Translinked Regional Freight Study Executive Summary

Translinked Freight Study December 2011 Prepared for: Detroit Regional Chamber

Translinked Freight Study Executive Summary1 EXECUTIVE SUMMARY1.1 TranslinkedThe Detroit Regional Chamber is one of the largest chambers of commerce in the country. The Chamberseeks to power the economy of southeast Michigan through economic development programs, advocacy,strategic partnerships and valuable member benefits. One key initiative of the Detroit Regional Chamber’sEconomic Development activities is Translinked.The goal of Translinked is to create an industry cluster of excellence around transportation, distribution andlogistics in the region comprising southeast Michigan, northwest Ohio and southwest Ontario. TheTranslinked strategy envisions the mobilization of public, private and academic resources around aconsensus on the physical, financial and institutional infrastructure necessary to create this cluster. Thisinitiative seeks to attract more freight, perform value-added service and become a key intermodal supplyhub. The overall goal of Translinked is to create an efficient and cost-effective first-tier multimodaltransportation and logistics hub in southeast Michigan, northwest Ohio and southwest Ontario. Translinkedis supported by the Michigan Economic Development Corporation (MEDC), the New Economy Initiative(NEI), and the Detroit Regional Chamber.The Translinked region (Figure 1-1) includes major freight centers, including Detroit, Ann Arbor, Lansing,Flint and Port Huron in Michigan, Toledo in Ohio and Windsor and Sarnia in Ontario, Canada. The regionencompasses major manufacturingactivity (e.g. the automotive industry)and is situated on the principal border Figure 1-1: Map of Translinked Regioncrossings for overland trade betweenthe United States and Canada. Acomprehensive set of freightinfrastructure supports regionaleconomic activity, including rail androad border crossings, airports, marineports, rail yards, and interstate highwaysand rail corridors. The region is alsoconnected by rail and highway to majorU.S. and Canadian international seaports, including New York/New Jersey,Halifax, Montreal and Norfolk on theEast Coast.The Translinked Freight Study provides,subject to the availability of data onregional freight movements, a data-driven analysis of existing regionalfreight movements, an assessment ofkey freight industry trends, and makesrecommendations on how to furtherdevelop the Translinked region. Source: Detroit Regional Chamber 1 | TranSystems

Translinked Freight Study Executive Summary1.2 RecommendationsThe evaluation of freight flows and industry trends drive the following recommendations for futuredevelopment of the Translinked initiative: Establish a Translinked Commercial Marketing Initiative Involve the Private Sector, Remove Barriers that Slow Down Decision Making Remove Variability from the Border Crossing Process Include Rail Facilities and Third Party Logistics Providers (3PLs) that Reduce Transportation Costs, and Increase Flexibility Marketing Initiative and Freight CorridorsThe recommendations and next steps are discussed below.Establish a Translinked Commercial Marketing InitiativeTranslinked opportunities are with companies that have specific distribution needs, such as a highconcentration of customers in Northern Michigan, over to Toronto, and including the US Midwest.Companies that require fastest ocean transits from China or Europe, especially for high value goods, ormanufacturers that receive materials used in production from nearby sources are potential candidates. Next Steps: Develop Translinked Marketing Plan TranSystems recommends a detailed, company by company analysis to identify opportunities based on the specific advantages of the Translinked region. Develop a list of potential Translinked customers. Identifying and selling value will require detailed knowledge of the customer’s business, particularly its supply chain; and facts about the customer’s inventory and supply chain strategy. Carefully identify (segment) beneficial cargo owners (BCO) with high costs, complicated supply chains, or poor inventory performance. Conduct private sector outreach to gather input. Develop supply chain straw-men using various distribution strategies and present them to shippers to assess the viability of Translinked as a supply chain hub. Demonstrate how a Translinked location reduces lowest landed costs. Present regional advantages, such as the CSX intermodal facility in North Baltimore, OH to private sector logistics managers. Once strategies are validated, market regional advantages in industry publications, such as DC Velocity, Inbound Logistics, Journal of Commerce, and American Shipper. The KC (Kansas City) Smartport initiative is an excellent model for marketing strategies that may be applicable to the Translinked initiative.Involve the Private Sector, Remove Barriers that Slow Down Decision MakingTime is of the essence. Comments made during interviews as part of this study suggest there is a perceptionthat the overall direction and ownership of Translinked is unclear, and the initiative lacks sufficientinvolvement from commercial interests. Commercial participation will be necessary to lend support and 2 | TranSystems

