As a reflection of the world’s dynamic economies, logistics clusters continue to evolve, with new clusters arising, existing ones changing, and some potentially declining. Rising standards of living in emerging market countries, changing infrastructure, environmental concerns, and new technologies combine to influence both the volume and the routing of trade flows, leading to new and changing logistics clusters. Overall, logistics seems to be growing in both importance and concentration. The long term growth rate of the logistics industry in Europe (through 2007) was 2.5 times the average GDP growth.1 Furthermore, the logistics property market in 2010 accounted for around 10 percent of the European property investment market compared with only 6 percent in 2006.2 Labor figures for the United States show that logistics employment rose from 17 percent of the workforce in 1998 to 20 percent in 2008. Moreover, the number of logistics clusters grew in the United States between 1998 and 2008, as did the degree of labor concentration in those clusters.3
Thomas Friedman’s book, The World Is Flat, highlighted a growing array of forces leading to a “flattening” of the competitive playing field around the world and a surge in global trade. In the United States, exports grew from 6 percent of GDP in 1970 to 11 percent of GDP in 2009 while imports grew from 5 percent of GDP to 14 percent of GDP in the same timeframe.4 On one hand, globalization provided an ever-wider array of consumer goods at lower prices to people around the world. On the other hand, the flat-world phenomenon led to job losses and factory closures in many developed countries.
Logistics and supply chain management have a special relationship to this flat-world phenomenon in that logistics businesses both benefit from and cause “flattening.” Logistics clusters in the developed world, even inland ones such as Indianapolis, Kansas City, Chicago, Duisburg, or Zaragoza, thrive on trade and enjoy more flows as manufacturing moves overseas. The increases in US foreign trade imply that import/export logistics more than doubled from handling 11 percent of GDP in 1970 to handling 25 percent of GDP in 2009. Yet the more efficient global supply chains become—including the logistics clusters underpinning these chains—the more manufacturing can move overseas. At the same time, logistics clusters in the developing world—in Shanghai, Chongqing, Saõ Paulo, or Cartagena—allow manufacturers there to distribute their products around the world.
The realization of logistics’ role in globalization changed the perception of the industry. Dexter Muller of the Greater Memphis Chamber remarked to me that years ago, “there weren’t that many cities that were interested in it [logistics]. Then Tom Freidman wrote his book and was talking about how you can outsource everything, but you can’t outsource distribution. It’s interesting; now everybody wants it.”
Whether locally made or imported, all goods require local distribution, which implies on-shore warehouses, local deliveries, and local value-added services. Thus, logistics is one industry that is relatively immune to off-shoring.
Intensifying globalization increases the importance of supply chain management in general and logistics clusters in particular. First, rising imports and exports of raw material, parts, and consumer goods lead to growing freight volumes at key waypoint clusters, such as the international ocean shipping centers in Singapore, Hong Kong, Shanghai, Dubai, Rotterdam, and Antwerp. The same holds true for airports that are distribution hubs for high-value and time-sensitive products such as computer chips, pharmaceuticals, fashion goods, and repair parts. For example, “to ensure that the company’s new, translucent blue iMacs would be widely available at Christmas … [Steve] Jobs paid $50 million to buy up all the available holiday airfreight space,” said John Martin, a logistics executive who worked with Jobs to arrange the flights.5 The largest airfreight waypoints include Hong Kong, Memphis, Shanghai, Seoul, Anchorage, Paris, Frankfurt, Dubai, Tokyo, Louisville, and Singapore.
A similar sentiment and a testament to the role and growth of logistics activities and logistics clusters was voiced by Ricardo García, PLAZA’s general manager: “The original concept involved not just logistics, but a combination of logistics activity and light industry,” García told me. “At that time, we believed that logistics was not a sector that, on its own, would suffice to guarantee the viability of the project. The project would be guaranteed by an industrial sector, which would enable us to develop logistics activities which we would be able to subsidize with what we obtain from the industrial sector. We had the wrong idea; it’s funny how it has evolved over time.”
Ultimately, efficient supply chain management and the logistics clusters that anchor supply networks have a “flattening influence” because they enable efficient globalization and global competition. Part of the remaining “hilliness” of the world’s playing field is in the transportation costs, delays, cross-border complexities, and various risks, all of which increase when using distant suppliers. Efficient logistics, such as that fostered by logistics clusters—with their frequent service, low costs, and far-reaching distribution capabilities—make the flow of products and parts from distant lands efficient and simple, intensifying the competition between local and global suppliers.
As discussed throughout this book, large logistics clusters generate sufficient freight volume to justify the use of more economical larger vessels, higher-capacity cargo planes, and longer trains over long distances. In addition, the volume of freight in a large cluster creates higher service frequencies, reducing inventory carrying costs and improving customer service. Both low cost and good service make the economics of logistics hubs compelling, resulting in efficient global supply chains and leading, in turn, to more trade and even more logistics clustering. From a study published by the World Bank Economic Review, one can infer that a 10 percent decrease in trading costs can create a 20 percent increase in trading volume.6 That increase in volume then feeds back to further improvements in delivery time, service options, and costs.
Increasing pressure—locally and globally—to green all economic activities affects both shippers and carriers. Rising concerns over fossil fuel consumption and environmental sustainability have three effects on supply chains and logistics clusters. First, environmental concerns about the effects of greenhouse gases on global warming, as well as concerns about the health effects of air pollution and diesel fumes around logistics clusters, mean increased government and public demand for reduced emissions (see p. 196 in chapter 7). Second, economic concerns about the high cost of oil motivate carriers to improve efficiencies and reduce fuel consumption through innovative conveyance designs and vehicle operating procedures. Third, rising awareness of the limited supplies of natural resources also implies increased recycling and a growing need for reverse logistics and services that convert the waste stream into usable materials. The scale and density of logistics clusters makes them a natural location for developing, testing, and deploying innovations in green logistics.
The high carbon footprint of freight transportation, as a result of its conspicuous use of fossil fuels, make logistics clusters a focus for environmental regulations and an early-adopter of green technologies. For example, the Rotterdam Climate Initiative seeks a 50 percent reduction in CO2 emissions from the city as well as the port of Rotterdam by 2025 from the 1990 level.7 In southern California, the landmark 2006 Clean Air Action Plan (CAAP) imposed stringent requirements and deadlines on the ports of Los Angeles and Long Beach to reduce emissions and mitigate health risks around the ports. A 2012 deadline in CAAP motivated the ports of Los Angeles and Long Beach to pursue a multiprong effort at both replacing old trucks and developing new vehicle technologies (see the discussion of sustainability on p. 196 in chapter 7 and the innovation discussion on p. 251 in chapter 9).
