ing year. Despite continued advancements in warehouse
automation technologies, overall operating costs for distribution warehousing are expected to increase by 14 to 16
percent in 2012 due to a rise in diesel fuel costs, above-aver-age utility rate increases, and recovering real estate markets
in most locales. These costs will be up from an estimated
13-percent increase for 2011. Labor costs, however, will
continue on the flat-to-weak trajectory they have followed
since 2009, with a projected increase of 2. 1 percent in 2012
for non-exempt warehouse personnel.
There are many other variables that can affect the attractiveness of one location versus another. One of the newest
is cap-and-trade legislation designed to reduce carbon
emissions and improve the environment. New Jersey, for
example, recently opted out of the Northeast Regional
Greenhouse Gas Initiative in a move to improve its competitiveness against neighboring Pennsylvania, which is not
a member. New Jersey authorities may be right to worry:
Industry insiders believe the fruit and juice company Ocean
Spray’s recent decision to relocate its Bordentown, N.J., distribution facility to Pennsylvania’s Lehigh Valley was in
response to concerns about New Jersey’s carbon program
and escalating utility prices.
Another business climate variable that companies continue to monitor is the relative strength of unions in each state.
“Right-to-work” status continues to be a hot-button issue
for many companies involved in distribution. Right-to-work legislation restricts the power of organized labor by
barring practices such as requiring union membership to
work in a warehouse or factory. This can be very important
for some projects, as labor costs can account for as much as
50 percent of overall warehouse operating expenses. Lower
labor costs and more favorable labor/management relations
tend to be found in the 22 states that have right-to-work
legislation, mostly in the South and West.
Nowhere is the strength of the unions more of an issue
for the supply chain field than in California, where
California Bill AB 950 could effectively keep the now-dom-inant independent drayage trucks from working at
California’s major ports, including Los Angeles/Long
Beach. That measure could lead to larger, possibly unionized trucking organizations controlling drayage operations
between the ports and regional warehouses.
The likely result of the California legislation would be a
further increase in distribution costs in that state. The rise
in costs could then drive distribution projects to other markets along the I- 15 and I- 10 corridors, including North Las
Vegas and Mesquite, Nev.; St. George, Utah; and Phoenix,
Kingman, and Casa Grande, Ariz. All of these locations are
in right-to-work states where land and industrial space
costs are also at historic lows due to the real estate collapse
in those markets.
EXHIBIT 1
Comparative cost rankings
for operating a warehouse
Distribution Warehouse
San Francisco, CA
San Jose/Sunnyvale, CA
Nassau/Suffolk, NY
Meadowlands/Northern, NJ
Seattle/Bellevue, WA
Boston/Cambridge, MA
Chicago, IL
Baltimore/Hunt Valley, MD
Lehigh Valley, PA
St. Louis, MO
Columbus, OH
Atlanta, GA
Memphis, TN
Fort Wayne, IN
Greenville/Spartanburg, SC
Total Annual Operating Costs
(in US dollars)
$24,482,742
$22,247,357
$21,346,401
$19,909,075
$18,784,374
$18,712,773
$18,005,712
$16,702,687
$16, 134,245
$15, 131,038
$14,670,526
$14,262,197
$13,844,349
$13,589,070
$13,071,245
SOURCE: BIZCOSTS.COM, 2011
THIS COST RANKING OF U.S. CITIES IS BASED ON THEIR HOUSING A HYPOTHETICAL 150-WORKER DISTRIBUTION CENTER OCCUPYING 450,000
SQUARE FEET AND SERVING A NATIONAL MARKET WITH OVER-THE-ROAD
TRUCKLOAD SHIPMENTS. TOTAL COSTS INCLUDE LABOR, LAND, CONSTRUCTION, TAXES, U TILITIES, AND SHIPPING.
EXPANDING TRADE ATTRACTS WAREHOUSING
Not just the domestic economy but also the global econo-
my is having a profound effect on the location of distribu-
tion centers. The cities that are especially well-positioned to
attract new distribution projects are those that link to the
global economy through ports, airports, and access to
NAFTA (North American Free Trade Agreement) trade cor-
ridors like the Canamex Corridor in the U.S. West and the
I- 35 NAFTA Superhighway, which extends from Mexico to
Canada in our nation’s Heartland region.
