September 22, 2008
Atlanta's Next Century
By David Biederman
Traffic World
"Born of a railroad, Atlanta grew as its railroads grew," wrote author Margaret Mitchell in "Gone With the Wind," her 1937 novel about the Old South. Of course, railroads now are critical components in multimodal, global logistics network - and so is Atlanta.
Atlanta's role as a transportation hub began in 1837 when The Western & Atlantic Railroad chose the city for its southern terminus. Today, Atlanta is fourth in the nation in logistics-based employment. It serves as the distribution hub for the entire Southeast and is an international business hub; UPS, Coca-Cola, Home Depot, Delta Air Lines and other industrial giants are headquartered there, making the city more than a hub for the movement of goods.
Atlanta has emerged over the past two decades as a global center for logistics education and research. City and state economic development officials and the city's academic and business communities have collaborated to create a dynamic home-grown logistics industry and to attract top logistics organizations to the area.
"Atlanta is a powerhouse for transportation and logistics, ranking fourth in the nation behind cities more than twice its size like New York, Los Angeles and Chicago," said Michael Porter, a Harvard-based economic development expert. "In the last 15 years, Atlanta has grown jobs in the logistics industry faster than any of the top 20 clusters."
Porter's 2001 economic development study spurred the Metro Atlanta Chamber of Commerce to create the Logistics Industry Development Initiative, cited by the International Economic Development Council as a best practice in cluster-based economic development.
The city's development as a logistics center has been an important spur not only for the local economy but for the broader economic life of the entire Southeast. It provides a foundation for manufacturing and transportation growth from Virginia down to Florida and across the large swath of the South below the Ohio Valley.
Atlanta has the nation's deepest pool of logistics talent, said Karl Meyer, co-founder and and CEO of 3PD, a provider of last-mile logistics and delivery services.
The presence of world-class logistics organizations such as UPS and at Home Depot provides fertile ground for talent. 3PD itself is home-grown; Meyer founded the company in 2001 after serving as a logistics manager at Home Depot as the company transitioned from a company-based delivery model to an outsourced one.
Meyer plucked all of his industrial engineers from the Georgia Institute of Technology. The company has doubled in size in each of the past four years and now has 30 facilities nationwide.
"The challenge of finding the right people is reason enough for a 3PL to move here," said Meyer.
The city that was an anchor rail hub for the country in the 19th and 20th centuries now is a major force as a logistics and transportation center, and it is still the anchor for distribution across the burgeoning economy of the Southeast.
In 1994 there were 42,000 logistics employees in the city. Today there are 103,000, according to the Atlanta Logistics Innovation Council, an arm of the Chamber of Commerce. Thirty-two percent work in the air cargo sector; 21 percent in trucking; 19 percent with 3PLs; 12 percent in warehousing and distribution and 9 percent in logistics technology.
Atlanta is served by three major interstate highways. More than 80 percent of the U.S. population is within a two-hour flight time and can be reached within two truckload delivery days. Twenty-three of the top 25 3PLs operate in Atlanta, said Rob Pertierra, the chamber's vice president for logistics industry development.
With 553 million square feet of warehousing and distribution space, Atlanta is the nation's fifth largest industrial real estate market, behind Los Angeles, Chicago, Dallas and Northern and Central New Jersey, said Blaine Kelley, senior vice president of real estate services provider CB Richard Ellis' global supply chain practice.
Atlanta is the operating hub for Norfolk Southern. The railroad's intermodal facility in Austell, Ga., is the company's largest, handling upwards of 300,000 lifts per year, said Mike Miller, general manager of supply chain service. Along with Chicago and Harrisburg, Pa., the Austell hub forms the railroad's core service triangle for serving 22 states east of the Mississippi River.
"Savannah, Jacksonville and Charleston all flow through there, and it connects with the West Coast," said Miller.
The CSX Intermodal Hulsey Yard in Atlanta provides access to transportation services throughout the United States. In 2007 CSX and BNSF Railway formed a joint venture to reduce transit times from Southern California to Atlanta by one day.
Atlanta Hartsfield-Jackson International Airport is North America's 11th business cargo airport, handling 720,000 metric tonnes of cargo in 2007, according to the Airports Council International. The airport has three air cargo complexes, more than 2 million square feet of on-airport warehouse space and the only major perishables complex in the Southeast United States.
The catalyst for Atlanta's emergence as a hub for logistics innovation and entrepreneurship is the Georgia Institute of Technology. The Supply Chain and Logistics Institute, a unit of Georgia Tech's H. Milton Stewart School of Industrial and Systems Engineering, is the world's largest logistics research and education center. The Stewart School is consistently ranked first in engineering by U.S. News and World Report.
Georgia Tech programs include the highly regarded Executive Masters of Logistics program and the Supply Chain Executive Forum for senior logistics executives. Forum members include premier logistics organizations such as Cat Logistics, Dell, GM, Home Depot, Intel, Ryder, YRC Logistics and Schneider National.