Environmental mandates spur technology development in the affected clusters. CAAP, for example, pushed the LA/LB ports to create the Technology Advancement Program (TAP). TAP seeks innovations that reduce emissions from on-road trucks, cargo handling equipment, harbor craft, and locomotives.8 Projects include port-generated ideas, solicited proposals for specific innovations, and unsolicited proposals for novel advanced technologies. TAP works with the ports, carriers, and technology providers. Many of the technology providers are start-up companies in the Los Angeles area pursuing green technology innovation for logistics, transportation, and other applications.
The ports have funded demonstration projects on several different hybrid vehicles.9 Hybrid technology combines a traditional fossil-fuel engine with an electric drivetrain powered by a battery or other energy-storage technology. This combination can significantly reduce fuel consumption and emissions in three ways. First, hybrids can run off the batteries and turn off the fuel engine when the conveyance is stationary or moving slowly, thereby eliminating fuel consumption and emissions from idling and low speeds. Second, hybrids can use regenerative systems that convert braking power into battery energy. Third, the battery can provide a boost to the traditional engine so that the conveyance can be designed around a smaller, more efficient diesel or gasoline engine without sacrificing peak performance. The fuel engine needs to operate only when the battery needs charging or when the conveyance requires peak power.
TAP prototypes and studies utilize the ports of Los Angeles and Long Beach and the surrounding logistics cluster to test competing designs for performance and user acceptability. For example, as of 2011, TAP included four competing drayage truck projects: two zero-emissions drayage trucks (battery and hydrogen fuel cell), a hybrid drayage truck, and a compressed natural gas drayage truck. These different projects reflect the fundamental uncertainties that come with true innovation. Until someone in the logistics industry tries these new technologies in real-world use, it is difficult to ascertain the actual fuel economies, emitted pollution, performance peculiarities, and reliabilities of the different approaches. Before replacing the 11,000 heavy-duty drayage trucks used at the ports of Los Angeles and Long Beach, the ports need to understand which innovations in conveyance design provide the most cost-effective improvements on a variety of emissions metrics.
A few miles from the port of LA, start-up VYCON Inc. developed a new flywheel energy storage system for regenerative braking and hybrid drivetrains on dockyard cranes. The duty cycles and energy consumption patterns of these cranes make them ideal for regenerative braking and storing the energy recovered from putting one container down to help lift the next container up. The system enables cranes with smaller diesel engines to offer the same speed and load performance as standard technology cranes but with 32–38 percent less fuel consumption10 and a certified 30 percent reduction in NOx emissions.11 VYCON’s system is currently in use in the port of Los Angeles, port of Long Beach, and several Asian ports. VYCON also sells the technology for use in large ship-to-shore cranes, uninterruptible power supplies, electric railroad applications, and wind power applications.12 In 2010 and 2011, VYCON was named one of the 500 fastest-growing private companies in America by Inc. magazine, increasing revenues from $737,000 in 2007 to $6.6 million in 2010.13
Alternative fuels can offer lower emissions and reduced environmental impact. FedEx, for example, has tested and is already using nearly a dozen different combinations of alternative fuel and vehicle combinations such a biodiesel, CNG (compressed natural gas), LNG (liquefied natural gas), LPG (liquefied petroleum gas), and all-electric vehicles. The company partners with numerous vehicle and engine makers to develop, test, and deploy green technologies that work in high-volume logistics applications. Applications include ground-support vehicles in hubs, large trucks, delivery trucks, and small electric vehicles for couriers in dense cities like Paris and New York. In turn, FedEx saves fuel and cuts pollution. The company found that its 330 hybrid trucks improve fuel economy by 42 percent, reduce greenhouse gas emissions by 25 percent and cut particulate pollution by 96 percent.14
The ports of Los Angeles and Long Beach are testing numerous alternative fuel vehicles, including an LNG yard hostler, CNG port drayage truck, and an LNG locomotive. As of 2012, the port of Los Angeles has some 900 alternative fuel vehicles in use. The result of this and other programs helped slash emissions from container-hauling trucks by 89 percent. The ports, however, seek even more radical innovations that offer zero vehicle emissions, such as entirely new battery-powered, zero-emission heavy-duty trucks invented by a local company, Balqon Corporation.15 The port funded the development of the technology, a multiphase testing process in port drayage applications, and an initial purchase of five units.16 The results are three innovative commercial products—the Nautilus E20, Nautilus E30, and Mule M150—for medium- and heavy-duty hauling for ports, logistics clusters, and inner city applications. Not only do these trucks produce zero tailpipe emissions, but their total energy consumption is 70 percent less than that of a normal diesel-powered vehicle.17
Balqon’s innovations in electric drive technology help improve the performance of battery-powered vehicles on three crucial dimensions: power output, operating range, and battery lifespan. These improvements in drive technology and the overall design of the device led to a Class 8 battery-powered tractor capable of pulling legal and even overweight loads of up to 100,000 pounds. The company designed battery packs that can last one or two work-shifts and that will provide five years of service. In addition to funding the Balqon truck, the port of LA is also funding work on a hydrogen-powered fuel-cell vehicle created by Vision Industries.18 The port is pursuing a development and testing plan similar to what it used for the Balqon battery-electric vehicle. Real-world testing helps establish the load-pulling performance, reliabilities, and operational requirements of these alternatively powered vehicles.
Investments in new green technologies around the port of Los Angeles also include more speculative innovations, such as algae-based biofuels. Advanced Algae, Inc., is a start-up developing a new biofuel production system at the PortTechLA, the Los Angeles port area incubator described in chapter 9. The company grows a special breed of algae in a specially designed transparent chamber. The algae convert sunlight into oil that can be harvested and refined into diesel fuel or jet fuel. As a side benefit, the algae absorb air pollutants, including CO2, NOx, and SOx, to create a negative-emission footprint. Other algae byproducts can also provide animal feed and fertilizers for soil.19 The company won the Most Innovative Technology Award at the 2010 PortTechExpo and Venture Conference.20
Innovations that depend on alternative fuels, especially biofuels, raise the issue of the logistics for these fuels. Logistics clusters, such as the LA Basin or Chicago, make ideal locations to test and deploy alternative fuels because they have the needed concentration of vehicles operating over short ranges. A single refueling/charging depot can serve as a prototype for initial deployments of vehicles in a hub, logistics park, port, or airport. But the transition to a green economy will require large-scale production and distribution of green fuels. To the extent that logistics clusters are early adopters of alternative fuels or have the infrastructure for distribution of bulk liquids or gases (e.g., tanker ports, storage farms, and pipelines), then these clusters will become centers for the storage and distribution of alternative fuels. Major logistics clusters, which are also often petrochemical clusters (see chapter 6), can become biofuel production clusters. As mentioned in chapter 7, the two largest biofuel-producing centers on the planet are Singapore and Rotterdam.
