translinked regional freight study

Translinked Freight Study

December 2011

Prepared for:

Detroit Regional

Chamber

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Table of Contents

1 EXECUTIVE SUMMARY ................................................................................................................................... 1

1.1 TRANSLINKED ................................................................................................................................................... 1 1.2 RECOMMENDATIONS ......................................................................................................................................... 2 1.3 REGIONAL FREIGHT FLOWS ................................................................................................................................. 5 1.4 INDUSTRY TRENDS AND LOCATION COMPARISON .................................................................................................... 9

2 DETROIT BEA FREIGHT FLOWS ..................................................................................................................... 11

2.1 INTRODUCTION ............................................................................................................................................... 11 2.2 DETROIT BEA TOTAL CARGO............................................................................................................................. 12 2.3 DETROIT BEA TRUCK CARGO ............................................................................................................................ 16

2.3.1 Total ....................................................................................................................................................... 16 2.3.2 Domestic Inbound and Outbound .......................................................................................................... 18 2.3.3 Domestic Internal and Through Cargo ................................................................................................... 22 2.3.4 Imports and Exports ............................................................................................................................... 22 2.3.5 Canada ................................................................................................................................................... 23 2.3.6 Mexico ................................................................................................................................................... 24

2.4 DETROIT BEA RAIL CARGO ............................................................................................................................... 25 2.4.1 Total ....................................................................................................................................................... 25 2.4.2 Domestic Inbound and Outbound .......................................................................................................... 27 2.4.3 Domestic Internal and Through ............................................................................................................. 31 2.4.4 Imports and Exports (excl. NAFTA) ........................................................................................................ 31 2.4.5 Canada ................................................................................................................................................... 32 2.4.6 Mexico ................................................................................................................................................... 33

2.5 OTHER TRANSPORT MODES .............................................................................................................................. 33 2.6 CORRIDOR SPECIFIC FLOWS ............................................................................................................................... 33

2.6.1 Halifax Freight Flows ............................................................................................................................. 33 2.6.2 Montreal Freight Flows .......................................................................................................................... 34 2.6.3 U.S. Intermodal Rail Corridors ............................................................................................................... 35

3 TOLEDO AND WINDSOR FREIGHT FLOWS .................................................................................................... 37

3.1 TOLEDO, OHIO ............................................................................................................................................... 37 3.2 WINDSOR, ONTARIO ....................................................................................................................................... 38

4 INDUSTRY TREND ANALYSIS ........................................................................................................................ 40

4.1 EXISTING TRANSPORTATION INFRASTRUCTURE AND LOCATION SELECTION FACTORS ..................................................... 40 4.1.1 Logistics and Transportation Infrastructure Summary .......................................................................... 40 4.1.2 Rail ......................................................................................................................................................... 41 4.1.3 Highways ............................................................................................................................................... 43 4.1.4 Ocean Gateways .................................................................................................................................... 44 4.1.5 Airports .................................................................................................................................................. 45 4.1.6 Toledo, OH ............................................................................................................................................. 46 4.1.7 Windsor, ON .......................................................................................................................................... 47

4.2 INLAND STRATEGIES AND NETWORK OPTIMIZATION ............................................................................................... 48 4.3 REAL ESTATE INFRASTRUCTURE .......................................................................................................................... 51 4.4 LABOR AND DEMOGRAPHIC PROFILE ................................................................................................................... 52 4.5 BUSINESS AND TAX ENVIRONMENT ..................................................................................................................... 53 4.6 FOREIGN TRADE ZONES .................................................................................................................................... 53 4.7 TRENDS IN TRANSPORTATION AND THE NEAR-TERM OUTLOOK ................................................................................ 54

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4.7.1 Trucking Industry ................................................................................................................................... 54 4.7.2 Trends in U.S. Containerized Trade ........................................................................................................ 57 4.7.3 Trends in Intermodal Rail ....................................................................................................................... 62

4.8 REPRESENTATIVE SERVICE PROVIDERS AND SHIPPERS ............................................................................................. 67

5 DETROIT BEA FREIGHT FORECAST ................................................................................................................ 70

5.1 INTRODUCTION ............................................................................................................................................... 70 5.2 METHODOLOGY .............................................................................................................................................. 70 5.3 ECONOMIC REVIEW AND OUTLOOK .................................................................................................................... 71 5.4 FREIGHT FLOW FORECAST ................................................................................................................................. 73

6 COMPARATIVE LOCATION ANALYSIS ........................................................................................................... 77

6.1 INTRODUCTION ............................................................................................................................................... 77 6.2 REGIONAL TRUCK/RAIL LOGISTICS COMPARISON ................................................................................................... 77

6.2.1 Transit Time Hurdle ............................................................................................................................... 78 6.2.2 Total Landed Cost Comparison .............................................................................................................. 78 6.2.3 Rail Transits ........................................................................................................................................... 79 6.2.4 Transportation Cost Indication by Gateway .......................................................................................... 79 6.2.5 Trucking Transits and Market Coverage ................................................................................................ 80

6.3 LOCATION PROFILES – COLUMBUS AND CHICAGO .................................................................................................. 85 6.3.1 Columbus, OH ........................................................................................................................................ 85 6.3.2 Chicago, IL .............................................................................................................................................. 86

6.4 REGIONAL COMPARISON SUMMARY ................................................................................................................... 88 List of Tables Table 1-1: Selected Regional Freight Flows in 2009 .................................................................................................................................................5 Table 1-2: Inbound and Outbound Freight Forecast for 2020 – Base, Low and High ....................................................................................8 Table 2-1: Warehouse-able Commodities ............................................................................................................................................................... 14 Table 4-1: Detroit Logistics Summary ....................................................................................................................................................................... 40 Table 4-2: West Coast Transit Time Comparison (Transit Days): Shanghai to Detroit .......................................................................... 45 Table 4-3: East Coast Transit Time Comparison (Transit Days): Hong Kong and Rotterdam to Detroit .......................................... 45 Table 4-4: Detroit MSA Warehouse Vacancy and Lease Rates, Third Quarter 2011 ................................................................................ 51 Table 4-5: Detroit-Warren-Livonia, MI Employment by Industry Percent Changes between 2001 and 2011 .................................... 52 Table 4-6: Tax Foundation Business Tax Climate Rank for Selected States ................................................................................................. 53 Table 4-7: Sample of Logistics Providers in the Study Region – Located in Michigan ................................................................................. 67 Table 4-8: Sample of Logistics Providers in the Study Region – Located in Ohio and Ontario ............................................................... 68 Table 4-9: Sample of Major Shippers in the Study Region ................................................................................................................................... 69 Table 5-1: Real Gross Domestic Product by MSA within the Detroit BEA ................................................................................................... 71 Table 5-2: Economic and Industry Factors Related to Goods Movement in the East North Central Region and the Detroit BEA: Ten-Year Annual Growth Rates, 2010-2020 .......................................................................................................................................................... 72 Table 5-3: Forecast of Inbound and Outbound Freight Flows ........................................................................................................................... 74 Table 5-4: Macro Forecast Growth Rates by Transport Mode ......................................................................................................................... 75 Table 5-5: Inbound and Outbound Freight Forecast for 2020 – Base, Low and High ................................................................................. 76 Table 6-1: Estimated Rail Transits in Hours from Key Port Gateways to Selected Midwest Points ...................................................... 79 Table 6-2: Translinked Study Area Cost* Evaluation by North American Port Gateway ......................................................................... 80 Table 6-3: U.S. and Canada Population within 10-Hour Truck Drive-Time of Detroit and Selected Cities ........................................ 81 Table 6-4: Truck Transit Time from Detroit and Selected U.S. Distribution Hubs to Major Cities ...................................................... 83 Table 6-5: Estimated Truckload Costs from Detroit and Selected U.S. Distribution Hubs to Major Cities ........................................ 84 Table 6-6: Columbus Regional Logistics Summary ............................................................................................................................................... 85 Table 6-7: Chicago Regional Logistics Summary ................................................................................................................................................... 86 Table 6-8: Detroit, Chicago and Columbus Summary Table ............................................................................................................................. 88 List of Figures Figure 1-1: Map of Translinked Region ........................................................................................................................................................................1

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Figure 1-2: Detroit BEA Cargo in 2009 by Transport Mode .................................................................................................................................6 Figure 1-3: Detroit BEA Cargo in 2009 by Trade Flow ..........................................................................................................................................7 Figure 1-4: Detroit BEA Cargo Tons in 2009, Total and Warehouse-able .......................................................................................................7 Figure 1-5: 10-Hour Truck Drive-Time Area Comparison: Detroit, MI, Chicago, IL, Columbus, OH, and Harrisburg, PA ........... 10 Figure 2-1: Map of Detroit BEA .................................................................................................................................................................................. 11 Figure 2-2: Detroit BEA Cargo in 2009 by Transport Mode .............................................................................................................................. 12 Figure 2-3: Detroit BEA Cargo in 2009 by Trade Flow ....................................................................................................................................... 13 Figure 2-4: Value per Cargo Tons .............................................................................................................................................................................. 14 Figure 2-5: Detroit BEA Cargo Tons in 2009, Total and Warehouse-able .................................................................................................... 15 Figure 2-6: Detroit BEA Truck Cargo by Trade Flow in 2009........................................................................................................................... 16 Figure 2-7: Detroit BEA Truck Cargo in 2009 – Top Ten Commodity Groups .......................................................................................... 17 Figure 2-8: Detroit BEA Inbound and Outbound Truck Cargo in 2009 – Top 20 Commodity Groups ............................................... 18 Figure 2-9: Detroit BEA Inbound and Outbound Truck Cargo in 2009 – Top 20 Freight Lanes ............................................................ 19 Figure 2-10: Domestic Inbound Truck Freight ....................................................................................................................................................... 20 Figure 2-11: Domestic Outbound Truck Freight ................................................................................................................................................... 21 Figure 2-12: Detroit BEA Import Truck Cargo in 2009....................................................................................................................................... 22 Figure 2-13: Detroit BEA Export Truck Cargo in 2009 ....................................................................................................................................... 23 Figure 2-14: Detroit BEA - Canada Truck Cargo in 2009 ................................................................................................................................... 23 Figure 2-15: Detroit BEA - Mexico Truck Cargo in 2009 ................................................................................................................................... 24 Figure 2-16: Detroit BEA Rail Cargo by Trade Flow in 2009 ............................................................................................................................. 25 Figure 2-17: Detroit BEA Rail Cargo in 2009 – Top Ten Commodity Groups ............................................................................................ 26 Figure 2-18: Detroit BEA Inbound and Outbound Rail Cargo in 2009 – Top 15 Commodity Groups ................................................. 27 Figure 2-19: Detroit BEA Inbound and Outbound Rail Cargo in 2009 – Top Freight Lanes .................................................................... 28 Figure 2-20: Domestic Inbound Rail Freight ............................................................................................................................................................ 29 Figure 2-21: Domestic Outbound Rail Freight ........................................................................................................................................................ 30 Figure 2-22: Detroit BEA Import Rail Cargo in 2009 ........................................................................................................................................... 31 Figure 2-23: Detroit BEA Export Rail Cargo in 2009 ........................................................................................................................................... 31 Figure 2-24: Detroit BEA - Canada Rail Cargo in 2009 ....................................................................................................................................... 32 Figure 2-25: Detroit BEA - Mexico Rail Cargo in 2009 ....................................................................................................................................... 33 Figure 2-26: Detroit BEA – Cargo Flows from the Halifax Area in 2009 ....................................................................................................... 34 Figure 2-27: Detroit BEA – Cargo Flows with the Montreal CMA in 2009 ................................................................................................... 35 Figure 2-28: Detroit BEA - Top-10 U.S. Intermodal Rail Lanes by Cargo Tons in 2009 ............................................................................ 36 Figure 3-1: Port of Toledo Cargo ............................................................................................................................................................................... 37 Figure 3-2: Port of Toledo Commodity Mix ........................................................................................................................................................... 37 Figure 3-3: Detroit BEA Domestic Freight Flows with Toledo BEA, 2009 .................................................................................................... 38 Figure 3-4: Windsor, Ontario CMA Freight Flows in 2009 ................................................................................................................................ 39 Figure 3-5: London, Ontario CMA Freight Flows in 2009 .................................................................................................................................. 39 Figure 4-1: Class I Railroad Map with Container Ports ........................................................................................................................................ 42 Figure 4-2: Regional Highway Map ............................................................................................................................................................................. 43 Figure 4-3: Detroit Truck Border Crossings .......................................................................................................................................................... 44 Figure 4-4: Current Rail System in Windsor ........................................................................................................................................................... 47 Figure 4-5: Comparison of Container Sizes............................................................................................................................................................. 48 Figure 4-6: Example of Distribution Center Network ......................................................................................................................................... 49 Figure 4-7: Example of Distribution Center and Cross-Dock Network......................................................................................................... 50 Figure 4-8: Detroit-Warren-Livonia, MI Number of Employees by Industry, August Year over Year, 2001 – 2011 (000) ............ 52 Figure 4-9: Indexes of Trucking Volume (TL and LTL), U.S. Industrial Production and Real GDP: 1995-2010 (1995=100) ........... 54 Figure 4-10: Indexes of Real Revenue per Load for Truckload Freight versus Real Diesel Fuel Prices: 1995-2010 (1995=100) ... 55 Figure 4-11: Indexes of Truckload Loads by Length-of-Haul Segment: 1996-2010 (1996=100) .............................................................. 56 Figure 4-12: Growth of U.S. Containerized Import and Export Loads, 1995-2010 ..................................................................................... 58 Figure 4-13: Far East as a Share of U.S. Containerized Imports and Exports, 1995-2010 ......................................................................... 59 Figure 4-14: Trends in the Composition of U.S. Containerized Imports and Exports, 1995-2010 ......................................................... 60 Figure 4-15: Annual North America Intermodal Rail Volume, 2000 to 2010 ................................................................................................ 62 Figure 4-16: Growth of North America Intermodal Service by Equipment Type, 2000 to 2010 ............................................................ 63 Figure 4-17: Quarterly Average Intermodal Train Speeds for North American Class I Railroads, 2000-2010 ................................... 63 Figure 4-18: Midwest Inbound Intermodal Volume from West Coast and Share, 2000 to 2010 ............................................................ 65 Figure 4-19: Detroit BEA - Top-10 U.S. Intermodal Rail Lanes by Cargo Tons in 2009 ............................................................................ 66 Figure 5-1: Forecast of Detroit BEA Inbound and Outbound Freight Flows – Warehouse-able Commodities ................................. 73 Figure 6-1: 10-Hour Truck Drive-Time Area Comparison: Detroit, MI, Chicago, IL, Columbus, OH, and Harrisburg, PA ........... 82