Translinked Freight Study Executive Summarycredibility to the project. It should be noted that recent improvements in Ohio, such as CSX’s NorthwestOhio Intermodal Terminal at North Baltimore, Norfolk Sothern’s Heartland Corridor Initiative servingColumbus, and BNSF’s Chicago rail terminal adjacent to the CenterPoint Intermodal Park have been noticedin the industry. Successes in the Translinked region itself, such as improvements at the Port of Toledo, havebeen attributed to public/private cooperation and agreed priorities. Barriers impeding Translinked progressshould be identified, and addressed. Slow-moving initiatives will lose out to locations that are established,and proven, and that have active engagement with the private sector. Next Steps: Identify and Remove Barriers to Progress Focus and prioritize opportunities based on strengths identified in the Marketing Plan, and gather private sector support as quickly as possible. Solicit active and ongoing participation on the Translinked committee from companies such as railroads and third party logistics companies to provide a sense of what is commercially viable. The CN Railroad for example actively participated in the design, and invested $25 million in the new West Coast ocean terminal at Prince Rupert, BC - private investment will signal commercial viability. The Detroit Intermodal Freight Terminal (DIFT) may be another example of a successful transportation related public/private development. Public sector involvement and coordination is crucial, but all parties should adhere to commercially based priorities. A failure to agree on priorities may signal an inability to move the project forward, and a review of Translinked overall goals and makeup is advised.Remove Variability from the Border Crossing ProcessSupply chain managers work to eliminate events that introduce variability into supply chains. The Translinkedregion opportunities will be aided by addressing perceptions about the unpredictability of border crossings.The inclusion of the Toronto area population of 5 million within a distribution range served by theTranslinked region will elevate the effectiveness of the region as a transportation hub. Therefore, addressingperceptions about unpredictable crossing delays is critical. Next Steps: Assess and Manage Border Crossing Perception As part of the development of the Translinked Sales/Marketing plan, gather border crossing information, including an assessment of perceived vs. real barriers, expected delays, and suggestions for improvement. Based on this input, develop strategies to correct misconceptions about crossing delays, or work with US and Canadian customs agencies to develop programs that reduce variability in border wait times. An evaluation of the effectiveness of the Fast Past program, which allows truckers to us the “FAST” lane, and reduces the amount of paperwork, should be included in the analysis. 3 | TranSystems

Translinked Freight Study Executive SummaryInclude Rail Facilities and Third Party Logistics Providers (3PLs) that ReduceTransportation Costs, and Increase FlexibilityDistribution centers (DC) on-site at rail terminals, including multiple rail carriers, will reduce truck drayagecosts. Include railroads and shippers in terminal location and design discussions. The presence of 3PLservices, such as warehouse and distribution services, will enable shippers to introduce flexibility to theirsupply chains and will provide distribution options in the Translinked region without requiring shippers tocommit capital to an owned facility. Next Steps: Confirm importance of the Detroit Intermodal Freight Terminal (DIFT) during the development of the Translinked Marketing and Sales Plan. Revitalize and develop a sense of urgency around the DIFT rail project if potential users are attracted to this kind of facility. Explore willingness of large DCs, trucking companies; 3PL’s to locate near new DIFT facility, and zone appropriately if needed to support logistics facilities.Marketing Initiative and Freight CorridorsThe Translinked region is strategically located on several major trade corridors, notably cross-border withCanada. In addition, the region’s consumers and industry are served by several important port gateways inthe U.S. (e.g. ports of New York/New Jersey, Norfolk and Los Angeles/Long Beach) and Canada (the portsof Halifax, Montreal and Prince Rupert). In developing the Translinked marketing initiative discussed above,focus should be placed on companies that could benefit from the following freight corridors: International trade via: − Canadian ports of Halifax, Montreal and Prince Rupert. − U.S. Northeast ports, notably New York/New Jersey, Norfolk, and Baltimore. Investments in rail infrastructure by CSX and NS are making these gateways even more accessible for the Translinked region. − U.S. West Coast ports, which are the principal gateways for U.S. trade with the Far East. Highway and rail corridors serving major consumption markets in the U.S. Cross-border highway and rail corridors with major consumption markets in Canada, notably markets in Ontario.The marketing initiative should also incorporate testing the perceived value of the different North AmericanGateways, such as the Prince Rupert Gateway, with the fastest transit from China, or the Halifax Gateway,and evaluate shipper preferences of North American gateways into the study area. The market strategyinitiative should include shippers who transport the fastest growing commodities. For example, Machineryand Parts Manufacturing, and Electronics Manufacturing have projected ten-year annual growth rates of 4.4percent and 5.0 percent respectively. Keep in mind that these growth rates may reflect a recovery fromsteep declines experienced during the economic downturn; however, logistics service opportunities mayemerge as the recovery continues. 4 | TranSystems