Some innovations help counter other noxious side-effects of logistics in clusters. When one or two jets operate from an airport late at night, the noise might be merely irritating. But when 50 or 100 jets operate from an airport late at night, the noise can be excruciating and illegal. Airfreight clusters, with their late-night air hub operations, are especially likely to create an intolerable noise nuisance under the flight paths of the planes. When the US Federal Aviation Administration tightened regulations on the average noise around airports, FedEx engineered a “hushkit” to reduce the noise created by its older, noisier Boeing 727 freighters.21 The kits were far cheaper than replacing the planes or their engines, and they didn’t affect the aircraft’s fuel efficiency or cargo capacity. Not only did this innovation help FedEx avoid excessive replacement costs, but the invention became a profit center for the company. FedEx sold 740 of these hushkits to more than sixty owners and operators of 727s.
Some innovations target reduction in waste by carriers. Marine Oil Technology Inc. (MOT) is a startup manufacturer that recently opened its doors at PortTechLA. MOT’s innovative oil filter reduces the need for oil changes by 90 percent. Not only does the invention reduce the volume of waste oil, but it also reduces maintenance labor. Truckers who need to change their oil monthly might go almost a year between oil changes. “We could save millions of gallons of oil per year,” said Alex Weil, president and majority owner of the company. The invention beats conventional oil filters by filtering out extremely small particles (as small as one micron) and removing liquid impurities that degrade the lubricating oils in truck and marine diesel engines. “One of our missions is to help start-up companies like Marine Oil Technology develop, test and market products that are environmentally beneficial to the maritime industry,” said Jeff Milanette, executive director of PortTechLA.22
Fixed logistics assets, such as warehouses and office parks, can use alternative sources of electricity like solar energy and wind power. In 2011, UPS installed a rooftop solar array on its Lakewood, New Jersey, facility. The 250-kilowatt solar power system is expected to provide 30 percent of the building’s energy needs. The facility harnesses light from the sun during the day, feeding the power into the public energy grid. “At night, when we are sorting packages, we will draw from the grid the energy needed to power the facility,” said Scott Wicker, UPS chief sustainability officer. UPS took advantage of New Jersey’s net metering rules, which offer compensation for generating excess power during the day for sale by the utility to its other customers.23 UPS also uses solar energy in one of its California facilities and in its European hub in Cologne-Bonn, Germany.
At the Joliet Intermodal Terminal, Union Pacific installed 273 solar panels.24 “Union Pacific built the Joliet Intermodal Terminal with an eye toward the environment. We installed solar panels to harness the sun’s energy to provide electricity to our office at the entrance to the terminal, and we purchased air compressors equipped with ‘soft start’ technology, which requires less energy when starting, in our effort to make this facility the ‘greenest’ terminal on our system,” said Jim Young, Union Pacific chairman and CEO.25
In November 2010, Walmart opened a fresh and frozen food distribution center in Balzac, Alberta, Canada, to serve 100 retail outlets in Western Canada. Andy Ellis, senior vice president of supply chain and logistics for Walmart Canada, described the facility in a presentation during a supply chain conference in Dallas in December 2011. The warehouse generates electricity from both on-site wind turbine generators and roof solar panels. The refrigerated building uses LED lights that not only consume less energy but also burn cooler than traditional incandescent lighting, reducing refrigeration costs even further. “Custom-designed dock doors minimize the loss of cool air from the refrigerated warehouse and electronic monitoring ensures that dock doors are not opened unnecessarily,” he said. The facility is also using hydrogen fuel cells to power its fleet of lift trucks and material handling equipment. Walmart expects to save well over $2 million in energy costs annually in its Balzac operation.26
Some energy-saving innovations require minimal upfront investment—only clever changes in operating processes. Bob Stoffel, former senior vice president of UPS talked about a simple yet innovative way UPS saved money, time, and energy. In an interview with Fortune magazine in 2011,27 he said that UPS re-engineered its vehicle delivery routes to include right-turns only. As a result, UPS routing software shaved 20.4 million miles from the routes in 2010 while delivering 350,000 more packages than the previous year. It also diminished annual CO2 emissions by 20,000 metric tons.28
Most air quality standards define a threshold concentration of pollutants.29 For that reason, a concentrated source of pollution (e.g., large numbers of trucks or ships in a logistics cluster) faces a higher likelihood of violating air pollution safety thresholds than would an area with more dispersed logistics facilities. Furthermore, the clustering of transportation terminals and distribution centers implies more circuitous transportation routing and more miles traveled as compared to traveling directly from origin to destination. At first glance, logistics clusters seem like major polluters and that less clustered freight transportation operations would be environmentally beneficial. A more systematic analysis, however, leads to the opposite conclusion.
The correct metric for energy consumption is not the fuel consumed per conveyance movement or the number of miles traveled, but the fuel consumed per shipment moved. Logistics activities gravitate to clusters in order to improve efficiencies and reduce costs, as described in chapter 4. Vehicle operating costs, especially fuel, dominate the cost-calculus of transportation decisions—the act of determining how to move the greatest total volume of goods at the least cost can be seen as the same as minimizing the carbon-footprint of trade. Minimizing fuel per shipment requires consolidation to larger conveyances, and this means clustering. Moreover, clustering creates higher freight volumes on hub-to-hub lanes, which enables using more fuel-efficient modes such as rail, barge, short sea, and pipelines. Accordingly, a nonclustered logistics network would actually create higher total fuel consumption because of poor utilization of conveyances and the use of more, smaller, and less efficient (in terms of fuel per ton-mile hauled) conveyances.
Thus, while logistics clustering leads to less total pollution, it leads to concentration of pollutants, increasing health hazards around such clusters. The result is a tradeoff between local and global benefits of logistics clustering. In the long term, however, many of the green innovations mentioned in the previous sections are likely to be deployed first in and around logistics clusters, mitigating the local environmental impacts.
Supply chain and distribution patterns continue to evolve, and logistics clusters evolve with them. In the long term, rising affluence in large swathes of the globe creates new patterns of consumption and production. New infrastructure changes the connectivity, velocity, and capacity of global supply networks. Steadily improving logistics technologies increase the performance of logistics clusters.
Moreover, the flow through logistics clusters also changes on a shorter time scale. Many global companies, such as Cargill, constantly rebalance their global portfolio of production sites according to a complex trade-off between costs of raw materials, manufacturing efficiencies, inventory carrying costs, and transportation costs. Jon Thompson, the international business development manager of the Cargill corn sweetener plant in Memphis told me, “what’s happening with natural gas out of Russia to feed the Netherlands actually affects whether we ship out of this plant [Memphis], Europe, China or Brazil.” These decisions change product flows and therefore logistics activities around the world. “Every three to six months, it’s a different game,” Thompson concluded.
