56 DC VELOCITY FEBRUARY 2015 www.dcvelocity.com
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What we are hearing from the trucking industry
is that they hate the notion of a national tolling
system. The full-truckload sector especially doubts
its ability to recover the additional costs through
some sort of surcharge that it would try to pass
on to shippers. The parcel express business—with
its focus on speed and efficiency—doesn’t like it
either. Trucking dispatchers are telling us that if the
interstates are tolled, they will quickly shift routes
to secondary highways, further congesting them
and adding wear and tear to those roads.
The upshot of this trend would be more and
more companies looking to locate their distribution centers in industrial areas close to rail/intermodal centers in order to balance out increased
trucking costs.
2. COST CUTTING
While cost cutting has always been a big concern
for warehousing managers, our nation’s tepid economic recovery is making costs the “white hot”
issue in corporate boardrooms today. At many of
our DC clients, finance managers are explaining
that the best way to improve the bottom line these
days is on the cost side of the ledger, as there is little
relief on the revenue side.
As a result, more companies are considering
lower-cost locations for their distribution centers.
Operating costs for a typical DC can vary greatly
by geography, and a less-than-optimal location will
result in higher costs, which could compromise
the company’s competitive position. The table in
Exhibit 1 illustrates how significantly DC operating costs can vary within the United States. This
BizCosts.com analysis conducted by The Boyd
Company includes all major geographically variable operating-cost factors, such as wages, benefits,
real estate, property taxes, utilities, and shipping.
The table shows that annual costs for a hypothetical 450,000-square-foot DC employing 150 workers range
from a high of $22.2 million in the Meadowlands in northern New Jersey to a low of $15 million in Louisville, Ky., a
spread of $7.2 million, or a 32-percent differential.
3. THE NEW “LAST MILE” MARKET
The rise in e-commerce and omnichannel retailing, coupled with Amazon’s ongoing quest for same-day delivery, is
highlighting the importance of speed-to-market in today’s
economy. In San Francisco, Amazon is now testing its own
delivery network for the final leg of a package’s journey to
consumers’ doorsteps. The new service will give Amazon
more control over shipping time and expenses. We expect
the e-commerce giant and logistics innovator to roll out
similar “last mile” services in major markets like Los
Angeles, New York, and Chicago in the months ahead.
Amazon’s “last mile” network will surely pose a challenge
to express shipping companies like UPS, FedEx, and the U.S.
Postal Service. We expect the Amazon experiment—buoyed
by surging e-commerce and new ride- and trip-sharing apps
like Uber—to open up a new distribution-channel market
in major cities as well as create other new growth opportunities within the express shipment sector.
As a result of this trend, a number of new DC sites are
emerging on our site selection radar screen. These locations
put a premium on proximity to major, growing consumer
markets; good transportation linkages; access to a work
force with a wide range of blue- and white-collar skill sets;
turnkey real estate sites with full utilities; and good cooperation with local municipal officials.
Probably one of the best examples is Robbinsville
Township in central New Jersey, which is situated within
EXHIBIT 1
Distribution center cost ranking
TOTAL ANNUAL GEOGRAPHICALLY
VARIABLE OPERATING COST RANKING
Distribution Center Location Total Annual Operating Costs
Meadowlands/Northern New Jersey $22,223,804
Boston, Massachusetts $22,143,795
Los Angeles/Long Beach, California $22,051,617
Seattle, Washington $20,683,534
Chicago, Illinois $19,682,301
Minneapolis/St. Paul, Minnesota $19,488,774
Riverside/San Bernardino, California $19,312,685
Lehigh Valley, Pennsylvania $19,152,519
Baltimore, Maryland $18,522,117
Columbus, Ohio $17,774,780
Denver/Boulder, Colorado $17,405,835
St. Louis, Missouri $17,122,556
Jacksonville, Florida $16,787,879
Kansas City, Missouri $16,597,343
Houston, Texas $16,308,324
Dallas/Ft. Worth, Texas $16,172,986
Salt Lake City, Utah $16,130,573
Atlanta, Georgia $15,902,179
Charlotte, North Carolina $15,813,648
Indianapolis, Indiana $15,793,726
Memphis, Tennessee $15,646,669
Birmingham, Alabama $15,128,808
Louisville, Kentucky $15,064,962
SOURCE: BIZCOSTS, A REGISTERED TRADEMARK OF THE BOYD COMPANY INC., 2013
In the table below, total annual operating costs for a hypothetical 450,000-square-foot distribution center employing
150 workers and serving a national market are presented for
a series of leading distribution center (DC) sites in the United
States. All figures are in U.S. dollars.