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Translinked Freight Study Executive Summary

Figure 1-1: Map of Translinked Region

Source: Detroit Regional Chamber

1 EXECUTIVE SUMMARY

1.1 Translinked The Detroit Regional Chamber is one of the largest chambers of commerce in the country. The Chamber seeks 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’s Economic Development activities is Translinked. The goal of Translinked is to create an industry cluster of excellence around transportation, distribution and logistics in the region comprising southeast Michigan, northwest Ohio and southwest Ontario. The Translinked strategy envisions the mobilization of public, private and academic resources around a consensus on the physical, financial and institutional infrastructure necessary to create this cluster. This initiative seeks to attract more freight, perform value-added service and become a key intermodal supply hub. The overall goal of Translinked is to create an efficient and cost-effective first-tier multimodal transportation and logistics hub in southeast Michigan, northwest Ohio and southwest Ontario. Translinked is 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 region encompasses major manufacturing activity (e.g. the automotive industry) and is situated on the principal border crossings for overland trade between the United States and Canada. A comprehensive set of freight infrastructure supports regional economic activity, including rail and road border crossings, airports, marine ports, rail yards, and interstate highways and rail corridors. The region is also connected by rail and highway to major U.S. and Canadian international sea ports, including New York/New Jersey, Halifax, Montreal and Norfolk on the East Coast. The Translinked Freight Study provides, subject to the availability of data on regional freight movements, a data-driven analysis of existing regional freight movements, an assessment of key freight industry trends, and makes recommendations on how to further develop the Translinked region.

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1.2 Recommendations The evaluation of freight flows and industry trends drive the following recommendations for future development 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 Corridors

The recommendations and next steps are discussed below. Establish a Translinked Commercial Marketing Initiative Translinked opportunities are with companies that have specific distribution needs, such as a high concentration 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, or manufacturers that receive materials used in production from nearby sources are potential candidates.

Involve the Private Sector, Remove Barriers that Slow Down Decision Making Time is of the essence. Comments made during interviews as part of this study suggest there is a perception that the overall direction and ownership of Translinked is unclear, and the initiative lacks sufficient involvement from commercial interests. Commercial participation will be necessary to lend support and

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.

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credibility to the project. It should be noted that recent improvements in Ohio, such as CSX’s Northwest Ohio Intermodal Terminal at North Baltimore, Norfolk Sothern’s Heartland Corridor Initiative serving Columbus, and BNSF’s Chicago rail terminal adjacent to the CenterPoint Intermodal Park have been noticed in the industry. Successes in the Translinked region itself, such as improvements at the Port of Toledo, have been attributed to public/private cooperation and agreed priorities. Barriers impeding Translinked progress should 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.

Remove Variability from the Border Crossing Process Supply chain managers work to eliminate events that introduce variability into supply chains. The Translinked region 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 the Translinked region will elevate the effectiveness of the region as a transportation hub. Therefore, addressing perceptions about unpredictable crossing delays is critical.

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.

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.

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Include Rail Facilities and Third Party Logistics Providers (3PLs) that Reduce Transportation Costs, and Increase Flexibility Distribution centers (DC) on-site at rail terminals, including multiple rail carriers, will reduce truck drayage costs. Include railroads and shippers in terminal location and design discussions. The presence of 3PL services, such as warehouse and distribution services, will enable shippers to introduce flexibility to their supply chains and will provide distribution options in the Translinked region without requiring shippers to commit capital to an owned facility.

Marketing Initiative and Freight Corridors The Translinked region is strategically located on several major trade corridors, notably cross-border with Canada. In addition, the region’s consumers and industry are served by several important port gateways in the U.S. (e.g. ports of New York/New Jersey, Norfolk and Los Angeles/Long Beach) and Canada (the ports of 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 American Gateways, 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 strategy initiative should include shippers who transport the fastest growing commodities. For example, Machinery and Parts Manufacturing, and Electronics Manufacturing have projected ten-year annual growth rates of 4.4 percent and 5.0 percent respectively. Keep in mind that these growth rates may reflect a recovery from steep declines experienced during the economic downturn; however, logistics service opportunities may emerge as the recovery continues.

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.

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Table 1-1: Selected Regional Freight Flows in 2009

Total Tons Tons by

Truck

Tons by

Rail

Tons by

Water

Tons by Other

Modes

Total

Value

Detroit BEA Freight Flows in 2009 (Million Tons and Billion $)

Total 286.60 206.07 52.81 26.60 1.12 $413.5

Domestic 1 212.00 160.42 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 $13.9

Canada 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 $100.7

Mexico 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

Import & Export 2 17.93 10.44 1.59 5.91 0.00 $21.1

Detroit BEA – Toledo BEA Freight Flows in 2009 (Million Tons and Billion $)

Total 3 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 $)

Total 4 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

1.3 Regional Freight Flows Regional economic activity generates inbound, outbound and internal freight flows. The Translinked region also sees freight moving through the region between Canada and the rest of the U.S. An overview of selected regional freight flows in 2009, the latest year for Transearch Freight Data1, is presented in Table 1-1. The main characteristics of freight flows are discussed below.

1 This Study includes content supplied by IHS Global Insight (USA), Inc; Copyright 2011 IHS Global Insight (USA), Inc.

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Figure 1-2: Detroit BEA Cargo in 2009 by Transport Mode

Note: Includes domestic and international, and all directions

– inbound, outbound, internal and through

Source: Derived from IHS Global Insight Transearch Data

Detroit BEA Freight Flows The Detroit-Warren-Flint Business Economic Area (Detroit BEA) covers the cities of Detroit, Flint and Warren, and surrounding areas. The Detroit BEA had total estimated cargo flows amounting to 287 million tons in 2009 with an estimated value of $414 billion. Total cargo comprises several different transport modes – truck, rail, water (via the Great Lakes), air and other – and includes all trade flows, domestic and international, inbound, outbound, internal (movements within the Detroit BEA) and through (not stopping in the Detroit BEA). Truck is the dominant mode with 72 percent of cargo volume and 81 percent of cargo value, the larger share of value reflecting the higher-value commodities that move via truck. Rail handles both lower-value and higher-value commodities, and it accounts for 18 percent of both volume and value. The water mode accounts for 9 percent of tons but less than one percent of value due to the low-value bulk commodities shipped by water. The highest value freight is shipped by air. Total cargo is spread across different directions and trades (Figure 1-3). 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 31 percent 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 5 percent 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 warehousing and 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 of value), a significant share of which is truck shipments to and from warehouses within the region and drayage of containers to and from intermodal rail yards. A large amount of cargo also moves through the Detroit BEA, notably between Canada and other regions of the U.S., and is handled by the border crossing points in the Detroit BEA.

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Figure 1-3: Detroit BEA Cargo in 2009 by Trade Flow


Figure 1-4: Detroit BEA Cargo Tons in 2009, Total and Warehouse-able


When evaluating the region’s cargo, it is helpful to focus on commodities that are more suited to added-value logistics services or undergo some form of manufacturing process. Such commodities will be of primary interest to the development of industry and logistics services. The broadly defined “warehouse-able” commodities are those with a relatively high value per metric ton and/or commodities that are processed (e.g. food products) as opposed to raw materials (e.g. grain). These commodities are more likely to require added-value logistics services. Warehouse-able cargo was an estimated 141 million tons in 2009, 49 percent of total Detroit BEA cargo. Warehouse-able cargo accounted for an estimated 90 percent of total cargo value, which reflects the higher value nature of warehouse-able commodities (e.g. consumer products). These commodities accounted for 42 percent of inbound tons, and their share was highest in the cross-border inbound trade – 64 percent of tons from Canada and 99 percent of tons from Mexico – and compared to 41 percent of domestic inbound tons. Warehouse-able commodities accounted for 66 percent of total outbound tons. Penetration by trade was – domestic outbound 68 percent of domestic tons, shipments to Canada 48 percent and shipments to Mexico 87 percent.

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Detroit BEA Freight Flow Forecast The forecast of inbound and outbound freight (warehouse-able) commodities is presented in Table 1-2. The Base projections of cargo flows driven by assumptions related to regional, national and international economic activity, and relationships between industry inputs and outputs. Total inbound and outbound freight is projected to have increased from 89.9 million tons in 2009 to 97.8 million tons in 2010, driven by recovery from the recession and growth of industries in the region. Total inbound and outbound freight is projected to increase to 126.0 million tons in 2020, based on domestic economic growth and the expansion of cross-border trade with Mexico and Canada, and growth of trade with overseas markets. The projected 10-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


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


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 is that the principal driver of freight flows is economic activity, represented by indicators such as disposable income and industrial production. In addition, housing-sensitive commodities are subject to more uncertainties going forward due to uncertainty as to the timing of recovery in regional housing markets. In general, 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

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-0.2 to +1.5 percent per year. The growth sensitivities for international flows are -1.5 to +1.5 percent per year. A stronger recovery in regional, national and international economic activity would be expected to drive a healthy growth of international trade. Total inbound and outbound shipments of warehouse-able commodities are projected to have 10-year compound annual growth rates of 1.9 percent under the Low Case 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. This result is driven by several factors – (1) the macro nature of the forecast models, with their underlying assumptions 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 the East North Central region, and (3) the current transportation mode distribution. However, the macro forecast models do not take into account significant transportation industry factors that are expected to accelerate the growth of rail usage. The trucking industry is faced with several challenges that are encouraging shippers to expand the use of rail in their supply chains. These factors include fuel price increases, 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 and attractive pricing by railroads of shorter haul intermodal rail services. For these reasons, it is likely that the use of rail in the supply chain strategies of shippers will expand in the future. Detroit BEA – Toledo BEA In 2009, 15.0 million tons of domestic freight moved between the Detroit BEA and the Toledo BEA, 10.4 million tons inbound from the Detroit BEA and 4.6 million tons outbound from the Detroit BEA. Truck is the dominant mode accounting for 92 percent of inbound freight and 96 percent of outbound freight. Detroit BEA – Windsor CMA The 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 of freight moves to and from the Detroit BEA, and to and from other regions of the U.S through the Detroit BEA. Truck is the dominant mode of transport, accounting for 88 percent of freight shipped to the Windsor CMA and 72 percent of the tons shipped from the Windsor CMA. The respective shares for rail were 5 percent and 28 percent.