A case in point is the growth of the port of Tanjung Pelepas (PTP) in Malaysia. It received its first maiden vessel on October 10, 1999, and then set the world record for the fastest growing port in the world, mostly attracting business that used to be conducted in Singapore. On August 18, 2000, Maersk, the largest container shipping carrier in the world, moved its transshipment operations from Singapore to PTP, followed by Evergreen, the fourth largest carrier, on April 2002.30 (Maresk’s move alone caused a 10 percent reduction in Singapore’s traffic.) Several other carriers signaled their intent to follow suit. Despite the sophistication and good services offered by the Singapore Port Authority in Singapore, these carriers have shifted to PTP, which is also a sophisticated operator, because it offers lower costs. And as the ocean carriers call on PTP, the port has developed a set of maritime services and a logistics cluster, established to take advantage of the new sailing schedules.
Currently, some two billion people are enjoying rapidly increasing standards of living as they join the middle class in what have come to be known as the BRIC countries (Brazil, Russia, India, and China) or the newly emerging CIVETS countries (Colombia, Indonesia, Vietnam, Egypt, Turkey, and South Africa). The combination of rapid economic development and large populations is fertile turf for creating massive new logistics clusters. In China, these clusters are developing along the coasts in Beijing, Tianjin, Shanghai (where DHL located its North Asian hub), Dalian, Guangzhou (where FedEx opened its Asia-Pacific hub), and Shenzhen (where UPS located its Asia-Pacific hub), as well as next to hinterland cities such as Chongqing, Wuhan, and Changsha.31 In January 2012, Shenzhen announced its plan to create one of the world’s biggest logistics centers in Qianhai, with an investment of 285 billion yuan.32
In central India, the Development Authority of Naya Raipur, the upcoming capital of Chhattisgarh (approximately halfway between Mumbai and Kolkata), asked for proposals in 2011 to develop a new logistics hub, as part of developing the economic base for the new city. About 500 miles to the southwest, the city of Hyderabad also requested proposals for a public-private partnership aimed at developing a trucking hub and logistics cluster in that city. Such developments are taking place all over the world.
In Brazil, some of the largest clusters can be found around the state of Saõ Paulo. During a breakfast meeting in the historic Octavio Cafe in the heart of the bustling city of Saõ Paulo, a dozen Brazilian logistics executives helped me identify the leading and upcoming logistics clusters around Saõ Paulo. In addition to the large port of Santos, these clusters seem to be situated along the (still incomplete) ring road around Saõ Paulo in Campinas, Jundiai, Barueri, and the Saõ Paulo International Airport.
Logistics clusters are also being developed in the CIVETS countries. For example, in a meeting at the Sheraton Hotel in Bogota, Carmenza Isaza Suárez, the executive director of ZAL (Zona de Actividad Logística de Cartagena de Indias), a new logistics park in the Colombian port city of Cartagena, described the region’s ambitions and efforts to develop a leading cluster. Cartagena’s aim is to rival and even overtake Santos in Brazil, which is the leading Latin American port measured by container traffic.
As mentioned several times in this book, many companies follow their customers in deciding where to locate facilities. In a telephone conversation with several supply chain executives arranged by the Supply Chain 50 organization, Randy Eck, director of global transportation and global outsourcing at Intel said, “The first thing we actually look at in terms of locations for a distribution center is basically manufacturing clusters where our large customers are.” Given that almost all PC manufacturing has moved to China, he added, “We spend a lot of time working on putting distribution centers in Southern China, down in the Shenzhen region, in Shanghai, and now we’re actually spending a lot of time investigating what’s happening in the Central Western part of China, with a bunch of our customers moving towards the Chengdu-Chongqing region. We also continuously look into other areas around the world where, again, our customers’ manufacturing clusters are.”
These emerging market economies will continue to affect existing logistics clusters by influencing the flows of raw materials into these economies and the outbound flows of manufactured goods. China’s economic ascent directly caused several developments in the United States. These include the growth of the Pacific ports; the expansions of the BNSF, UP, and CN railroads that move goods from the Pacific ports inland; and the growth of inland logistics clusters in Chicago, Kansas City, Memphis, and Dallas. But more changes are in store as the emerging economies integrate into the world trading system. The growth of the megacities of the world, such as Chongqing (China), with a metro population of 32 million inhabitants, Jakarta (24 million), Shanghai (23 million), Mumbai (21 million), Mexico City (21 million), and Saõ Paulo (20 million),33 is already spurring the rise of new logistics clusters aimed at serving these sprawling complexes.
Various proposed or anticipated changes in trade routes could bypass current clusters and create new logistics clusters. For example, the long-fabled Northwest Passage might appear if global warming melts enough Arctic sea ice. If it does, then freight from Asia to northern Europe and to the northeastern United States could bypass the Suez and Panama canals, respectively. The proposed Kra Canal across Thailand could bypass Singapore. Both Nicaragua and Colombia propose maritime and rail routes competing with the Panama Canal. And in the southern part of Latin America, both Chile and Argentina have already passed legislation to enable the Bioceánico Aconcagua Corridor project. The project will end up connecting Buenos Aires on the Atlantic with Santiago and the ports of Valpariso and San Antonio in Chile on the Pacific with an integrated road/rail system that includes a fifty-two kilometer tunnel through the Andes. These changes will lead to increasing volumes at seaport clusters at both ends of the new ocean routes, new rail routes, and new inland logistics clusters.
As routes change or emerge, other clusters prepare for the changing trade flows. As mentioned in chapter 6 (see p. 167), almost every port along the US East Coast is preparing for the opening of the enlarged Panama Canal and hoping to seize a large portion of the increased traffic. For East Coast ports to realize these higher trade flows, they have to be able to handle the larger ships that will soon traverse the Panama Canal. That means billions of dollars in investments in dredging deeper channels, enlarging quays, and installing larger cranes. The Panama Canal expansion is also spurring portside and inland development as real estate developers buy land, warehouse operators develop distribution centers, railroads design intermodal yards, and trucking companies plan larger transloading and consolidation hubs.
As governments in both emerging and mature markets learn of the contribution of logistics clusters to economic growth, they begin supporting the development of logistics clusters more aggressively. Some national governments have an explicit economic clustering strategy and have chosen logistics as one of the types of clusters to create. For example, visiting the Fraunhofer Logistics Institute in Dortmund, I discussed Germany’s plans to promote logistics excellence with Thorsten Hülsmann, CEO of the German public-private partnership EffizienzCluster Management GmbH, and several other executives and academics participating in the logistics cluster initiative there. The German Government is promoting what it calls Spitzenclusters (excellence clusters) in ten different industries to create a set of economic powerhouses.