Translinked Freight Study Executive Summary1.3 Regional Freight FlowsRegional economic activity generates inbound, outbound and internal freight flows. The Translinked regionalso sees freight moving through the region between Canada and the rest of the U.S. An overview ofselected regional freight flows in 2009, the latest year for Transearch Freight Data1, is presented in Table1-1. The largest flows are domestic inbound, outbound and through, and freight flows related to Canada(inbound, outbound and through). Several characteristics of freight flows are discussed in the remainder ofSection 1.3. Figure 1-2: Selected Regional Freight Flows in 2009 Notes: (1) Domestic flows include some international cargo that moves as “domestic” freight – e.g. overseas imports moving in domestic 53-foot containers from the U.S. discharge port to the Detroit BEA. (2) Import and export refers to cargo that moves intact between U.S. ports and the Detroit BEA. Source: TranSystems derived from IHS Global Insight Transearch Data1 This Study includes content supplied by IHS Global Insight (USA), Inc; Copyright 2011 IHS Global Insight (USA), Inc. 5 | TranSystems

Translinked Freight Study Executive Summary Table 1-1: Selected Regional Freight Flows in 2009 Tons by Tons by Tons by Tons by Other Total Total Tons Truck Rail Water Modes Value Detroit BEA Freight Flows in 2009 (Million Tons and Billion $)Total 286.60 206.07 52.81 26.60 1.12 $413.5 1Domestic 212.00 160.42 30.85 20.69 0.04 $248.8 Inbound 107.54 66.10 22.44 18.99 0.02 $107.1 Outbound 51.30 42.00 8.20 1.07 0.02 $101.7 Internal 47.07 46.22 0.21 0.63 0.00 $26.1 Through 6.09 6.09 0.00 0.00 0.00 $13.9Canada 54.02 34.09 18.85 0.00 1.08 $129.7 Inbound 5.97 3.37 1.95 0.00 0.65 $18.3 Outbound 3.16 2.40 0.39 0.00 0.37 $10.7 Through 44.89 28.32 16.51 0.00 0.06 $100.7Mexico 2.64 1.12 1.52 0.00 0.00 $14.0 Inbound 1.63 0.56 1.07 0.00 0.00 $10.1 Outbound 0.94 0.49 0.45 0.00 0.00 $3.6 Through 0.08 0.07 0.01 0.00 0.00 $0.2 2Import & Export 17.93 10.44 1.59 5.91 0.00 $21.1 Detroit BEA – Toledo BEA Freight Flows in 2009 (Million Tons and Billion $) 3Total 15.81 14.57 0.35 0.89 0.00 $6.95 Inbound 10.84 9.82 0.14 0.88 0.00 $4.47 Outbound 4.97 4.74 0.21 0.01 0.00 $2.47 Detroit BEA – Windsor CMA Freight Flows in 2009 (Million Tons and Billion $) 4Total 1.42 1.16 0.19 0.00 0.07 $4.75 Inbound 0.25 0.19 0.06 0.00 0.00 $1.28 Outbound 0.18 0.13 0.00 0.00 0.05 $0.39 Through 0.99 0.83 0.13 0.00 0.02 $3.08(1) Domestic flows include some international cargo that moves as “domestic” freight – e.g. overseas imports moving in domestic 53-foot containers from the U.S. discharge port to the Detroit BEA.(2) Overseas import and export cargo that moves intact between U.S. ports and the Detroit BEA.(3) Freight moving between the Detroit BEA and the Toledo BEA.(4) Freight moving between the Detroit BEA and the Windsor CMA, and freight moving through the Detroit BEA between the Windsor CMA and the rest of the U.S. Source: IHS Global Insight Transearch Data 6 | TranSystems