1.4 Industry Trends and Location Comparison Logistics managers are continuously evaluating their logistics networks to squeeze excess transportation expenses and other costs out of their supply chains. The availability of all transportation modes is essential in order to enable logistics managers to have the flexibility to choose the mode that best suits shipment needs. Lowest-cost transportation options, such as rail, are selected provided that service is available, and transit time and reliability meet service level requirements. Trucking costs are the largest portion of the supply chain expense. Locating DCs in high-density customer/supplier areas reduces trucking expenses enough 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 chain managers. Warehouse locations are chosen based on the cost of the facility, and their proximity to customers and suppliers, thereby reducing trucking costs. Labor, green initiatives, government incentives, etc. are considered after transportation service and rate level requirements are met, and these considerations typically influence a specific site location among competing sites that meet transportation requirements.

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Figure 1-5: 10-Hour Truck Drive-Time Area Comparison: Detroit, MI, Chicago, IL, Columbus, OH, and Harrisburg, PA

Source: TranSystems

The Translinked region performs well under a variety of criteria used by shippers and manufacturers to select locations, including transportation infrastructure (rail and highway and airports), access to ocean gateways 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 – that are well established and in a strong position to compete for DC operations in the Midwest. Columbus has a higher U.S. and Canadian population reach, and Chicago has superior rail and air cargo services, as well as a large Midwest distribution reach. Both of these locations have competitive labor and industrial real estate costs as well. Translinked region opportunities are with companies with specific distribution needs, such as a high 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 that receive materials used in production from nearby sources are other potential candidates.

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Translinked Freight Study Existing Freight Flows

2 DETROIT BEA FREIGHT FLOWS

2.1 Introduction The first step in the evaluation of freight flows is to address the Detroit BEA2, which encompasses the main Translinked centers of Detroit, Flint, Ann Arbor, Lansing and Port Huron. As shown in Figure 2-1, the Detroit BEA covers the eastern portion Michigan and the major freight corridors through Southeast Michigan.

Figure 2-1: Map of Detroit BEA

Source: TranSystems

The primary source for freight flows related to the Detroit BEA is the Transearch Database from IHS Global Insight3. This database provides statistics on domestic freight flows, and cross-border freight flows with Canada and Mexico. The latest year available for this study was 2009, which was a depressed year for

2 BEAs are designated by the Department of Commerce and each Economic Area represents a major economic center 3 This Study includes content supplied by IHS Global Insight (USA), Inc; Copyright 2011 IHS Global Insight (USA), Inc.

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Figure 2-2: Detroit BEA Cargo in 2009 by Transport Mode

Note: Includes domestic and international, and all directions

– inbound, outbound, internal and through


economic activity and freight activity. However, the database is still appropriate for providing a profile of freight flows related to the Detroit BEA. This database is supplemented by statistics on U.S. containerized trade from JOC Piers and data on cross-border flows from the Bureau of Transportation Statistics.

2.2 Detroit BEA Total Cargo The Detroit-Warren-Flint Business Economic Area (Detroit BEA) covers the cities of Detroit, Flint and Warren, and surrounding areas. It had a population of 6.9 million in 2009, with Total Personal Income (TPI) of $247 billion, and per capita income of $35,713.4 The Detroit BEA ranked 10th by population, 12th by TPI and 75th by per capita income out of the country’s 179 BEAs tracked by the Bureau of Economic Analysis. The Detroit BEA borders five other BEAs5 that had a combined population of 4.2 million in 2009, generating TPI of $134 billion, and per capita income of $31,738. The Detroit BEA had total estimated cargo flows amounting to 287 million tons in 2009 with an estimated value of $414 billion. Total cargo comprises several different transport modes (Figure 2-2) – truck, rail, water (via the Great Lakes), air and other – and includes all trade flows, domestic and international, inbound, outbound, internal (movements within the Detroit BEA) and through (not stopping in the Detroit BEA). Truck is the dominant mode with 72 percent of cargo volume and 81 percent of cargo value, the larger share of value reflecting the higher-value commodities that move via truck. Rail handles both lower-value and higher-value commodities, and it accounts for 18 percent of both volume and value. The water mode accounts for 9 percent of tons but less than one percent of value due to the low-value bulk commodities (e.g. iron ore) shipped by water. The highest value freight is shipped by air, but air only handles 0.03 percent of total tons and 0.35 percent of total value. In 2009, the values per cargo ton by transport mode were $1,616 for truck, $1,456 for rail, $63 for water, and $17,445 for air. As shown in Figure 2-3, total cargo is spread across different directions and trades. 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). For example, an import will be “converted” to domestic freight when it, for example, enters an import distribution center (IDC) and then departs the IDC in domestic equipment for the Detroit BEA. International trade related to Canada accounted for 19 percent of tons and 31 percent of value, while international trade with Mexico was 1 percent of tons and 3 percent of value. Import and Export trade that

4 Data is for 2009 from the Bureau of Economic Analysis 5 Alpena, Traverses City, Grand Rapids-Muskegon-Holland, Fort Wayne-Huntington-Auburn, and Toledo-Fremont

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Figure 2-3: Detroit BEA Cargo in 2009 by Trade Flow


moves intact to and from U.S. ports accounted for 6 percent of tons and 5 percent of value. For example, this trade flow includes imports and exports moving in international marine containers by intermodal rail service between the Detroit BEA and U.S. ports. The main cargo flows of interest in this Study are inbound and outbound, which together amounted to 183 million tons in 2009 with an estimated value of $270 billion, 64 percent of total tons and 65 percent of total cargo value. These flows are driven by industry and consumption, and generate the principal demand for warehousing and logistics facilities, within the Detroit BEA. The largest directional flow is inbound to the Detroit BEA, 43 percent of tons and 36 percent of value. Outbound flows account for 21 percent of tons and 29 percent of value, the higher share of value driven by the presence of higher value manufactured goods in the outbound trade from the Detroit BEA. The region also has a large volume of internal cargo movement, 18 percent of total tons and 7 percent of value. Nearly 70 percent of internal traffic is truck shipments to and from warehouses within the region (for example, deliveries from warehouses to stores), drayage of containers to and from intermodal rail yards, and movements of petroleum refining products. The internal cargo category includes an element of double counting of the inbound and outbound flows. For example, an inbound shipment enters a warehouse in the Detroit BEA and then departs the warehouse as a local delivery to a store or manufacturing plant. There is also a large amount of cargo moving through the Detroit BEA, notably between Canada and other regions of the U.S., and handled by the border crossing points in the Detroit BEA. Through freight is generated by economic activity unrelated to the Detroit BEA.

The cargo flows identified above have considerable variation in terms of value per cargo ton. While domestic inbound is the largest cargo flow it has one of the lowest values per cargo ton due to the presence of a large volume of lower-value commodities. By contrast, higher-value commodities dominate the international cargo flows. As shown in Figure 2-4, the highest values per cargo ton are present in the cross-

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Figure 2-4: Value per Cargo Tons


border trade with Mexico and Canada, due to the large presence movement of manufactured goods in these lanes. When evaluating the region’s cargo, it is helpful to focus on commodities that are more suited to added-value logistics services or undergo some form of manufacturing process. Such commodities will be of primary interest to the development of industry and logistics services in the Detroit BEA. The broadly defined “warehouse-able” commodities are those with a relatively high value per metric ton and/or commodities that are processed (e.g. food products) as opposed to raw materials (e.g. grain). These commodities are more likely to require added-value logistics services including warehousing and distribution services. Commodity groups are identified as warehouse-able (Table 2-1) based on value per ton data, commodity characteristics and judgment using experience from prior projects. Given the broad commodity groups in the source data, a commodity group may contain a mixture of higher value and lower value components.

Table 2-1: Warehouse-able Commodities

Warehouse-able Commodity Groups

(Higher Value / Distribution Potential)

Other Commodity Groups

(Lower Value / Distribution Potential)

Alcoholic Beverages

All Other Machinery

Base Metal Articles

Food Products

Electronics

Furniture

Live Animals And Fish

Misc Manufactured Prod

Pharmaceutical Products

Plastics And Rubber

Printed Materials

Textiles And Articles

Tobacco Products

Transportation Equipment

Vehicles And Parts

Agricultural Products

Base Metal

Cereals

Chemical Products

Coal

Fertilizer

Logs And Rough Lumber

Mineral Products

Petroleum Products

Rocks Stone And Sand

Wood Products

Waste And Scrap

Source: TranSystems

Warehouse-able cargo was an estimated 141 million tons in 2009, 49 percent of total Detroit BEA cargo. Warehouse-able cargo accounted for an estimated 90 percent of total cargo value, which reflects the higher value nature of warehouse-able commodities (e.g. consumer products).

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Figure 2-5: Detroit BEA Cargo Tons in 2009, Total and Warehouse-able


The distribution of warehouse-able commodities by direction is shown in Figure 2-5. Looking at the inbound flow, these commodities accounted for 42 percent of inbound tons. Their share was highest in the cross-border inbound trade – 64 percent of tons from Canada and 99 percent of tons from Mexico – and compared to 41 percent of domestic inbound tons. Warehouse-able commodities accounted for 66 percent of total outbound tons. Penetration by trade was – domestic outbound 68 percent of domestic tons, shipments to Canada 48 percent and shipments to Mexico 87 percent. Warehouse-able commodities are also a prominent part of through cargo, with a 71 percent share. Through cargo is mostly freight moving between Canada and other parts of the U.S. More detailed discussion of cargo flows, with an emphasis on inbound and outbound flows, is provided in Section 2.3 (truck cargo), Section 2.4 (rail cargo), and Section 2.5 (other modes).

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Figure 2-6: Detroit BEA Truck Cargo by Trade Flow in 2009

Note: Canada and Mexico is classified as Truck, which captures both truckload and LTL service.


2.3 Detroit BEA Truck Cargo

2.3.1 Total Truck is the dominant transportation mode for freight moving in, out, within and through the Detroit BEA, accounting for 72 percent of tons and 81 percent of cargo value in 2009. This truck freight is generated by local consumption and industrial production, local and regional distribution, and freight movements through the Detroit BEA between other regions (e.g. Canada to other parts of the U.S.). Total truck freight amounted to 206 million tons with a total value of $333 billion. Truck cargo comprises a variety of flows and truck modes as shown in Figure 2-6. The largest segment by tonnage is domestic inbound freight, which accounted for 32 percent of tons in 2009 and 29 percent of total value. This segment is followed by domestic internal6 (22 percent and 8 percent), and domestic outbound (22 percent and 8 percent). Truck freight related to Canada (inbound, outbound and through) is also significant with 17 percent of tons and 30 percent of value; Canada’s larger share of value is due to the shipment of manufactured goods, notably finished motor vehicles and motor vehicle parts and accessories.