Germany chose logistics as one such industry to invest in. Based on an internal competition, the German Government chose to develop EffizienzCluster LogistikRuhr in the country’s industrial heartland. The five-year, €100 million initiative includes thirty collaborative projects involving more than 120 companies and eleven research institutes. Hülsmann shared with me the project’s goals for 2015, which include creating 100 new software and hardware-based logistics products with a combined market potential of €2 billion, 4,000 new jobs, and a 25 percent reduction in costs and resource consumption. Similarly, the Walloon region of Belgium chose logistics as one of its fifteen economic clusters.34
Some local governments are looking to emulate successful logistics clusters: weighing the costs of improving infrastructure, offering tax inducements and incurring other costs, versus the benefits of new local employment opportunities that cannot be outsourced. In 2011, the St. Louis Regional Chamber and Growth Association presented a plan to position St. Louis as a global center for commerce and transportation. The association proposed developing Lambert-St. Louis International Airport with the intent to replicate the significant economic growth enjoyed by aerotropolis clusters like Memphis, Louisville, and Indianapolis.35 In Michigan, Wayne County, Detroit Renaissance, Detroit Regional Chamber, and several local communities plan to develop the area between Detroit Metro Airport and Willow Run Airport as an aerotropolis logistics hub.36
Elsewhere, governments with well-established clusters are planning for more growth. As of 2010, Dubai had the ninth busiest container port in the world,37 the eighth largest airfreight volume,38 and 6,400 companies operating in an expansive free trade zone.39 But the emirate is looking to grow the contribution of trade and logistics to its GDP even further. It embarked on developing its “Logistics City” as a 2,150-hectare logistics hub for the Middle East and beyond. The hub is envisioned as an integrated logistics platform with all transportation modes, an array of logistics services, and a range of value-added operations. It is adjacent to what the kingdom plans to be the largest airport in the world.
Other governments with well-established clusters are tackling specific issues to improve logistics performance. In the Netherlands, government-supported Dinalog is developing the Cross Chain Control Center mentioned in chapter 6. The result would be a system of software, sensors, processes, and control systems to monitor and direct the entire flow of physical shipments and the associated financial flows and information flows in and out of Holland. A similar system is envisioned for Rotterdam with the objective of controlling all transportation movements around the port and into the European hinterland, focusing on the efficient use of infrastructure.
Although logistics clusters generally improve a region’s economic robustness, they aren’t entirely immune to economic downturns and geopolitical risks because they do depend on trade, especially global trade. Economic, political, and social phenomena that inhibit production, consumption, or the movement of goods can all reduce the volume of global trade and diminish the amount of logistics activities handled by logistics clusters. Consequently, these clusters are vulnerable to overall downturns in the economy as well as to rising energy prices and protectionist trade policies.
High energy prices reduce the price advantages of distant low-cost producers such as China. Higher prices are likely to motivate a shift from long-distance transportation of imported and exported goods toward domestic production and consumption. Such local production and consumption reduce the need for large clusters because each region can develop small distribution hubs that funnel modest volumes of local production for local consumption. High energy prices also blunt total demand because they can lead to decline in consumption and recessions, thereby lowering trade volumes and shipment flows worldwide. FedEx almost went bankrupt during the 1970s surge in oil prices, which likely would have stalled the development of Memphis as a logistics cluster.
The other risk factor is protectionist, antitrade regulations such as quotas, import duties, and local content laws that create obstacles to global trade. Protectionism by the country hosting a logistics cluster means reduced imports flowing through the cluster. Protectionism by major trading partners means reduced exports flowing through the cluster. The threat of a tit-for-tat trade war would be doubly damaging. Restrictive trade regulations might hurt or help other kinds of industries (and industrial clusters) through curtailed exports or curtailed competitors’ imports, respectively. Trade restrictions, however, are likely only to impair most logistics clusters.
New technologies change cost structures and performance envelopes, affecting the competitiveness of various logistics clusters. For example, the port of Singapore and other ports are investing in new cranes that lift four containers at the same time. Similarly, new so-called “easy loading” bulk carriers can cut loading times by half to reduce dwell times and port congestion.40 Anything that increases the rate of goods flow, reduces the transportation cost per ton-mile, decreases the dwell time of assets, or improves the productivity of logistics workers will enhance the competitive attractiveness of a logistics cluster.
Larger conveyances create new economies of scale and greater consolidation of freight flows. In February 2011, Denmark’s Maersk Line, the largest container shipping carrier in the world, contracted Korea’s Daewoo Shipbuilding and Marine Engineering Company to build ten new 18,000 TEU container ships, with options to build twenty more. In June 2011, Maersk exercised an option for ten more of the gargantuan vessels. Called the “Triple-E” class (for Economy of scale, Energy efficient and Environmentally improved), these vessels will provide greater economies of scale—being 16 percent larger than the largest container ships now in existence.41 In addition, advanced engine and energy recovery systems will create an industry record for fuel efficiency and reduced CO2 emissions per container moved.
Larger, more efficient vessels encourage further consolidation of freight to the largest ports. At 400 meters long, 59 meters wide, and 14.5 meters draft, the Triple-E class will be the largest container ships on the water. The ships’ size makes them too large for current American ports or the Panama Canal (even after the canal’s expansion), so the ships will be deployed on Asia-Europe trade lanes. The use of such ships will increase the attractiveness of the largest ports in the same way that the new Boeing 747-8 freighters (with maximum take-off weight of almost a million pounds) will serve the largest airport-based logistics clusters. Ports that want to remain competitive in the face of larger vessels must invest in dredging, longer quays, and larger cranes—or they run the risk of becoming marginalized.
Not all new clusters grow as expected, and not all thriving clusters survive over the long term. Inadequacies, misjudgments, and change can all contribute to the demise of logistics clusters, young or old.
In some cases, locations that seem ideal for cluster development never achieve the promise of their geography. For example, Port Said at the northern mouth of the Suez Canal would seem to offer a perfect location for a major transshipment cluster. The canal funnels massive volumes of ocean traffic from ports in China, East Asia, South Asia, and the Middle East to ports in Europe, northern Africa, western Africa, and the eastern side of the Americas. Some 18,000 large vessels transit the Suez Canal every year, more vessels than pass through the Panama Canal.42
Port Said had a promising start. By the end of the nineteenth century, it was the largest coal bunkering port in the world.43 But it failed to maintain its role in global trade. In 2010, of the 6,852 container vessels crossing the Suez Canal, only 499 called on Port Said, and the port handled less than 3 percent of the containers passing through the canal.44,45 The reasons Port Said has not developed into the “Singapore on the Mediterranean” probably have to do with local shortcomings in areas such as government accountability and efficiency, where Singapore excels. Singapore ranks number 1 on the World Bank’s “ease of doing business” index; Egypt ranks number 110.46
Another lagging would-be cluster is Global TransPark near Kinston, North Carolina. Starting in 1991, the state of North Carolina invested heavily in developing a 2,400-acre industrial and logistics park. The location seems geographically well positioned midway between two deep-water ports and within one day’s trucking of New York, Miami, and the Midwest. More important, the project had strong state support, a favorable tax structure, a long runway for the heaviest aircrafts, a foreign trade zone authority, a highly trained workforce, attractive utility rates, and a low cost of living. Initial studies projected that the park would generate 55,000 jobs by 1998.47
Despite all these advantages and generous state subsidies, the park failed to attract viable tenants. Boeing passed on the opportunity to assemble the 787 Dreamliner there in 2003. The first companies lured by the state to the park arrived only in 2008. As of 2011, the park’s fourteen tenants support only a few hundred jobs. Three factors may have contributed to Global TransPark’s failure to fulfill the original vision. First, Kinston is too small a city (population of just over 22,000 in 2008), so there was no base of local distribution activities.48 Second, the park has poor highway connections, with no nearby interstate freeways and no easy rail connections to the park. Third, the park suffers from long dray distances to the port of Norfolk, Virginia (150 miles), and the much smaller port of Wilmington (90 miles).