Translinked Freight Study Executive SummaryDetroit BEA Freight FlowsThe Detroit-Warren-Flint Business Economic Area Figure 1-3: Detroit BEA Cargo in 2009 by(Detroit BEA) covers the cities of Detroit, Flint and Transport ModeWarren, and surrounding areas. The Detroit BEAhad total estimated cargo flows amounting to 287million tons in 2009 with an estimated value of$414 billion. Total cargo comprises severaldifferent transport modes – truck, rail, water (viathe Great Lakes), air and other – and includes alltrade flows, domestic and international, inbound,outbound, internal (movements within the DetroitBEA) and through (not stopping in the DetroitBEA).Truck is the dominant mode with 72 percent ofcargo volume and 81 percent of cargo value, thelarger share of value reflecting the higher-valuecommodities that move via truck. Rail handles bothlower-value and higher-value commodities, and itaccounts for 18 percent of both volume and value.The water mode accounts for 9 percent of tons butless than one percent of value due to the low-value Note: Includes domestic and international, and all directionsbulk commodities shipped by water. The highest – inbound, outbound, internal and throughvalue freight is shipped by air. Source: Derived from IHS Global Insight Transearch DataTotal cargo is spread across different directionsand trades (Figure 1-4). Domestic cargo accounts for 74 percent of total tons and 60 percent of value.Domestic cargo includes some international cargo that moves as domestic freight to or from U.S. ports (e.g.New York/New Jersey). International trade related to Canada accounted for 19 percent of tons and 31percent of value, while international trade with Mexico was one percent of tons and 3 percent of value.Import and Export trade that moves intact to and from U.S. ports accounted for 6 percent of tons and 5percent of value.Inbound and outbound cargo amounted to 183 million tons in 2009 with an estimated value of $270 billion.These flows are driven by industry and consumption, and generate the principal demand for warehousingand logistics facilities. The largest directional flow is inbound to the Detroit BEA.The region also has a large volume of internal cargo movement (18 percent of total tons and 7 percent ofvalue), a significant share of which is truck shipments to and from warehouses within the region and drayageof containers to and from intermodal rail yards. A large amount of cargo also moves through the DetroitBEA, notably between Canada and other regions of the U.S., and is handled by the border crossing points inthe Detroit BEA. 7 | TranSystems

Translinked Freight Study Executive Summary Figure 1-4: Detroit BEA Cargo in 2009 by Trade Flow Source: Derived from IHS Global Insight Transearch DataWhen evaluating the region’s cargo, it is helpful tofocus on commodities that are more suited to Figure 1-5: Detroit BEA Cargo Tons in 2009,added-value logistics services or undergo some form Total and Warehouse-ableof manufacturing process. Such commodities will beof primary interest to the development of industryand logistics services. The broadly defined“warehouse-able” commodities are those with arelatively high value per metric ton and/orcommodities that are processed (e.g. food products)as opposed to raw materials (e.g. grain). Thesecommodities are more likely to require added-valuelogistics services.Warehouse-able cargo was an estimated 141 milliontons in 2009, 49 percent of total Detroit BEA cargo.Warehouse-able cargo accounted for an estimated90 percent of total cargo value, which reflects thehigher value nature of warehouse-able commodities(e.g. consumer products). These commoditiesaccounted for 42 percent of inbound tons, and their Source: Derived from IHS Global Insight Transearch Datashare was highest in the cross-border inbound trade– 64 percent of tons from Canada and 99 percent oftons from Mexico – and compared to 41 percent of domestic inbound tons. Warehouse-able commoditiesaccounted for 66 percent of total outbound tons. Penetration by trade was – domestic outbound 68 percentof domestic tons, shipments to Canada 48 percent and shipments to Mexico 87 percent. 8 | TranSystems