Truck cargo moves by several different truck modes – truckload, less-than-truckload (LTL), private fleet, and truck (freight moving to and from Mexico and Canada). Private fleet involves freight handled by private in-house truck fleets, such as those operated by retailers, as opposed to commercial common carrier truckload services. LTL is a relatively specialist sector involving the transport of higher value and/or time sensitive and/or small volume freight. Trade with Canada and Mexico is classified under a general “Truck” category and this cargo is largely moved by commercial truckload service. Truckload freight is the principal

6 Freight with its origin and destination within the Detroit BEA

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Figure 2-7: Detroit BEA Truck Cargo in 2009 – Top Ten Commodity Groups


truck mode with 44 percent of both cargo tons and value. Private Fleet truck shipments are the second largest truck mode measured by tons (38 percent) and the third largest by value (23 percent), which reflects the lower value basic materials (e.g. gravel and sand) that are a significant amount of this truck mode. A profile of regional truck cargo (domestic and international, all directions) by commodity group is provided in Figure 2-7. The largest commodity group is Nonmetallic Minerals, which amounted to 31 million tons in 2009 and 15 percent of the region’s truck cargo, and involves shipments of low value materials including sand and gravel. The second largest commodity group is Secondary Traffic (28 million tons and 14 percent), which is largely made up of Warehouse and Distribution Center traffic (for example, deliveries of consumer products from warehouses to stores) but also includes some freight drayage related to intermodal rail yards and airports. Farm Products (28 million tons and 14 percent) includes grains, livestock, fruits and vegetables, and other agricultural products. Food or Kindred Products (11 percent) includes a blend of intermediary products for further processing and final products, and examples are animal by-products, pet food, fresh/chilled/frozen meat, soft drinks and mineral water, and canned fruits and vegetables. The top four commodity groups are then followed by a mixture of industrial inputs and outputs – chemicals, petroleum and coal, primary metal products, etc. Transportation Equipment (ranked eighth with 4 percent of truck tons) captures the shipment of Motor Vehicles and Motor Vehicle Parts or Accessories by truck. The commodity ranking shifts when a filter is applied to identify the warehouse-able commodities, those suited to warehousing and logistics services (see background discussion in Section 2.XX). Secondary Traffic becomes the top commodity group and bulk-focused commodities fall down the rankings (e.g. Farm Products and Nonmetallic Minerals). The second and third ranked commodity groups are Food or Kindred Products and Chemicals or Allied Products. Further analysis of commodities, with a focus on the warehouse-able commodities, is provided in the discussion of domestic and international truck flows by direction (inbound, outbound, etc.) presented below.

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Figure 2-8: Detroit BEA Inbound and Outbound Truck Cargo in 2009 – Top 20 Commodity Groups


2.3.2 Domestic Inbound and Outbound Domestic inbound and outbound flows together account for 52 percent of truck cargo tons related to the Detroit BEA. This cargo is generated by industry and consumption within the Detroit BEA, and demand in the rest of the country. In 2009, the Detroit BEA had inbound truck cargo of 66 million tons with an estimated value of $95 billion. Approximately 41 million tons (62 percent) with a value of $87 billion (92 percent) is classified as warehouse-able cargo. As shown in Figure 2-8, nearly all the top commodity groups shipped inbound to the Detroit BEA fall into the warehouse-able category. Some of the more significant individual warehouse-able commodities are Warehouse and Distribution Center freight, a variety of dry food products (e.g. soft drinks and canned goods), Motor Vehicle Parts and Accessories, and Forest Products. The lower-value and defined as non-warehouse-able commodities include Grains, Broken Stone and Riprap and Petroleum Refining Products. The Detroit BEA generated 42 million tons of outbound cargo with a value of $76 billion in 2009. An estimated 31 million tons (74 percent) with a value of $73 billion (95 percent) was defined as warehouse-able cargo. The top outbound commodity group (Figure 2-8) was Secondary Traffic, nearly all falling into the Warehouse and Distribution Center category. Other individual outbound warehouse-able commodities include Grain Mill Products, Motor Vehicles, and Motor Vehicle Parts and Accessories.

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Figure 2-9: Detroit BEA Inbound and Outbound Truck Cargo in 2009 – Top 20 Freight Lanes


Domestic inbound and outbound truck freight is heavily concentrated in short-haul lanes with regions surrounding the Detroit BEA. Figure 2-9 shows the top partner BEAs measured by tons. Based on 2009 data, the top-ten partner BEAs accounted for 70 percent of inbound and outbound truck tonnage, and all these BEAs were in the states of Michigan, Ohio, Illinois and Indiana. The next ten BEAs accounted for 12 percent of inbound and outbound freight, and four of these BEAs were in Ohio and Wisconsin. More distant BEAs ranked in the top-twenty were New York, Buffalo, Pittsburg, Los Angeles, Rochester and Minneapolis. The distribution by lane is little changed when focusing on the warehouse-able commodity segment. As also shown in Figure 2-9, the top ten part BEAs are all in Michigan, Ohio, Indiana and Illinois, and they accounted for 68 percent of warehouse-able cargo tons. Prominent among the partner BEAs are important logistics hubs, including Chicago, IL.

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Figure 2-10: Domestic Inbound Truck Freight

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Figure 2-11: Domestic Outbound Truck Freight

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Figure 2-12: Detroit BEA Import Truck Cargo in 2009


2.3.3 Domestic Internal and Through Cargo The Detroit BEA had internal7 truck cargo of 46 million tons with an estimated value of $26 billion. Much of this traffic is of lower value commodities and the largest commodity is Nonmetallic Minerals (17.1 million tons). Other main commodity groups are Secondary Traffic (7.1 million tons), Farm Products (6.5 million tons), Petroleum or Coal Products (6.4 million tons), Clay, Concrete, Glass or Stone (4.1 million tons), Chemicals or Allied Products (1.5 million tons), Lumber or Wood Products (1.3 million tons), and Waste or Scrap Materials (1.0 million tons). Higher-value warehouse-able cargo was an estimated 13 million tons (28 percent) and accounted for 75 percent of the value of internal cargo. The largest component of the warehouse-able cargo is Secondary Traffic, which is made up of Warehouse and Distribution Center traffic (5.6 million tons), drayage of rail intermodal cargo to and from ramps (1.5 million tons), and a small amount of air freight drayage. A large volume of domestic cargo flows through the Detroit BEA without stopping. In 2009, this domestic through cargo amounted to 6.1 million tons with an estimated value of $14 billion. A majority of this cargo, 4.7 million tons or 76 percent, originates in and is destined for the Grand Rapids BEA, west of the Detroit BEA. Approximately, 5.4 million tons or 89 percent with a value of $13.7 billion is classified as warehouse-able. The two main warehouse-able commodities were Secondary Traffic and Food or Kindred Products, which together accounted for 51 percent of warehouse-able commodity tons.

2.3.4 Imports and Exports The IHS Global Insight database provides estimates of import and export shipments that move intact between the international ocean port (e.g. Port of New York/New Jersey) and the Detroit BEA. These estimates do not capture all international freight moving in these corridors, much of which moves in domestic equipment as domestic freight. For example, a containerized import will be “converted” to domestic freight when it, for example, enters an import distribution center (IDC) near the Port of Los Angeles and then departs the IDC in domestic equipment for the Detroit BEA. Similarly, export cargo can be shipped in domestic equipment to the international gateway port and then transloaded for shipment overseas. These types of moves are captured as domestic shipments and thus are included in the domestic inbound and outbound data presented earlier. Additionally, the import and export data do not include trade with Canada and Mexico, which are reviewed separately in Sections 2.3.5 and 2.3.6 respectively. The Detroit BEA had import cargo, excluding cross-border trade with Canada and Mexico, of 5.0 million tons in 2009 with a value of $12 billion. As shown in Figure 2-12, this cargo is broken down into several flows. The inbound flow of 1.4 million tons represents imports, mainly of warehouse-able commodities, via international cargo gateways to the Detroit BEA. The top two gateways are New York (19 percent of tons) and Los Angeles (16 percent of tons).

7 Internal refers to freight with its origin and destination within the Detroit BEA.

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Figure 2-13: Detroit BEA Export Truck Cargo in 2009


Figure 2-14: Detroit BEA - Canada Truck Cargo in 2009


The outbound flow of 1.0 million tons is import cargo arriving in the Detroit area from overseas and then shipped to a final destination outside the Detroit BEA. The largest two commodities are Primary Metal Products (53 percent of tons) and Clay, Concrete, Glass or Stone (29 percent). Final destinations are primarily the regions surrounding the Detroit BEA. The internal flow, at 2.5 million tons, is cargo identified as imports arriving in the Detroit BEA (for example, via the Great Lakes) that remain in the Detroit BEA. The largest commodity in this segment is Nonmetallic Minerals (1.8 million tons). Figure 2-13 shows the breakdown of export cargo by direction. The Detroit BEA had total export cargo of 5.4 million tons in 2009. The outbound flow of 2.2 million tons represents exports via international gateways outside the Detroit BEA. The largest gateway was Los Angeles (37 percent of tons) followed by Toledo, OH (11 percent) and Houston, TX (8 percent). The top three commodity groups were Chemicals or Allied Products, Waste or Scrap Materials, and Farm Products. The inbound flow of 0.5 million tons captures exports shipped from other parts of the country to the Detroit BEA, and then exported overseas. Origins are principally the areas around Detroit. Finally, the internal flow captures exports originating within the Detroit BEA and shipped overseas via the Detroit BEA. This flow amounted to 2.5 million tons.

2.3.5 Canada As a major border crossing point, the Detroit BEA has a significant volume of truck freight generated by local and U.S. trade with Canada. In 2009, total volume was 34 million tons with a value of $98 billion. As shown in Figure 2-14, the largest part this freight, 28 million tons or 83 percent, moved through the Detroit BEA to and from other parts of the U.S. This through freight is dominated by warehouse-able cargo, including shipments of Food or Kindred Products, Chemicals or Allied Products, Transportation Equipment, Pulp, Paper or Allied Products, Farm Products and Rubber or Misc Plastics. The inbound truck trade from Canada to the Detroit BEA amounted to 3.4 million tons with a value of $9.4 billion. Locations in Ontario are the source for 89 percent of the inbound truck freight from Canada. The top three commodity groups are Transportation Equipment (32 percent of tons), Primary Metal Products (19 percent), and Food or Kindred Products (7 percent).

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Figure 2-15: Detroit BEA - Mexico Truck Cargo in 2009


The outbound truck trade to Canada from the Detroit BEA was 2.4 million tons with a value of $7.9 billion. Ontario dominates the outbound trade and was the destination for 95 percent of outbound tons. Major commodity groups were Primary Metal Products (25 percent of tons), Transportation Equipment (25 percent), Farm Products (11 percent), and Chemicals or Allied Products (9 percent). Finally, the source database provides estimates of freight flows by truck (and rail) between the Detroit BEA and Canadian port hinterlands, including Halifax. These data are reviewed in Section 2.6 in a discussion of freight flows along specific corridors.

2.3.6 Mexico Truck trade with Mexico amounted to only 1.1 million tons with a value of $5.4 billion. This small amount of truck freight, 42 percent of total trade volume with Mexico, reflects the preference for rail in the long-distance corridor between the Detroit BEA and Mexico and the likelihood that some Mexican trade flows through import distribution centers in other parts of the U.S. prior to arrival in the Detroit area, thus arriving in Detroit as a domestic shipment. As shown in Figure 2-15, inbound truck freight from Mexico amounted to 0.56 million tons. This freight is primarily higher-value commodities and the largest commodity groups were Transportation Equipment (38 percent), Machinery (13 percent), and Electrical Equipment (12 percent). The outbound trade to Mexico was 0.49 million tons and is dominated by Chemicals or Allied Products (50 percent), which includes plastics and synthetic fibers.