In another example, the Lower Mississippi Port Cluster (LMPC) runs from the mouth of the Mississippi river 243 miles to Baton Rouge and handled 18 percent of the throughput of all US ports in 1990. But LMPC lost market share, especially to the port of Houston, as a result of a lack of collective investment in infrastructure, education, marketing, and innovation.49 Governments, local port authorities, and the business community didn’t work together to improve hinterland access, create education infrastructure for port-related jobs, or sufficiently participate in trade missions promoting LMPC in Latin America. LMPC’s Gulf-region market share in container traffic dropped from 48 percent in 1985 to 15 percent in 2001.
The story of the Erie Canal demonstrates the decline of a major logistics artery resulting from the lack of logistics cluster development. While the story is almost two centuries old, it offers lessons for today. Proposed in 180850 and completed 1825, the Erie Canal had a huge impact on opening up trade to the Midwest. The canal connected the port of New York to the inland resources of New York State, and to the Great Lakes with the lakes’ connections to the vast agricultural resources of the US Midwest. It made New York City the preeminent commercial center of the United States in the nineteenth century, spurred the first great westward movement of settlers, and spawned multiple new cities such as Troy, Syracuse, Rochester, and Buffalo all along the route and on the shores of the Great Lakes. Over the next century, this canal system would be enlarged multiple times to accommodate ever-larger ships and trading volumes.51
The Erie Canal declined as an artery of commerce because of the lack of development of terminal facilities along the canal, which would have spurred the development of logistics clusters around such terminals. Logistics facilities along the canal (terminals, cranes, warehouses) were an afterthought, and the lack of these facilities at each end and along the route of the canal severely limited the flow of goods. The few existing terminals were mostly owned by the railroads, which did everything they could to prevent more terminals from being constructed so they could continue to charge monopolistic rates (which also depressed traffic all along the route). The canal’s flow declined with the rise of the railroads and the highway system in the United States, as well as with the construction of the St. Lawrence Seaway in 1959 (which let Midwest cargo bypass New York). Major canal-side cities, such as Rochester and Buffalo in New York, lost more than one-third of their population during the second half of the twentieth century.52 Although the ports of New York and New Jersey remain important to this day, they no longer serve a major transshipment function between the world and the broader US economy. Some 80 percent of the freight arriving in the ports of New York and New Jersey stays within one day’s drayage of the ports.53
Technological change also drives the decline of some clusters. The port of Amsterdam was the largest port in the Netherlands in the seventeenth century. But Amsterdam lost its preeminence as ships grew larger than Amsterdam’s canal-based connections to the sea could support. In contrast, Rotterdam’s location on the Maas River and investments in dredging large, deep channels let Rotterdam surpass Amsterdam in the late nineteenth century. Today, the port of Rotterdam is about five times larger than the port of Amsterdam in terms of developed area, total tonnage, and vessel arrivals.54
As mentioned earlier, ongoing increases in ship size motivated the current expansion of the Panama Canal. They also motivated several expansions of the Suez Canal in 1956, 1962, 1980, 1994, 1996, 2001, and 2010.55
In some cases, logistics clusters develop in ways not initially foreseen or intended. AllianceTexas was intended to be an airfreight hub. The original crown jewel of the development was a brand-new, privately financed airport built specifically for air cargo. Although some airfreight does come to Alliance, nearby Dallas/Fort Worth International Airport (DFW) handles nearly seven times more air cargo than does Alliance.56
Russell Laughlin of AllianceTexas opined to me that DFW has two important advantages over Alliance for air cargo. First, DFW has a lower cost of capital because it is financed by tax-exempt municipal bonds from the cities of Dallas and Fort Worth. “But the other thing is, when you talk to these air freight forwarders, they’re going to colocate with the passenger airlines as much as possible, because they can get that freight on a passenger airline, get it out today, or at worst case, the next day,” Laughlin added. Instead of an aerotropolis, the park became an intermodal hub and an inland port with many logistics service providers performing value added activities, with the majority of the freight coming via rail and distributed by truck rather than by air.
The rise of new markets, new routes, and new technologies raises the issue of cluster-to-cluster competition both between routes and between terminals at the ends of new routes. The synergies between logistics and global trade don’t mean that every logistics cluster will win. Tan Puay Hin, CEO of PSA International for Southeast Asia, pointed out that “Transshipment competition is actually worldwide.” For example, the expansion of the Panama Canal creates three loci of competition.
First, the expansion creates new competition between Panama and nearby ports in the Caribbean for transshipment, warehousing, and value-added activities. Juan Carlos Croston of Manzanillo International Terminals in Panama hypothesizes that Panama’s biggest future competitors are likely to be a range of Caribbean ports such as Kingston (Jamaica), Punta Caucedo (Dominican Republic), Cartagena (Colombia) and Freeport (Bahamas). In the long term, Cuba, with its educated work force, low wage rates, and advantageous geographical position vis-à-vis the United States, might develop to be a powerful logistics cluster.
Interestingly, the cautionary tales of the Erie Canal and Amsterdam are well understood by the Panamanian authorities who are investing in both the canal expansion, port facilities along the canal, the Transisthmian Railway, and in logistics parks in various locations along the canal such as Colón Free Trade Zone and Panama Pacifico. As mentioned on p. 73 in chapter 3, the Panamanians understand that the canal can be leveraged to be more than just a “toll road.” It can bring to Panama transshipment activities and many value added operations that can be performed in these logistics clusters. These activities, in turn, can provide further employment, create a robust tax base, lead to knowledge creation, and raise living standards.
Second, the enlarged canal is creating a new round of competition among the ports that are the potential destinations of the larger ships that will start passing through the canal in 2014. In the United States, many East Coast and Gulf ports are competing for post-expansion trade by investing heavily in larger, deeper port facilities in hopes of attracting larger numbers of larger ships (see chapter 6 and the discussion of new routes earlier in this chapter). Each port markets itself as the best link between ocean freight and ground modes that serve US population centers. Yet the total volume of added port capacity may exceed what’s needed; some East Coast ports will likely fail to provide a return on investment on their expanded infrastructure.