Translinked Freight Study Executive SummaryDetroit BEA Freight Flow ForecastThe forecast of inbound and outbound freight (warehouse-able) commodities is presented in Table 1-2. TheBase projections of cargo flows driven by assumptions related to regional, national and internationaleconomic activity, and relationships between industry inputs and outputs. Total inbound and outboundfreight is projected to have increased from 89.9 million tons in 2009 to 97.8 million tons in 2010, driven byrecovery from the recession and growth of industries in the region. Total inbound and outbound freight isprojected to increase to 126.0 million tons in 2020, based on domestic economic growth and the expansionof cross-border trade with Mexico and Canada, and growth of trade with overseas markets. The projected10-year (2010 to 2020) compound annual growth rate (CAGR) is 2.6 percent. Table 1-2: Inbound and Outbound Freight Forecast for 2020 – Base, Low and High Inbound Freight (Warehouse-able Commodities) 2020 Tons CAGR 2010 to 2020 Trade 2009 Tons 2010 Tons Base Low High Base Low High Domestic 44,334,660 47,678,414 59,970,374 57,318,605 63,775,639 2.3% 1.9% 3.0% Canada 3,835,424 4,232,502 5,513,774 5,127,613 5,798,233 2.7% 1.9% 3.2% Mexico 1,613,233 1,761,005 2,981,832 2,708,501 3,145,764 5.4% 4.4% 6.0% Import 1,205,197 1,343,248 2,028,841 1,859,298 2,273,105 4.2% 3.3% 5.4% Grand Total 50,988,514 55,015,169 70,494,821 67,014,016 74,992,742 2.5% 2.0% 3.1% Outbound Freight (Warehouse-able Commodities) 2020 Tons CAGR 2010 to 2020 Trade 2009 Tons 2010 Tons Base Low High Base Low High Domestic 34,989,373 38,422,157 49,083,371 44,989,601 51,752,543 2.5% 1.6% 3.0% Canada 1,512,627 1,665,247 2,218,630 2,059,365 2,308,990 2.9% 2.1% 3.3% Mexico 812,665 927,945 1,451,046 1,369,738 1,658,503 4.6% 4.0% 6.0% Export 1,581,080 1,796,395 2,756,368 2,495,304 3,036,918 4.4% 3.3% 5.4% Grand Total 38,895,745 42,811,744 55,509,415 50,914,008 58,756,955 2.6% 1.7% 3.2% Inbound & Outbound Freight (Warehouse-able Commodities) 2020 Tons CAGR 2010 to 2020 Trade 2009 Tons 2010 Tons Base Low High Base Low High Domestic 79,324,033 86,100,571 109,053,745 102,308,206 115,528,183 2.4% 1.7% 3.0% Canada 5,348,051 5,897,749 7,732,404 7,186,977 8,107,223 2.7% 2.0% 3.2% Mexico 2,425,898 2,688,950 4,432,877 4,078,239 4,804,267 5.1% 4.3% 6.0% Import & Export 2,786,277 3,139,643 4,785,209 4,354,602 5,310,023 4.3% 3.3% 5.4% Grand Total 89,884,258 97,826,912 126,004,235 117,928,024 133,749,697 2.6% 1.9% 3.2% Source: TranSystems Forecasts and IHS Global Insight 2009 data.Low and high case projections are also presented in Table 1-2. The basis for these alternative projections isthat the principal driver of freight flows is economic activity, represented by indicators such as disposableincome and industrial production. In addition, housing-sensitive commodities are subject to moreuncertainties going forward due to uncertainty as to the timing of recovery in regional housing markets. Ingeneral, the sensitivities for non-housing related commodities (e.g. transportation equipment) are -0.5to+0.5 percent per year. Secondary traffic is assumed to be 25 percent housing-related and the sensitivities are 9 | TranSystems