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Figure 2-16: Detroit BEA Rail Cargo by Trade Flow in 2009


2.4 Detroit BEA Rail Cargo

2.4.1 Total Rail is predominant over longer distances and it was the transport mode for 18 percent of tons and 19 percent of cargo value moving in, out, within and through the Detroit BEA in 2009. This rail freight is generated by local consumption and industrial production, and freight movements through the Detroit BEA between other regions (e.g. Canada to other parts of the U.S.). Total rail freight amounted to 53 million tons with a total value of $77 billion. Rail involves a variety of trade flows and modes as shown in Figure 2-16. The largest segment by tonnage is domestic inbound freight, which accounted for 42 percent of tons in 2009 but only 14 percent of total value, due to the presence of low-value coal shipments, which account for 67 percent of the domestic inbound tonnage. Canada rail shipments (by carload and intermodal) account for 17 percent of tons and 30 percent of value, due to the presence of higher-value manufactured goods in this trade. Rail shipments through the Detroit BEA between Canada and other U.S. regions dominate the Canada rail flows, accounting for 88 percent of tonnage. The third largest trade flow is domestic outbound shipments from the Detroit BEA, accounting for 16 percent of tons and 33 percent of value, the larger share of value due to outbound shipments of higher value commodities (e.g. Transportation Equipment). Rail shipments with Mexico are another high value commodity trade, accounting for 3 percent of rail tons and 11 percent of rail cargo value. Rail cargo involves different types of rail modes – carload, intermodal (that is, container or trailer on flatcar), and rail (freight moving to and from Canada and Mexico). Lower value commodities dominate movements by carload, which accounted for 57 percent of tons and 36 percent of value. Intermodal rail, with 4 percent of tons and 14 percent of value, handles higher value commodities. Trade with Canada and Mexico is classified under a generic rail mode. Intermodal rail has a presence in these trades due to the many higher value commodities shipped.

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Figure 2-17: Detroit BEA Rail Cargo in 2009 – Top Ten Commodity Groups


A profile of regional rail cargo (domestic and international, all directions) by commodity group is provided in Figure 2-17. The largest commodity group is inbound shipments of Coal, which amounted to 15 million tons in 2009 and 28 percent of the region’s rail cargo. The other top commodities are Chemicals and Allied Products (13 percent of tons), Transportation Equipment (12 percent), Petroleum and Coal Products (8 percent), and Primary Metal Products (8 percent). Transportation Equipment is primarily Motor Vehicles and Motor Vehicle Parts or Accessories. Agricultural and consumer related commodities, Food Products (5 percent) and Food or Kindred Products (4 percent) also appear in the top ten commodity groups. The commodity ranking shifts when a filter is applied to identify the warehouse-able commodities, those suited to warehousing and logistics services (see background discussion in Section 2.2). The total amount of warehouse-able rail cargo is estimated at 21 million tons, dominated by Chemicals and Allied Products (32 percent of warehouse-able tons) and Transportation Equipment (30 percent). Examples of commodities in the Chemicals and Allied Products group are Plastic Materials and Synthetic Fibers, Soap or Other Detergents, and Dyes. Further analysis of commodities, with a focus on the warehouse-able segment, is provided in the discussion of domestic and international rail flows by direction (inbound, outbound, etc.) presented below. A review of intermodal rail corridors is provided in Section 2.6.3.

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Figure 2-18: Detroit BEA Inbound and Outbound Rail Cargo in 2009 – Top 15 Commodity Groups

* The chart excludes coal shipments, which amount to 14.6 million tons.


2.4.2 Domestic Inbound and Outbound Domestic inbound and outbound flows together account for 58 percent of rail cargo tons related to the Detroit BEA. This cargo is generated by industry and consumption within the Detroit BEA, and demand in the rest of the country. In 2009, the Detroit BEA had inbound rail cargo of 22 million tons with an estimated value of $11 billion. Approximately 15 million tons (65 percent) with a value of $486 million (5 percent) was inbound shipments of coal. Warehouse-able rail cargo amounted to 3.2 million tons with a value of $8 billion (77 percent). As shown in Figure 2-18, the top-15 rail commodities shipped inbound to the Detroit BEA are a mixture of warehouse-able and other commodities. Four of the five top commodities are lower value and bulk-focused commodities, and these are nearly all shipped by carload service. Carload service moved 78 percent of the warehouse-able commodities, including shipments of transportation equipment (e.g., Motor Vehicles in specialized auto railcars). The remaining 22 percent of the warehouse-able commodities (e.g. Motor Vehicle Parts or Accessories) move by intermodal service (that is, container or trailer on flatcar). The Detroit BEA generated 8 million tons of outbound cargo with a value of $25 billion in 2009. An estimated 3.8 million tons (46 percent) with a value of $23.7 billion (94 percent) was defined as warehouse-able cargo. The top outbound commodity group was Transportation Equipment (58 percent of outbound tons), which moved by carload service and intermodal rail service. The two other main warehouse-able commodities were Miscellaneous Mixed Shipments by intermodal rail and Food or Kindred Products, nearly all shipped by carload service.

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Figure 2-19: Detroit BEA Inbound and Outbound Rail Cargo in 2009 – Top Freight Lanes


Apart from coal and iron ore related shipments, rail freight is widely dispersed across origin and destination regions (Figure 2-19). The top four lanes involve inbound coal shipments from Wyoming, West Virginia and Kentucky and mainly inbound iron ore shipments from the Cincinnati, OH BEA. Outside of these top four lanes, rail freight is widely dispersed by origin and destination. Some of the larger lanes include BEAs centered on ports and distribution hubs – for example, Chicago, New York, and Kansas City. The distribution by lane shifts when focusing on the warehouse-able commodity segment, with port and logistics hub related BEAs, as well as large population centers, more prominent. The mix of origins reflects inbound shipments related to local industry, notably the automotive sector, and for local consumption. Similarly, the outbound destinations are partly driven by shipments by the automotive sector, both of finished vehicles and components.

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Figure 2-20: Domestic Inbound Rail Freight

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Figure 2-21: Domestic Outbound Rail Freight

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Existing Freight Flows

Figure 2-23: Detroit BEA Export Rail Cargo in 2009


Figure 2-22: Detroit BEA Import Rail Cargo in 2009


2.4.3 Domestic Internal and Through Only a small volume of rail cargo is reported as moving internally within the Detroit BEA. The total volume was 215,000 tons, including Petroleum or Coal Products (45 percent of tons), Transportation Equipment (13 percent), Chemicals or Allied Products (13 percent), and Clay, Concrete, Glass or Stone (11 percent). There was no domestic through rail cargo reported in the database.

2.4.4 Imports and Exports (excl. NAFTA) Rail import cargo (excluding cross-border from Canada and Mexico) amounted to 0.7 million tons in 2009 with a value of $1.3 billion. As presented in Figure 2-22, the cargo is reasonably balanced between inbound and outbound flows. The principal difference is in the commodity mix, with the inbound direction largely made up of warehouse-able cargo. The top inbound origins for this warehouse-able freight are coastal BEAs, including Los Angeles (22 percent), New York (15 percent), Norfolk (13 percent), Seattle (11 percent), and Houston (8 percent). The outbound flow represents import cargo arriving in the Detroit BEA from overseas (e.g. via the Great Lakes) and then railed to other markets in the U.S. The three main commodity groups are Nonmetallic Minerals, Clay, Concrete, Glass or Stone, and Primary Metal Products. Destination BEAs are mainly in neighboring states, including Chicago (35 percent), Columbus (14 percent) and Dayton (7 percent). Overseas rail export cargo (excluding cross-border with Canada and Mexico) amounted to 0.9 million tons with a value of $1.3 billion. As shown in Figure 2-23, the majority of export rail cargo involves other than warehouse-able commodities. The outbound flow, exports from the Detroit BEA, mainly moves to port-related BEAs, including Norfolk (18 percent), New Orleans (17 percent), New York (14 percent), Los Angeles (11 percent) and Jacksonville (8 percent). The main commodity groups are Farm Products, Waste or Scrap Materials, Misc Mixed Shipments, and Transportation Equipment. The inbound direction is export cargo from other BEAs transported by rail to the Detroit BEA and then shipped overseas. The main commodity groups are Coal, Petroleum or Coal Products, and Chemicals or Allied Products. The main origin BEAs are Pittsburgh, Wheeling, and Columbus.

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Figure 2-24: Detroit BEA - Canada Rail Cargo in 2009


2.4.5 Canada Canada rail cargo amounted to 19 million tons with a value of $30 billion, Similar to Canada truck freight, the principal rail flow is freight moving through the Detroit BEA between Canada and other regions of the U.S. Through rail cargo was 17 million tons (Figure 2-24) and 61 percent of this volume was moving southbound from Canada and 39 percent northbound to Canada. Nearly 90 percent of cargo originated in or was destination for Ontario and Quebec. Major U.S. origin BEAs for northbound through cargo were Houston, Chicago, Des Moines, St. Louis, and Macon; while top U.S. destination BEAs for southbound through cargo were Chicago, Los Angeles, Houston, Grand Rapids, and Memphis. Major commodities moving northbound are Chemicals or Allied Products, Food or Kindred Products, Petroleum or Coal Products, Farm Products, Clay, Concrete, Glass or Stone, and Transportation Equipment. In the southbound direction from Canada, the main commodities are Chemicals or Allied Products, Primary Metal Products, Pulp, Paper or Allied Products, Petroleum or Coal Products, and Transportation Equipment. The inbound rail trade from Canada to the Detroit BEA was 2 million tons with a value of $8.1 billion. The three main Canadian origins were Ontario (63 percent), Quebec (13 percent) and British Columbia (8 percent). Nova Scotia, which includes the Port of Halifax, was the origin for one percent of the inbound rail cargo. Leading commodity groups were Transportation Equipment (50 percent), Primary Metal Products (15 percent), Lumber or Wood Products (12 percent) and Chemicals or Allied Products (10 percent). Outbound rail freight to Canada from the Detroit BEA was 0.4 million tons with a value of $1.6 billion. Nearly 84 percent of the tons were shipped to Ontario and Quebec, and the main commodities were Transportation Equipment (45 percent), Farm Products (15 percent), Chemicals or Allied Products (14 percent), and Petroleum or Coal Products (10 percent).

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Figure 2-25: Detroit BEA - Mexico Rail Cargo in 2009


2.4.6 Mexico Rail freight with Mexico amounted to 1.5 million tons with a value of $8.5 billion. The inbound direction from Mexico is the largest flow (Figure 2-25), with 1.07 million tons, and nearly all this cargo is classified as warehouse-able. The inbound trade is driven by the automotive industry and the major commodity groups are Transportation Equipment (91 percent), Machinery (2 percent) and Fabricated Metal Products (2 percent). Outbound freight shipments by rail amounted to 0.45 million tons and, similar to the inbound, has a significant component driven by the automotive industry. The main commodity groups are Chemicals or Allied Products (55 percent), Transportation Equipment (23 percent), and Farm Products (7 percent).

2.5 Other Transport Modes The Detroit BEA also handles freight by air and water. Total air freight was 83,000 tons in 2009 and valued at $1.45 billion. The largest flow was outbound, accounting for 74 percent of cargo tons. Freight moving by water amounted to 26.6 million tons with a total value of $1.68 billion tons. Its value per ton was only $63 compared to $17,445 for air freight, $1,616 for truck and $1,456 for rail, due to the much lower value bulk commodities shipped by water. The largest flow was inbound with 24.5 million tons and the three main inbound commodities were Iron Ore (44 percent), Coal (34 percent) and Broken Stones or Riprap (19 percent). The outbound flow was 1.1 million tons and involves a variety of mainly bulk commodities. Finally, there was an additional 0.9 million tons of internal waterborne cargo.

2.6 Corridor Specific Flows The discussion of Detroit BEA cargo flows presented above primarily focused on the composition of freight by trade, direction, commodity type and mode of transport. The freight flow data also allows a review of specific freight corridors to understand characteristics specific to those lanes. Section 2.6 addresses several corridors of interest to the evaluation of logistics opportunities in the Detroit region.

2.6.1 Halifax Freight Flows The Port of Halifax is the first deep-water container port on the Eastern seaboard of North America for ships arriving from Europe and the Mediterranean, and from Asia via the Suez Canal. With a small population in its hinterland, the port specifically targets containerized cargo moving to and from inland regions of Canada and the U.S. Midwest, including the Detroit area. The Port is connected by CN rail service to these markets. The Port had total throughput of 425,461 TEU in 2010 compared to the recession impacted 344,811 TEU of 2009, but still below the high of 550,462 TEU seen in 2005. The following discussion provides a profile of freight flows moving between the Halifax area and the Detroit BEA that were identified in the IHS Global insight database.