Third, the enlarged canal increases the competition between Panama and other noncanal routes. For the Asia-North America trade, West Coast ports plus rail or truck will remain faster than transiting the Panama Canal, but the enlarged canal may provide lower costs resulting from better economies of scale with larger vessels. Some of the cluster denizens I interviewed in the LA Basin worried about the ongoing competitiveness of their cluster once the expanded Panama Canal opens. Their concerns were focused on the possible loss of traffic and distribution activities as a result of the troubled labor relationships in the ports, environmental restrictions, decaying infrastructure, short-sighted politicians, and traffic congestion. The 2008–2009 recession demonstrated to Southern California’s business, unions, and governmental leaders that a drop in traffic was both possible and painful.
For better or worse, logistics is a mobile industry: carriers can change routes and redeploy conveyances to different locations; shippers can switch warehouse locations merely by changing a shipping label; and global third-party logistics providers and warehouse operators can support a company’s network redesign from uncompetitive locations to more cost-competitive ones. I interviewed several senior logistics executives in the Los Angeles area who mentioned that their companies review their network design annually. These companies, which import much of their parts and merchandise from the Far East, compare the costs of shipping through the ports of Las Angeles and Long Beach to other alternatives such as Prince Rupert, British Columbia; Lazaro Cardenas, Mexico; and Savannah and Norfolk on the US East Coast. In addition, these companies carefully plan and monitor container stowage positions, vessel arrival days, container diversion opportunities and inland transportation options, in moving their freight to the US hinterland. Although they remain in Los Angeles, all options remain open every year. And if one of the leading importers finds a reason to relocate, chances are that other companies will come to a similar conclusion, and the volume in the LA cluster will drop, reducing its viability.
Recall from chapter 2 that geography plays a major role in the locations of logistics clusters, but it is not enough to ensure the success of a specific location. Singapore seems like the ideal geographic location for a transshipment port, but numerous neighboring ports in Malaysia and Indonesia compete with Singapore by offering nearly the same geographic advantages. In fact, Singapore’s island geography would seem to put it at a geographic disadvantage to its larger neighbors. The scarcity of land in Singapore means that warehouse space can cost more than twice as much as in neighboring Malaysia.57 Higher land costs would also affect the costs of port quays, container yards, and all the land-intensive shared infrastructure such as roads, highways, and ramps. Singapore faces an analogous challenge on wages, which are six times higher than those in Malaysia and thirty-three times higher than those of Indonesia. Singapore’s only recourse is innovation that improves asset productivity, accelerates logistical activities, or provides some form of added value. To the extent that Singapore can execute more logistics activities per square meter or provide more value per square meter, it can offset the country’s higher cost. Singapore’s leading education system (chapter 8), advanced infrastructure (chapter 6), and effective government (chapter 7) make it competitive. But the competition is relentless.
In a European Commission study of “freight villages” throughout Europe,58 the authors concluded that the average productivity (in 1997) of companies located within freight villages was about 25 percent higher than companies located outside such freight villages. The productivity was measured as tons per square meter (weight of freight handled divided by the area of the total distribution center space). Furthermore, companies within villages were 65 percent more productive in terms of intermodal freight flows. In addition, the study found a productivity increase of about 40 percent from 1997 to 2002 for companies located within integrated freight villages (where intermodal transportation was readily available) as compared with approximately 10 percent reduction for companies located outside. The study concluded that freight villages are important in furthering the EU goal of encouraging intermodal freight transportation. Even a cursory analysis of the role of intermodal yards in the United States would support such a conclusion. For example, as mentioned above, AllianceTexas thrives on its BNSF intermodal yard, rather than its airport.
The dynamics of the world economy offer plenty of opportunities for existing and new logistics clusters to develop and thrive. While developing economies are in the process of building hundreds of small and large logistics clusters in order to encourage exports and make intracountry commerce more efficient, regional governments in developed countries recognize that many distribution jobs cannot be outsourced and are therefore also developing and enlarging logistics clusters. China is continuing to develop logistics parks throughout the country. In fact, researchers at Beijing’s Jiaotong University found that “large and medium cities of the coastal developed provinces carried on the plan of Logistics Park one after another.59
There are many on-going efforts in the United States and Europe. For example, chapter 7 mentioned the 2011 efforts to build a logistics cluster in Michigan, following on the efforts of the Detroit Regional Chamber;60 the Montreal Port Authority issued a press release in February 2011 titled “Towards a Logistics and Transportation Industrial Cluster in Montreal”;61 and, as mentioned earlier, the state of Missouri has been working on developing an airport-based cluster (an aerotropolis) in St. Louis’s Lambert International Airport.
While each chapter of this book described different attributes of logistics clusters, this section summarizes six factors found in successful logistics clusters. Some of them are natural attributes; others have to do with existing conditions in the region and the stage of development of the society involved. Yet several attributes can be described as success factors, requiring either initial investment or planning for the spontaneous development which governments and developers hope to ignite.
Because of the technology and economics of transportation, geography matters more for logistics clusters than for many other types of industrial or knowledge clusters. The origins and destinations of goods follow geographic patterns tied to population centers, industrial clusters, and natural resources concentrations, as described in chapter 3. The physical necessity or economic advantages of mode changes (such as ship-to-rail, rail-to-truck, and air-to-truck) drive the development of clusters at seaports, airports, and intermodal complexes. Operational issues, described in chapter 4, drive the consolidation of shipments and distribution of goods to central cluster locations. Thus, clusters often form at land-ocean edges (Shanghai, Rotterdam, Los Angeles, Saõ Paulo) or midpoints near or between population centers (Singapore, Chongqing, PLAZA, Chicago, AllianceTexas, Kansas City).
Logistics clusters also require large expanses of inexpensive land and a climate that rarely disrupts operations. In situations where land near a port is scarce or expensive, some clusters displace logistics activities to inland ports or use land reclamation projects to create new land.
Chapter 6 argued that a logistics cluster is only as good as its transportation infrastructure. This includes not only the local infrastructure within the cluster, but, just as crucially, the network that connects the cluster to other clusters and to industry and population centers. Wide roads, deep ports, long runways, and spacious rail yards all support efficient cluster operations. Much of the investment in building and maintaining logistics clusters has to do with building the physical infrastructure. Moreover, this is an ongoing investment since the infrastructure requires maintenance and upgrading. As logistics clusters grow they also need robust supply of fuel for transportation conveyances.
Logistics clusters also require access to sophisticated financial services and information technology services in addition to physical infrastructure. These “soft” infrastructure elements are examples of factors required only at some basic level in order to start the cluster’s organic growth process, but they have to be planned for and supported as the cluster starts growing.