Translinked Freight Study Executive Summary-0.2 to +1.5 percent per year. The growth sensitivities for international flows are -1.5 to +1.5 percent peryear. A stronger recovery in regional, national and international economic activity would be expected todrive a healthy growth of international trade. Total inbound and outbound shipments of warehouse-ablecommodities are projected to have 10-year compound annual growth rates of 1.9 percent under the LowCase and 3.2 percent under the High Case.The projections indicate that truck shipments will grow at a slightly faster rate than shipments by rail. Thisresult is driven by several factors – (1) the macro nature of the forecast models, with their underlyingassumptions on industry input and output relationships, and fixed modal shares for individual commodities,(2) the large amount of freight moving between the region and truck friendly origins and destinations in theEast North Central region, and (3) the current transportation mode distribution. However, the macroforecast models do not take into account significant transportation industry factors that are expected toaccelerate the growth of rail usage. The trucking industry is faced with several challenges that areencouraging shippers to expand the use of rail in their supply chains. These factors include fuel priceincreases, favoring rail over highway transport, the cost of recruiting and maintaining truck drivers,investments by railroads in intermodal rail hubs tied to logistics parks, and increased marketing andattractive pricing by railroads of shorter haul intermodal rail services. For these reasons, it is likely that theuse of rail in the supply chain strategies of shippers will expand in the future.Detroit BEA – Toledo BEAIn 2009, 15.0 million tons of domestic freight moved between the Detroit BEA and the Toledo BEA, 10.4million tons inbound from the Detroit BEA and 4.6 million tons outbound from the Detroit BEA. Truck isthe dominant mode accounting for 92 percent of inbound freight and 96 percent of outbound freight.Detroit BEA – Windsor CMAThe Windsor area has a diversified economy with a strong presence in the automotive sector, agriculture,and food products, and emerging sectors that include high tech manufacturing. A total of 1.4 million tons offreight moves to and from the Detroit BEA, and to and from other regions of the U.S through the DetroitBEA. Truck is the dominant mode of transport, accounting for 88 percent of freight shipped to the WindsorCMA and 72 percent of the tons shipped from the Windsor CMA. The respective shares for rail were 5percent and 28 percent.1.4 Industry Trends and Location ComparisonLogistics managers are continuously evaluating their logistics networks to squeeze excess transportationexpenses and other costs out of their supply chains. The availability of all transportation modes is essentialin order to enable logistics managers to have the flexibility to choose the mode that best suits shipmentneeds. Lowest-cost transportation options, such as rail, are selected provided that service is available, andtransit time and reliability meet service level requirements. Trucking costs are the largest portion of thesupply chain expense. Locating DCs in high-density customer/supplier areas reduces trucking expensesenough to more than compensate for lower ocean and rail costs to competing regions. Because of this,supply chain strategies that reduce trucking as much as possible have been a major goal of supply chainmanagers. Warehouse locations are chosen based on the cost of the facility, and their proximity tocustomers and suppliers, thereby reducing trucking costs. Labor, green initiatives, government incentives,etc. are considered after transportation service and rate level requirements are met, and theseconsiderations typically influence a specific site location among competing sites that meet transportationrequirements. 10 | TranSystems

Translinked Freight Study Executive SummaryThe Translinked region performs well under a variety of criteria used by shippers and manufacturers toselect locations, including transportation infrastructure (rail and highway and airports), access to oceangateways for international trade, and the availability of warehousing and distribution facilities.The Translinked region must compete against two regional hubs – Columbus, OH, and Chicago, IL – thatare well established and in a strong position to compete for DC operations in the Midwest. Columbus has ahigher U.S. and Canadian population reach, and Chicago has superior rail and air cargo services, as well as alarge Midwest distribution reach. Both of these locations have competitive labor and industrial real estatecosts as well. Translinked region opportunities are with companies with specific distribution needs, such as ahigh concentration of customers in Northern Michigan, over to Toronto, and including parts of the U.S.Midwest. Companies that require fastest ocean transits from China or Europe, or manufacturers thatreceive materials used in production from nearby sources are other potential candidates. Figure 1-6: 10-Hour Truck Drive-Time Area Comparison: Detroit, MI, Chicago, IL, Columbus, OH, and Harrisburg, PA Source: TranSystems 11 | TranSystems

Translinked Regional Freight Study Executive Summary

by Translinked on Dec 20, 2011

Accessibility

Categories

Tags

Upload Details

Usage Rights

Statistics

Translinked Regional Freight Study Executive Summary — Document Transcript