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Figure 2-26: Detroit BEA – Cargo Flows from the Halifax Area in 2009


A total of 386,000 tons were identified as originating in the Halifax area (defined as the Halifax CMA8 and non-CMA Nova Scotia), of which 356,000 tons passed through the Detroit BEA to other regions and only 32,000 tons was inbound to the Detroit BEA (Figure 2-26. This broad regional view is assumed to capture Nova Scotia origin freight shipped to the Detroit area and other parts of the U.S., and imports through the Port of Halifax. Close to 100 percent of the cargo is defined as warehouse-able, while 60 percent of the freight moved by rail and 40 percent by truck. The largest commodity groups are Pulp, Paper or Allied Products (55 percent of total tons), Rubber or Misc Plastics (24 percent), Lumber or Wood Products (7 percent), and Chemicals or Allied Products (5 percent). Forest products are most likely sourced from Nova Scotia. The most likely containerized import commodities are: Rubber or Misc Plastics, Chemicals or Allied Products; Food or Kindred Products; Transportation Equipment, Machinery, Furniture or Fixtures, Textile Mill Products, Apparel and Related Products, and Electrical Equipment. The total volume of these commodities in 2009 was 125,000 tons or 32 percent of the total. Assuming 10 tons per TEU, these commodities generated the equivalent of 12,500 TEU of containerized import cargo bound for or through the Detroit BEA from Halifax. Of this total, an estimated 15,800 tons or 1,580 TEU was inbound freight into the Detroit BEA, and the balance through freight to other parts of the U.S. Ten U.S. states were the destinations for 80 percent of freight from the Halifax area flowing through the Detroit BEA: Wisconsin, Illinois, Kentucky, South Carolina, Tennessee, Ohio, Indiana, Texas, Mississippi, and Missouri. The above analysis is based on 2009 data and volumes will have grown in 2010 based on the 26 percent growth of total container throughput at Halifax in 2010. Only 20,000 tons of cargo was identified as flowing through or from the Detroit BEA to the Halifax area, and 99 percent of this freight was through cargo. Rail was the dominant mode with an 88 percent share and 76 percent of the freight was classified as warehouse-able. The three largest commodity groups were Chemicals or Allied Products (47 percent), Food or Kindred Products (18 percent), and Primary Metal Products (12 percent). The four largest origins in the U.S. were Chicago, Huntsville, AL, Cleveland, and Minneapolis, which together accounted for 46 percent of the cargo tons.

2.6.2 Montreal Freight Flows The Port of Montreal is an important gateway for containerized trade, notably with North Europe and the Mediterranean, and the Port is connected by CN and CP rail service to U.S. markets. Montreal had total throughput of 1.33 million TEU in 2010 compared to 1.25 million TEU in 2009, and 1.47 million TEU in 2008. The following discussion provides a profile of freight flows moving between the Montreal CMA and the Detroit BEA that were identified in the IHS Global insight database.

8 CMA – Census Metropolitan Area

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Figure 2-27: Detroit BEA – Cargo Flows with the Montreal CMA in 2009


A total of 1.67 million tons of cargo flowed to and from the Montreal CMA in 2009, the principal flows southbound and northbound through the Detroit BEA (Figure 2-27). Rail is the principal transport mode with a 61 percent share of the total volume. A portion of the freight is believed to be international containerized import and export trade handled by the Port of Montreal. A total 1.2 million tons were identified as originating from the Montreal CMA, of which 1.1 million tons passed through the Detroit BEA and only 87,000 tons was destined for the Detroit BEA. Warehouse-able cargo accounted for 63 percent of the through cargo and 72 percent of the inbound cargo. The commodity mix in the trade from Montreal through the Detroit BEA is focused on Primary Metal Products, Pulp, Paper or Allied Products (23 percent), Chemicals or Allied Products (21 percent), Waste or Scrap Materials (17 percent), and Food or Kindred Products (8 percent). Trade inbound to the Detroit BEA is dominated by Primary Metal Products (28 percent), Pulp, Paper or Allied Products (24 percent), and Food or Kindred Products (11 percent). The northbound flows were smaller than the southbound, amounting to 0.5 million tons. Total cargo flowing through the Detroit BEA to the Montreal CMA was 0.47 million tons, while only 26,000 tons originated in the Detroit BEA. Warehouse-able cargo made up 57 percent of the through cargo and only 17 percent of the outbound cargo. The major commodities in northbound trade through the Detroit BEA to the Montreal area were Food or Kindred Products (24 percent), Farm Products (16 percent), Clay, Concrete, Glass or Stone (10 percent), Petroleum or Coal Products (9 percent), and Chemicals or Allied Products (9 percent). Commodities flowing outbound from the Detroit BEA to the Montreal CMA were Farm Products (67 percent), Waste or Scrap Materials (11 percent), and Chemicals or Allied Products (11 percent).

2.6.3 U.S. Intermodal Rail Corridors Nearly 2.0 million tons of cargo was identified as moving in intermodal rail corridors to and from the Detroit BEA. The top-10 intermodal lanes by origin and destination are shown in Figure 2-28. The data is broken into domestic freight and international freight, which moves intact between coastal ports and Detroit. However, the domestic freight also includes some international cargo, which has been transloaded at the import or export port, into or from domestic equipment. In particular, a substantial portion of the intermodal freight labeled as domestic from Los Angeles and other port BEAs (e.g. New York, VA) is containerized imports that are transloaded from marine containers at import distribution centers (IDCs) into domestic 48- and 53-foot containers. Turning to the inbound flows, the top three origins are the port BEAs of Los Angeles, New York and Seattle. The largest commodity group flowing in these lanes is Miscellaneous Mixed Shipments, which captures import merchandise moving in domestic equipment. This commodity group accounted for 98 percent of the intermodal freight from Los Angeles, 74 percent from New York and 99 percent from Seattle. Other port BEAs are Norfolk and Jacksonville, and Miscellaneous Mixed Shipments accounted for 94 percent and 84 percent of cargo tons respectively. Transportation Equipment is the principal commodity

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Figure 2-28: Detroit BEA - Top-10 U.S. Intermodal Rail Lanes by Cargo Tons in 2009


flowing in other inbound intermodal lanes – 90 percent from Kansas City, 91 percent from San Antonio, 64 percent from Dallas, 45 percent from Atlanta, and 52 percent from St. Louis. The top outbound lanes are also dominated by coastal BEAs – New York, Los Angeles, Norfolk and Jacksonville. Miscellaneous Mixed Shipments is the dominant commodity flowing in these lanes – 84 percent New York, 77 percent Los Angeles, 83 percent Norfolk, and Jacksonville 95 percent. The outbound domestic lane to Kansas City is nearly all Transportation Equipment (94 percent). Other lanes have a mixture of Transportation Equipment and Miscellaneous Mixed Shipments.

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Figure 3-1: Port of Toledo Cargo

Source: Port of Toledo

Figure 3-2: Port of Toledo Commodity Mix

Source: Port of Toledo

3 TOLEDO AND WINDSOR FREIGHT FLOWS

3.1 Toledo, Ohio Toledo is located in northwest Ohio on the Maumee River, at the southern end of Maumee Bay. The primary freight flows are related to activity at the Port of Toledo, which handles domestic and international freight moving by vessel, and is linked to overseas markets by the Great Lakes and St. Lawrence Seaway System. The Port’s total throughput was 10.0 million tons in 2009 and 10.9 million tons in 2010 (Figure 3-1), both years lower than the 12.3 million tons achieved in 2007. The largest flows are shipments with other U.S. ports (36 percent of tons in 2010) and shipments with Canada (58 percent of tons). International cargo accounted for 6 percent of total tons in 2010. The commodity mix is focused on lower value dry bulk commodities – coal, iron ore, grain and other dry bulk commodities – which accounted for 99 percent of total tons in 2010. The principal outbound commodities are coal and grain (mainly corn and soybeans), and the main inbound commodities are iron ore, crude materials (e.g. limestone) and grain (mainly wheat and oats).9 General cargo accounted for 0.3 percent of total tons in 2010. The Port handles project cargo for the surrounding region. For example, in mid-2010, the Port handled five new wide-span cranes on route to the new CSX Northwest Ohio Intermodal Terminal at North Baltimore, Ohio, 40 miles south of Toledo. As a primarily bulk cargo port, transportation activity has a significant rail component. For example, inbound iron ore is railed from the port to steel mills, while coal for export is railed into the port. The Port of Toledo handles freight for the Detroit BEA reviewed in Section 3. In 2009, based on the IHS Global Insight data, 4.9 million tons of cargo was shipped from the Detroit BEA to the Toledo BEA, and this total included 0.25 million tons of identified export cargo, which would have been shipped via the Port of Toledo. In the same year, 10.8 million tons were shipped

9 Major commodities by direction based on Waterborne Commerce Statistics from the U.S. Army Corps of Engineers.

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Figure 3-3: Detroit BEA Domestic Freight Flows with Toledo BEA, 2009


from the Toledo BEA to the Detroit BEA, including 0.17 million tons of identified import cargo. Both export and import cargo comprised lower value bulk commodities. The Port has looked to the container market for possible future growth, as a load and discharge point for future feeder services connecting to Canada’s East Coast container ports. However, there are many challenges related to providing container feeder service to and from the Great Lakes, lock navigation and total transit time, a constrained shipping season, and competition from intermodal rail service. In early 2010, the Port took delivery of two new mobile harbor cranes capable of handling a variety of cargo types, including containers if a short sea service develops in the future. Funding for the purchase of the cranes came from American Recovery and Reinvestment Act resources, administered by the Ohio Department of Transportation. In 2009, 15.0 million tons of domestic freight moved between the Detroit BEA and the Toledo BEA, 10.4 million tons inbound from the Detroit BEA and 4.6 million tons outbound from the Detroit BEA. Truck is the dominant mode accounting for 92 percent of inbound freight and 96 percent of outbound freight. The top five inbound commodities from the Toledo BEA are Nonmetallic Minerals (40 percent), Petroleum or Coal Products (14 percent), Farm Products (12 percent), Clay, Concrete, Glass or Stone (10 percent), and Food or Kindred Products (6 percent). The top five outbound commodities shipped to the Toledo BEA are Nonmetallic Minerals Farm Products (44 percent), Petroleum or Coal Products (17 percent), Chemicals or Allied Products (6 percent), and Food or Kindred Products (6 percent).

3.2 Windsor, Ontario The 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. Evaluation of Windsor freight flows focuses on the Windsor Census Metropolitan Area (CMA), identified in the IHS Global Insight database. The Windsor CMA is made up of the Canadian census subdivisions of Windsor, LaSalle, Tecumseh, Amherstburg, and Lakeshore, and it had a total estimated population of 331,000 in 2010.10 A total of 1.4 million tons of freight was identified as related to the Windsor CMA (Figure 3-4). This total covers freight to and from the Detroit BEA, and between the Windsor CMA and other regions of the U.S. It excludes freight to and from other regions of Canada, and cross-border freight passing through the Windsor CMA. Truck is the dominant mode of transport, accounting for 88 percent of freight shipped to the Windsor CMA and 72 percent of the tons shipped from the Windsor CMA. The respective shares for rail were 5 percent and 28 percent.

10 Annual Demographic Estimates: Subprovincial Areas 2005 to 2010, Statistics Canada

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Figure 3-4: Windsor, Ontario CMA Freight Flows in 2009


Figure 3-5: London, Ontario CMA Freight Flows in 2009


The freight flows from the Windsor BEA to the Detroit BEA and other parts of the U.S. are primarily warehouse-able commodities related to the automotive sector. Transportation Equipment accounted for 91 percent of freight shipped to the Detroit BEA and 72 percent of freight shipped to the rest of the U.S. Warehouse-able commodities accounted for a smaller share of freight flowing to the Windsor BEA, 26 percent of tons from the Detroit BEA and 59 percent of tons from the rest of the U.S. Some additional perspective on freight activity in the southwest region of Ontario is provided by data for the London CMA, which is located approximately 116 miles northeast of Windsor and 67 miles east of the Port Huron/Sarnia border crossing. The London CMA had an estimated population of 492,000 in 2010, nearly 50 percent more than the Windsor CMA, and has a similar industry profile with a strong presence in the automotive industry and agriculture related food and food processing. A total of 0.4 million tons of freight was identified as related to the London CMA (Figure 3-5). This total covers freight to and from the Detroit BEA, and to and from other regions of the U.S. It excludes freight to and from other regions of Canada, and cross-border freight passing through the London CMA. Truck is the dominant mode of transport, accounting for 87 percent of freight shipped to the London CMA and 70 percent of the tons shipped from the London CMA. The respective shares for rail are 13 percent and 30 percent. The freight flows are primarily warehouse-able commodities. Transportation equipment accounts for 49 percent of tons shipped to the Detroit BEA and 17 percent of freight shipped to the rest of the U.S. Food or Kindred Products is the largest commodity shipped to the rest of the U.S., accounting for 29 percent of freight. Other major commodities in freight flows between London CMA and the U.S. are Primary Metal Products, Chemicals or Allied Products, and Farm Products.