More than many other types of economic clusters, logistics clusters depend on supportive governments for reasons enumerated in chapter 7. Governments are the main providers of public infrastructure, often paying for, maintaining, and regulating the use of key infrastructure assets such as roads, canals, ports, and airports. Logistics also depends on accommodative regulations on land use, infrastructure use, conveyance operations, and trade. Furthermore, the competition between logistics clusters for attracting tenants and distribution activities means that tax regimes have to be favorable for logistics activities, including taxes on inventories and international trade.
Just as important are general government characteristics. For example, the Singapore Government is renowned for both high efficiency and low corruption, an ill affecting many other governments and logistics agencies. In addition, the social and political stability of the island adds to its attractiveness.
While those general government characteristics may be difficult to change in the short term, direct government support is crucial. Furthermore, world ranking of cargo ports, airports, and countries’ logistics capabilities (see, for example, the World Bank’s Logistics Performance Index62) can create competitive pressures63 that may lead to improvements in government characteristics.
All economic clusters depend on people to do the work efficiently and effectively. In fact, governments support economic clusters because they expect the cluster to create jobs. More than many other types of clusters, logistics clusters provide a full skills-range of job functions from warehouse picking and packing, to operating expensive equipment, to using sophisticated software tools, to managerial and executive positions. To create an adequate workforce, successful logistics clusters develop local training programs and supporting academic institutions to educate and upgrade the capabilities of the local workforce, as described in chapter 8. As mentioned in that chapter, however, educational institutions usually follow the development of logistics clusters and support further growth. In most cases, such educational institutions were developed through partnerships between industry and local governments.
Tied to such educational institutions are research and innovation centers, such as Dinalog in the Netherlands and the Zaragoza Logistics Center in Spain, as well as independent research and innovation centers such as PortTechLA in San Pedro, California. Such institutions are not prerequisites to cluster development but rather a later-stage investment that helps propel existing clusters further. Higher education and research centers are the engines of innovation for new software applications, advanced logistics processes and clever supply chain concepts. New ideas then flow back into the local cluster through research reports, consulting projects, student internships, entrepreneurial graduates, and commercialization activities.
Accordingly, governments contemplating the development of logistics clusters should plan for such institutions rather than developing them first. Naturally, if such institutions exist already, it is an advantage.
One crosscutting factor, found in nascent successful clusters and clusters undergoing significant new investment, is a spirit of collaboration and a unity of purpose across all stakeholders. While collaboration is important for any large-scale project, the scale and regional impact of significant transportation infrastructure development requires cooperation between local, regional, and national transportation authorities in conjunction with urban planning authorities, chambers of commerce, and real estate developers.
Education development depends on government funding but, when discussing business logistics, it also requires collaboration between the educational institutions and private companies. These companies need training and cutting-edge ideas, but they can help to define relevant curricula and provide living-laboratory sites for cutting-edge research.
Locations like Fort Worth, Singapore, the Netherlands, and many others have an effective partnership between the governments at all levels, the business community, academia, and other institutions. For example, the Kansas City SmartPort organization is dedicated to promoting Kansas City as America’s main logistics hub. Its board of directors includes representatives of the BNSF Railroad, the Greater Kansas City Foreign Trade Zone, Johnson County Airport, the area’s Development Council, the Kansas and Missouri departments of transportation, and other organizations.
Chapter 1, and the original impetus of this book, began with the development of PLAZA—the huge logistics park in Zaragoza, which exemplifies these multifaceted collaborations. Not only did the government and its bitter opposition parties join forces to bring the vision of Zaragoza as a logistics hub to fruition, but virtually all local businesses—including several institutions for collaboration, such as Aragón Exterior64—came together to support the project. Notably, while the government of Aragón funded the partnership with MIT to create the Zaragoza Logistics Center, two local banks (Ibercaja and CAI) were instrumental in cofunding and supporting this research and graduate education institution.
Many of the most prominent clusters go beyond moving and storage activities to include value-added services that transform, modify, augment, tag, sequence, or repair goods. Success in attracting value-added services raises the competitive stance of a cluster, making it more difficult for companies to change locations. Many value-added services involve relatively sophisticated, higher-paying jobs than those taking place on the warehouse floor.
Ultimately, a logistics cluster can provide the core infrastructure and services that support many industries, leading to other types of economic clusters. In fact, many manufacturing clusters started with a base of superior transportation and distribution services anchored in a logistics cluster. For example, starting with an aerotropolis concept around Memphis airport, the region developed as a logistics cluster and then attracted life science companies, advanced manufacturing, clean-tech energy, and information technology enterprises.
Both the provision of value-added services and attracting new industries are elements that governments should be planning for but not acting on (in terms of recruiting companies) before the basic logistics cluster is operational. The attraction of manufacturers and other industrial companies is part of the process that feeds the positive growth of a cluster in later stages.
Niels Bohr, the famous Danish physicist, once quipped, “Prediction is very difficult, especially about the future.” Indeed, given the innumerable variables affecting our future, most of which cannot be measured or even identified, any efforts to make long term predictions are questionable. Nonetheless, some trends are already evident and seem likely to accelerate. One such ongoing trend is the increasing trade of goods and services around the globe over the next several decades. Businesses continue to move away from vertical integration; information technology keeps connecting more people and businesses; and, most important, the world is barely halfway through a transformation that will raise several billion people up from poverty to the middle class. As a result, one can paint with some confidence the details of the logistics landscape, even if we cannot yet envision the entire sweep of it.
Rising standards of living in Brazil, China, India, and elsewhere around the world—made possible, in large part, by the efficiency of the world’s supply chain management and logistics systems—will create massive increases in demand for natural resources and manufactured goods, from cars and refrigerators to microprocessors and lipstick. And increasing demand will inevitably increase trade flows across the globe. Growth may happen in fits and starts but, surely, it will happen.
Yet this global growth has its challenges. The rising quality of life for the planet’s billions of people has to balanced against the strained natural resources needed to feed their growing appetites. Few industries play a greater role in sustaining this balance than those that create an efficient chain of resource cultivation, processing, and distribution. Global supply chains can facilitate the world’s migration from majority-poor to majority-middle-class, thus affecting public well-being broadly and deeply. Logistics, therefore, is an essential element in efficiently delivering more necessities and goods to more people in more places at low cost and at minimal environmental impact per unit.
The why, where, when, and how of successful logistics clusters affect the efficiency and effectiveness of global supply chains. This book parsed some of the challenges and opportunities of logistics clusters, describing the economic and business imperatives that motivate clustering; the elements that contributed to some of the more successful clusters; the challenges of developing clusters; and the mistakes of those that have not succeeded as well as planned. I am hopeful that some of these findings—made richer by the works of others—will lead to a public-private consensus that a well-executed logistics cluster creates a quintuple win: good jobs for workers, low-cost necessities for all people, robust growth for jurisdictions that support clusters, profits for participating companies, and sustainability for the Earth on which we live.