Georgia Tech's Enterprises Innovation Institute helps companies, entrepreneurs and communities with applied science, technology and innovation. Home-grown logistics companies include 3DP; supply chain consulting firm Chainalytics; supply chain software provider Logility; high value shipper Eggs Overnight and intermodal giant RoadLink.
UPS moved its headquarters to Atlanta in 1991 and now has more than 12,000 employees in the city. Manhattan Associates, a leading supply chain software provider, relocated to Atlanta in 1995 in part to leverage the city's logistics work force. It now employs more than 170 Georgia Tech graduates.
"These are some of the fastest growing and most innovative logistics companies in the country," said Mark Holifield, senior vice president of supply chain for The Home Depot.
"And they are right here in our back yard."
The skunk at Atlanta's logistics party is congestion.
On average, the metropolitan area's commuters spend 60 hours a year stuck in traffic, second only to Los Angeles. Thirteen percent of drivers spend more than an hour getting to work, the fourth-worst rate in the country.
Operational impacts of congestion are mitigated by having multiple partners in different areas of the city, said Scott Fisher, vice president and COO of Estes Air Forwarding, a subsidiary of multiregional LTL trucking company Estes Express Lines, Richmond, Va. The company also calls on Estes' LTL assets to provide time-definite service 24 hours a day.
"That's the biggest step we can take to ensure that we can get it done," said Fisher. "There's a lot of collaboration, even among competitors."
Another challenge for Atlanta is that its vast industrial real estate market is reeling from the high gas prices and devalued dollar, that are depressing markets nationwide, according to a June 30, 2008, report by global real estate services firm CB Richard Ellis.
"The level of severity of these two issues will have a tremendous impact on what direction Atlanta's industrial market heads," the report said.
A mid-year 2008 vacancy rate of 11.7 was among the nation's highest and well above the U.S. average of 8.5 percent. In the second quarter, the market experienced its first quarter of occupancy loss in five years. Leasing activity fell to its lowest level in 20 years, according to real estate services firm Colliers International.
Most of the loss in the warehousing sector was in buildings ranging from 15,000 to 100,000 square feet, suggesting that smaller tenants tied to the housing and lumber industries are struggling to survive in the economic downturn. Even the million-plus square feet signings have tapered off.
"The struggling economy has had much more of an impact on Atlanta than expected," Colliers said. "The well of larger tenants has run dry for the time being."
Twenty million square feet of new space was added to the market in 2006, said Kelley. Atlanta now has 80 million square feet of available industrial space, an 8-year supply. There are 110 buildings more than 200,000 square feet and 11 buildings more than 500,000 square feet that are vacant.
The overcapacity is due to a broad pool of deep-pocketed developers and institutional investors and a market with relatively few impediments to development.
"You won't find any other market in the country with that number of large buildings available," Kelley said.
Savannah Ramping Up Containers
Economic expansion across the Southeast is fueling a container boom at the Port of Savannah, and the impact is being felt far from the Georgia port.
Much of the port's container volume is shipped to Atlanta via truck or rail, spurring development of import distribution centers in south Atlanta and nearby McDonough, Ga., said Blaine Kelley, senior vice president of CB Richard Ellis' global supply chain practice.
The port's Garden City and Ocean terminals provide immediate access to interstates 95 and 16. Norfolk Southern and CSX offer overnight double-stack rail service to Atlanta from Garden City.
"Savannah is an increasingly vital link," said Kelley. "There's a lot of correlation between Atlanta and Savannah."
Like Atlanta, Savannah has a lot of land and relatively few impediments to development, enabling development to keep pace with torrid port growth. The industrial market grew 20 percent in 2007, with 5 million square feet of space added and another 4.5 million square feet under construction, according to Neeley/Dales, a Savannah-based brokerage firm.
In 2007, the port was the second-busiest on the East Coast and fourth busiest in the country, according to PIERS Global Intelligence Solutions, a sister company of Traffic World. For its 2008 fiscal year, the port handled a record 2.6 million-plus TEUs, a 14.9 percent increase from 2007 and a huge jump over the 1.5 million TEUs handled in 2004.
Long-term import growth at the port should help Atlanta with its current glut of vacant buildings.
"The Port of Savannah's increased viability should help the market recover should gas prices drop," said a 2008 market report by global real estate services firm Colliers International.
From an industrial real estate perspective, Savannah and Atlanta are very different cities, said Sam O' Briant, executive vice president for the Southeast for Duke Realty, an Indianapolis-based industrial developer. The massive import distribution centers that comprise half of Savannah's industrial inventory are seen as strategic, long-term assets and tend to be owner occupied.
There are at least 18 major import DCs in Savannah with Wal-Mart, Home Depot, Target and Ikea each occupying more than one million square feet.
By contrast, more than 90 percent of the industrial inventory in Atlanta is in bulk ware houses and regional distribution centers that tend to be leased.
"People want the flexibility to follow their customers and to grow or shrink," said O'Briant.
Duke has 10.9 million square feet of space in Atlanta. The company's $235 million, 5.9 million square foot portfolio in Savannah is by far the city's largest.