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Industry Trend Analysis

Table 4-1: Detroit Logistics Summary

Infrastructure Description

Rail

CSX – U.S. East, Midwest, main Western States Access

NS – U.S. East, Midwest access

CN and CP - Canada Rail Markets, US Central Plain States, Gulf

Highways

US-69 to Blue Water Bridge to CA-402, US 75,

US 375/CA-401 via Ambassador Bridge

US-96, US-94, US-275 (to US-80)

Key Ocean Gateways Halifax, Montreal, Other Canadian and U.S. ports

Airport U.S. Rank 27th

Total Cargo 193,344 metric tons

Distribution Facilities

Total Space (sq. ft.) 366.8 - 524.0 million

Vacancy Rate 13.5% - 14.9%

Average Lease Rate ($/sq. ft./yr) $3.87 – $3.93

Detroit Transportation and Materials Moving Occupation (Hourly) $17.24

US Transportation and Materials Moving Occupation (Hourly) $15.70

Distribution Area Advantage Ontario, Canada, Michigan Peninsula, OH, IN, WI, IL

Source: TranSystems, CB Richard Ellis, Grubb and Ellis, Colliers, Bureau of Labor Statistics

4 INDUSTRY TREND ANALYSIS

4.1 Existing Transportation Infrastructure and Location Selection Factors Logistics managers are continuously evaluating their logistics networks to squeeze excess transportation expenses and other costs out of their supply chains. The availability of all transportation modes is essential in order to enable logistics managers to have the flexibility to choose the mode that best suits shipment needs. Lowest-cost transportation options, such as rail, are selected provided that service is available, and transit time and reliability meet service level requirements. Trucking costs are the largest portion of the supply chain expense. Because of this, supply chain strategies that reduce trucking as much as possible have been a major goal of supply chain managers. Warehouse locations are chosen based on the cost of the facility, and their proximity to customers and suppliers, thereby reducing trucking costs. Labor, green initiatives, government incentives, etc. are considered after transportation service and rate level requirements are met, and these considerations typically influence a specific site location among competing sites that meet transportation requirements. The following sections evaluate how the Translinked region (represented by Detroit) meets these selection factors.

4.1.1 Logistics and Transportation Infrastructure Summary Transportation infrastructure serving the region features advantageous access to the Michigan Peninsula, the Canadian border, and access to U.S. Midwest markets. Air, rail, truck, and warehousing services and access, which are key factors for flexible and responsive supply chains, are well established as a result of their support of the automotive industry. Table 4-1 summarizes logistics features, which will be discussed further in this section.

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4.1.2 Rail North America Class 1 railroads have been investing in programs to improve the speed and reliability of the railroads, including rail infrastructure, and rail personnel staffing issues since the mid-1990s. The result has been improved rail service. Rail rates are on the rise, but remain the lower cost option as compared to trucking. Improved rail reliability and speed, mixed with uncertainty about truck rates and truck capacity availability, have caused North American logistics managers to develop strategies to divert as much truck volume as possible to rail. There are currently seven Class I railroads operating in the U.S. U.S. railroads are generally divided into Western and Eastern rail service areas, that connect to provide trans-continental service at key locations, such as North Baltimore, OH, Columbus, OH, Chicago, IL, Kansas City, MO, St. Louis, MO, Memphis, TN, and New Orleans, LA. The two Western railroads, The Union Pacific (UP) and Burlington Northern Santa Fe (BNSF) serve states west of the Mississippi River. The CSX and Norfolk Southern (NS) railroads operate in the eastern half of the U.S. The two Canadian railroads, the Canadian National (CN) and the Canadian Pacific (CP), have rail networks extending across Canada, and down through the U.S. Midwest, as far south as New Orleans. The Kansas City Southern Railroad (KCS) operates primarily in the U.S. Central Plains States and Mexico. Interchanges between the railroads add a degree of complexity in terms of adding transit time or negotiating rates; however, railroads do make efforts to streamline connections, especially in high volume corridors, such as Los Angeles/Long Beach to New York. No single railroad has the ability to rail freight from one US coast to the other without handing-off to another railroad. Both NS and CSX have recently improved rail service to and from the Midwest, and Western Markets. CSX’s National Gateway Project includes a new terminal in North Baltimore, OH, and is aimed at improving their connection to West Coast markets. NS’s Crescent Corridor improves rail service from the South to the Northeast. Another NS network enhancement, the Heartland Corridor, improves service from the port of Norfolk, VA to Columbus, OH. Figure 4-1 maps the Class 1 Railroad network in North America.

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Figure 4-1: Class I Railroad Map with Container Ports

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Four Class 1 Railroads, CSX, NS, CP and CN, provide container-on-rail service, called intermodal serve the Translinked region. Intermodal service availability in Detroit (the main intermodal hub in the region) is essential if international freight opportunities are to be considered, as virtually all international retail trade is transported in cargo containers. Detroit cargo does not have to interchange railroads to Canadian, or U.S. Eastern or Southern locations. Freight from the East Coast to Detroit would switch to northbound tracks in terminals in Ohio, but does not require a transfer to another railroad. Rail freight between Detroit and Western states does require a transfer to a connecting railroad. Cargo originating in Detroit and destined for Los Angeles for example might load at Detroit on the CSX railroad, transfer at North Baltimore, OH to the UP Railroad for the journey to Los Angeles. Rail access in Detroit is desirable, because it supports logistics mangers’ strategies to use the rail mode whenever possible.

4.1.3 Highways Regional highway access is similar to major US areas of similar size, with additional advantages of border access to Canada via CA-401 and CA-403. North/South access is provided by US-75, with East/West transcontinental truck traffic accommodated by US-69, and US-80 to the south. A key feature of the region’s highway network is the Canadian border crossing, where Michigan ranked first as the leading US truck border crossing in 2010. Figure 4-2 maps major highways serving the Translinked region.

Figure 4-2: Regional Highway Map

Source: TranSystems

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Figure 4-3: Detroit Truck Border Crossings

Source: Public Border Operators Association

Figure 4-3 displays annual truck traffic (inbound and outbound) for the three Detroit border crossings from 2006 through 2010. After a sharp rise in truck traffic starting in 2006, truck crossings peaked in 2008, at 4.5 million truck crossings. Truck traffic fell in 2009, to under 3.5 million transits, but climbed to nearly 4.0 million trips in 2010. The Ambassador Bridge handled nearly half of all truck traffic crossing the U.S. Border at Detroit. Additional U.S. security measures put in place over the past decade have created extra steps for trucking providers and shippers, resulting in delays in border crossing times. Recent improvements in border wait times have been attributed to the economic downturn, but are expected to lengthen as the economy improves. As of October, 2011, adding capacity to the existing Ambassador Bridge is planned to address future traffic concerns.

4.1.4 Ocean Gateways For purposes of this report, an ocean gateway is defined as a major port area handling containerized cargo volume. The top three ocean gateways in North America are Los Angeles/Long Beach, CA, New York, NY, and Savannah, GA. The gateway used is important, because it affects the overall transit time or cost of a shipment. Ideally, the gateway that balances transit time requirement and lowest overall transportation costs, called “total landed costs”11 is preferred. Another gateway consideration is port diversification. In response to disruptions that began on the U.S. West Coast starting in the late 1990’s, such as West Coast port congestion, labor lock outs and inland rail congestion, logistics managers allocated shipments over several gateways, including East Coast gateways, using Panama Canal “all water” services. This practice reduced the dependence on a single port. Prior to 2000, shipments from Asia to the region typically entered the U.S. via Los Angeles/Long Beach, and were then transported inland. Today, this shipment might just as likely enter the U.S. via another gateway (e.g. New York) and either railed or trucked to the region. The trade-off between lowest total landed cost and transit time is most influenced by the value of the cargo being carried. Sophisticated supply chain managers consider the inventory carrying cost component of total landed costs of gateways that add days to the overall transit. High value cargo’s inventory carrying costs are more sensitive to additional transit days, and therefore require the fastest transits, while lower value goods are able to tolerate slower transits at generally lower rates. High value cargoes are goods such as electronics or auto parts, while lower value goods are items such as forest products.

11 Total Landed Cost is the total of all expenses associated with the shipment from the point of origin to its final destination. Expenses included in the total landed cost calculation include, but are not limited to the product purchasing price, ocean freight rates, rail and trucking costs, customs duties, and inventory carrying costs.

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Table 4-2: West Coast Transit Time Comparison (Transit Days): Shanghai to Detroit

Port Gateway Ocean Inland Rail

Total Transit*

Prince Rupert Delta

Prince Rupert 11.0 5.6 16.6 -

Seattle 12.0 5.8 17.8 1.2

Los Angeles 13.3 6.0 19.3 2.7

* Based on website schedules, actual transits may vary

Source: CN, BNSF and NS Railroad Websites

Table 4-3: East Coast Transit Time Comparison (Transit Days): Hong Kong and Rotterdam to

Detroit

Port Gateway Ocean Inland

Rail Total

Transit

Prince Rupert Delta

From Hong Kong

Halifax 25 5.2 30.2 -

New York 25 7.0 32.0 -1.8

Montreal* 28 4.3 32.3 -2.1

From Rotterdam

Halifax 7 5.2 12.2 -

New York 11 7.0 18.0 -5.8

Montreal 11 4.3 15.3 -3.1

* Montreal transits based on Halifax transit plus 3 days

Source: Halifax Port Authority

The Translinked region has access to all of the North America gateways, but two are important as they provide a transit time advantage over other key North American ports. The Canadian ports of Prince Rupert and Halifax are situated in geographically advantageous positions that shorten ocean and inland transits. Table 4-2 and Table 4-3 compare total transit times from key origins to Detroit (representing the Translinked region) by selected North American West and East Coast gateways. Shipments over Prince Rupert from Shanghai beat competing West Coast ports by 1 to 2 days, and the Halifax gateway transit to Detroit is faster from Rotterdam by an estimated 3.1 days over its regional competitor, Montreal. According to the Port of Halifax, more congested ports, such as New York and Montreal add time to the overall transit due to additional container “dwell time”, which is the time containers sit idle in port awaiting an interchange to truck or rail services. In addition to having the fastest transits, service from Prince Rupert is entirely on the CN Railroad, while service to Detroit from other U.S. West Coast ports requires a railroad interchange. A single service rail provider is considered to be less cumbersome to use, but does raise concerns from some shippers who require redundancy in their supply chains. From the lowest total landed cost perspective, high value commodities that are suited to rail in particular may favor the Canadian gateways.

4.1.5 Airports A leading regional intermodal cargo hub must have air cargo services to accommodate time sensitive shipments as part of an overall supply chain strategy. Detroit Metro Airport, handling 193,344 metric tons of cargo in 2010, ranked 27th in a list of North America’s busiest cargo airports12. UPS and FedEx are the only two regularly scheduled cargo airlines servicing the Detroit airport. International cargo services are also provided by “belly cargo” carriers, which are combination cargo and passenger airlines, such as Air Canada, Air France, American Airlines, Continental, Delta, Lufthansa, KLM and others. These airlines serve as direct links to the International air freight network. The Willow Run Airport, in Ypsilanti, MI handled 92,484 metric tons in 2010, making it the 42nd busiest cargo airport in North America. Cargo airlines serving the airport are Kalitta Air, Active Aero, and National Airlines.

