius.

The surrounding development district covers 20,000 acres, with more than 7,000 acres of on-airport property open for new development. The current air freight facilities comprise more than 300,000 square feet of office and warehouse space and 1.2 million square feet of ramp space to support nearly two dozen all-cargo flights.

According to Mark VanLoh, director of aviation, the Kansas City Aviation Department has also invested over $450 million in improvements to the facilities, technology, and infrastructure at KCI to make it more attractive for air cargo, maintenance, repair and overhaul, and related development.

“Platte County has grown tremendously in the past decade, thanks in large part to our being the home of the Kansas City International Airport,” says Pete Fullerton, president of the Platte County Economic Development Council. “Platte County also offers benefits of a skilled workforce, low taxes, and a low cost of living.”

Adjacent to the BNSF intermodal project in Gardner is the New Century Air Center. “We have a speculative proposal for a parcel just off the airport,” says Tom Riederer, president, Southwest Johnson County Economic Development Corp. LS Commercial of Overland Park, KS is developing an expected 2 million-square-foot facility there, says Riederer. Another recent win for the region is a 450,000-square-foot warehouse for Kimberly Clark. Riederer points out that much of the development in the area is facilities that operate as more than a regional distribution center.

Cost to Operate
The bottom line always comes down to the bottom line, and claims like those of Platte County’s Fullerton have to be quantified. In that regard, The Boyd Companies of Princeton, NJ has taken the results of the Logistics Quotient and computed the costs to operate an owned or leased distribution center in each of the top 50 SMSA s. Boyd’s BizCosts Report begins with some assumptions about the facility and its operation in order to establish a reasonably consistent baseline for comparison. The Boyd study has expanded to 67 cities as the top 50 list cited by Expansion Management and Logistics Today’s Logistics Quotient has shifted over the years. Though some cities that were on one year’s top 50 list may fall outside the top 50 in a subsequent year, Boyd has kept those cities in its computations. In this instance, as in geography, Kansas City falls at about the center of the lists.

Boyd examines the cost of owning a hypothetical 350,000-square-foot warehouse with a representative workforce of 150 non-exempt employees. This example facility ships over-the-road to a national market. The highest-cost site to own this facility is San Francisco, CA at $20,692,309. Lowest cost to build and operate is in Little Rock, AR, where the same facility would cost $11,997,106. Kansas City comes in at $13,985,529.

Leasing the same basic distribution center is most expensive in New York, with an annual operating cost of $15,984,084. The same facility leased in Chattanooga, TN would have an annual operating cost of $10,228,234. Kansas City comes in at $11,157,056.

Among the top cities in the Logistics Quotient in 2006-2007, Kansas City did, in fact, hold its own on labor costs with a weighted average hourly earnings rate of $13.73. That average goes across 150 workers from secretary to lift truck operator to truck driver.

Offering a sense of the impact geography can have on logistics costs, the BizCosts study uses a model of truckload shipments to an optimum 10-city regional distribution configuration serving a nationwide US consumer market to establish a baseline shipping cost. Kansas City’s central location serves it well, establishing it as one of the lowest cost locations for such a network configuration (it shares the lowest cost slot with St. Louis, MO).

Kansas City has taken a unified approach to employing and expanding its logistics capabilities. The efforts of Kansas City SmartPort span not only community boundaries but county lines and state borders as well. This expansive attitude is bound to be a plus when recruiting businesses to locate there. But it also helps with projects that support logistics operations that handle transit freight with no direct connection to Kansas City as an origin or destination. The region’s numerous development groups appear to recognize that building those capabilities adds to the attractiveness of the region as a location for manufacturing and distribution. The old line “location, location, location” tells a big part of the story, but for logistics, good geography isn’t enough. A good location needs infrastructure, workforce, and community support. And, on that front, it’s clear why Kansas City ranks high as a logistics destination.

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