12 Airports Council International

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4.1.6 Toledo, OH The region around Toledo, OH is making significant improvements in transportation Key projects in the Toledo area are terminal improvements at the Port of Toledo, and the CSX National Gateway North Baltimore intermodal terminal. Port of Toledo The port of Toledo is the largest Great Lakes Port in terms of area, and second largest in terms of cargo volume. Development focuses mainly on the port’s main commodities, which are coal, iron, grain, project cargo (wind towers, construction projects), petroleum products, and cement. The port also has two refineries that generate petroleum based cargo. Notable progress is evident both in terms of terminal facilities and capabilities, as well as - and perhaps more importantly - the cooperation and coordination between public and private entities that drive development in the area. The Toledo-Lucas County Port Authority is partnering with Metropolitan Planning Organizations (MPO), such as the Toledo Metropolitan Area Council of Governments (TMACOG) and the Southeast Michigan Council of Governments (SEMCOG), and importantly, private industry, such as Midwest Terminals, CSX and Norfolk Southern Railways, to develop and fund transportation planning throughout the region. Recent U.S. Stimulus Funding was applied to local transportation projects because regional agencies were able to quickly identify projects based on mutually agreed upon priorities. This regional, public/private partnership approach to transportation planning considers port, rail and roadway requirements to accommodate and complement multimodal needs. Intermodal rail access that takes trucks off the highway, or port infrastructure that promotes Saint Lawrence Seaway traffic over other more costly truck to rail routes are examples of regional coordination. Other developments are:

• Toledo Port Authority o Purchased and developed defunct Chevron and JEEP plants o Port crane purchases provide additional cargo handling capabilities

• Norfolk Southern o Norfolk Southern extend rail siding in Toledo yard to accommodate length of container unit

trains

• CSX Railroad o North Baltimore Intermodal Terminal (discussed below)

• ODOT o Widening of I-75 between Toledo and North Baltimore o State Route 18 access improvement to North Baltimore

• MiDOT o Approved routes for overweight trucks

The Port of Toledo has experienced additional business as a direct result of improvements to port facilities and equipment; however, key reasons are shippers understand the advantages of shipping over the Port of Toledo, and a Port Authority and MPOs that agree, and act on regional priorities. CSX National Gateway Initiative: North Baltimore Intermodal Terminal The CSX National Gateway Initiative is a key railroad improvement project that will positively impact the Northwest Ohio region. This public private partnership will create a more efficient CSX rail route linking key U.S. Mid Atlantic ports with Midwestern and Western markets for double stack containers. The terminal in North Baltimore, OH opened in February of this year, and is considered the cornerstone of the

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entire project. It comprises 500 acres total, with 280 acres being used by CSX initially. High speed cranes installed at North Baltimore enable containers to be off-loaded from incoming trains, and re-loaded on re-directed outbound trains so quickly, that the resulting overall transit reductions of containers from origin, through North Baltimore, to final destination has opened new markets. Service from New York, through North Baltimore to Detroit, for example, was cited by CSX as becoming more attractive due to overall network improvements, and improved switching capabilities. To capitalize on on-site and near-site DC opportunities, two thousand acres adjacent to the North Baltimore site have been re-zoned for industrial use, in anticipation of a future need for logistical services in the area, given improved intermodal rail and air access.

4.1.7 Windsor, ON Windsor is strategically located at the border between Canada and Michigan, and on the rail networks of the CN and CP, with several other railroads having user rights on CN and CP tracks through Windsor. The rail network provides links to the two major container ports in Eastern Canada – Montreal and Halifax – and other Canadian ports, and to the major Canadian population and production centers. The rail network provides transportation options for the major industries in and around Windsor, notably the automotive industry. In addition, Windsor is connected by highway to major population and industrial centers in Ontario and Michigan. Short-haul rail service is provided in the Windsor area by the Essex Terminal Railway, with track running from Windsor to Amherstburg, ON that connects with all the major railroads in the region. ETR services a variety of industries – automotive, forest products, agricultural, and food products, chemicals and others.

Figure 4-4: Current Rail System in Windsor

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Source: City of Windsor “Community Based Strategic Rail Study, Final Report” For international trade moving by rail, the key piece of infrastructure in Windsor is the rail tunnel under the Detroit River. This tunnel was enlarged in 1994 but cannot accommodate double-stack high-cube containers13 and auto-max railcars14. The number of high-cube containers has increased over time as shippers take advantage of their larger capacity, and this traffic cannot move via the tunnel. Similarly, use of larger auto railcars by the automotive industry has increased but this equipment cannot be routed through the Windsor rail crossing. Construction of a new larger tunnel alongside the existing one has been proposed and this would improve the freight capacity of the Windsor-Detroit border crossing.

4.2 Inland Strategies and Network Optimization In addition to gateway and modal choices, shippers also consider inland transportation strategies to deliver goods effectively. In general, rail deliveries are considered to be the lowest cost transpiration mode, but other factors are considered. Cost, transit time, and inventory stock requirements drive the decision over the strategy used. The following import inland strategies are well suited to the Translinked region:

• Direct Rail to Inland DC Due to rising fuel prices, and potential future driver shortages, shippers have developed strategies to utilize the lower cost rail mode versus truck over the last few years. Containers are diverted to rail from truck, directly from the port to the inland DCs that are near to inland intermodal rail terminals. This strategy requires longer transit lead times due to slower rail transits as compared to trucking.

• Transload Operations Truck costs can be lowered by consolidating cargo at the port before it moves inland. This is achieved by transloading three international 40-foot containers into two domestic 53-foot containers or trailers at a transload facility. Two, instead of three container loads move to inland DCs, where the cargo is then re-distributed to its final destination, or is trucked directly to retail stores. In most cases, only very large retailers, such as big box stores take delivery directly from the transload facility.

• Inventory Hold/Cross-Dock This strategy is designed for shippers who import goods, and warehouse them in DCs on the coasts. Their customers, usually footwear or garment retailers, place Just-In-Time (JIT) orders as needed, where they take delivery of the goods at the coastal DC. Retailers benefit from this arrangement because they avoid inventory carrying costs. Trucking is the preferred mode for this strategy due to the need for fast and flexible transit.

13 The high-cube container had a height of 9 feet 6 inches compared to 8 feet 6 inches for a standard container. 14 The auto-max railcar has a height of up to 20 feet 2 inches.

Figure 4-5: Comparison of Container Sizes

Container Size Useable Capacity (cubic feet)

Standard: 1,169

Standard: 2,395

High-Cube: 2,714

High-Cube: 3,830

Source: TranSystems derived from The Hub Group

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These strategies are used to deliver shipments to strategically placed DCs. As mentioned, the highest cost portion of an international supply chain is the trucking to the final destination, or so-called “last-mile” transportation. To illustrate this, consider a typical grocery store model. A single truckload delivers items to the DC, but many trucks deliver goods from the DC to grocery stores in a given area, resulting in higher “last mile” trucking expenses. To keep these expenses low, logistics managers consider the location of customers and clients, and select DC’s that produce the lowest last mile trucking costs. Figure 4-6 shows an example of a DC network optimization that calculates transportation costs, and identifies lowest cost locations for DCs. This analysis estimates locations based on customer density areas, using nine DCs. In this example, a distribution center in Detroit is responsible for cargo distribution to much of the U.S. Midwest, while a distribution center in Toronto is responsible for deliveries to Windsor, ON, which is just across the border from Detroit.

Figure 4-6: Example of Distribution Center Network

Source: TranSystems

An alternative approach for the incorporation of the Translinked region into a distribution strategy is illustrated in Figure 4-7. In this case, the shipper reduces overall network costs by establishing cross-dock operations in markets previously served directly by the regional distribution centers. The cross-dock strategy facilitates more efficient local distribution.

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Figure 4-7: Example of Distribution Center and Cross-Dock Network

Existing DC Network Is Looking for Ways to Reduce Transportation Costs

New Network Incorporates DCs and Cross-Docks; Translinked Region Served via Cross-Dock

Source: TranSystems

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Table 4-4: Detroit MSA Warehouse Vacancy and Lease Rates, Third Quarter 2011

Detroit MSA

Total Space (million sq. ft.) 524.0

Vacancy Rate (percent) 13.6% - 14.6%

Average Lease Rate $/sq. ft./yr) * $3.87 - $3.93

Transportation and Materials Moving Occupation

Mean Hourly Wage

Detroit-Warren-Livonia MI MSA $17.24

U.S. Total $15.70

* Asking lease rate for Warehouse and Distribution Use Facilities > 10,000 sq. ft

Source: TranSystems, US Bureau of Labor Statistics, CBRE, Grubb and Ellis, and Colliers

4.3 Real Estate Infrastructure Logistics managers choose warehouses and distribution center (DC) locations based on how they fit into the overall supply chain operating cost and product lead time standards. DCs that are located close to rail hubs, or that are located near to customers or suppliers, are desirable because they reduce trucking costs. Competing sites that satisfy transportation cost and service level considerations are evaluated based on the cost of the warehouse itself, labor costs, and increasingly, “green” considerations such as a having a small energy footprint, to select the final site location. Table 4-4 displays summary statistics on industrial real estate, and the average hourly wage for Transportation and Materials Moving Occupation workers for the Detroit Metropolitan Statistical Area (MSA) 15. Over five hundred million square feet of warehouse space reside within the Detroit MSA, and up to 14.6% of warehouse space was available as of the end of September 2011. The average wage for Transportation and Materials workers is higher than the U.S. average, by $1.54 per hour, which may be of concern to supply chain managers evaluating competing DC location options at the national level.

15 The Detroit MSA includes Lapeer, Livingston, Macomb, Oakland and St. Clair counties.

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Figure 4-8: Detroit-Warren-Livonia, MI Number of Employees by Industry, August Year over Year, 2001 – 2011 (000)

Source: US Bureau of Labor Statistics

Table 4-5: Detroit-Warren-Livonia, MI Employment by Industry Percent Changes

between 2001 and 2011

Sector 10 Year CAGR

Ten Year Change

Trade and Transportation -2.2% -20.0%

Professional Services -1.9% -17.3%

Manufacturing -5.6% -43.9%

Health and Education 1.7% 18.8%

Government -1.1% -10.1%

Hospitality Services -0.4% -3.9%

Financial Services -1.8% -17.0%

Mining and Construction -4.4% -36.4%

Information Services -2.7% -23.6%

Source: TranSystems and US Bureau of Labor Statistics

4.4 Labor and Demographic Profile Figure 4-8 shows the number of employees by industry for the Detroit-Warren-Livonia District by Industry, and the unemployment rate for the District between 2001 and August 2011. The Detroit-Warren-Livonia region unemployment rate rose sharply, particularly between the years of 2008 and 2010, where unemployment reached 15.8 percent, and then fell back to 12.9 by August, 2011. The National Unemployment Rate stood at 9.1 percent in August of 2011. Industries hit particularly hard by the downturn were the three largest sectors in 2001. During the next 10 years, Trade and Transportation, Professional Services, and Manufacturing jobs fell by 20.0 percent, 17.3 percent, and 43.9 percent respectively. Only Healthcare and Education shows a positive trend over this time period, growing by 1.7 percent per year, and 18.8 percent over ten years. While most segments improved, or halted their declines in 2010, only the Government and Hospitality sectors continue downward; although neither of these sectors experienced sharp declines similar to the Transportation, Professional Services or certainly the Manufacturing sectors. Table 4-5 displays changes in growth for industries shown in Figure 4-8.

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Table 4-6: Tax Foundation Business Tax Climate Rank for Selected States

U.S. Rank

2006 2011

Indiana 12 10

Michigan 28 17

Illinois 26 23

Wisconsin 37 40

Ohio 47 46

Source: Tax Foundation

4.5 Business and Tax Environment In 2007, the State of Michigan changed its business tax code, replacing a modified Value Added Tax (VAT) with the Michigan Business Tax (MBT). The MBT was considered to be difficult to administer, especially for smaller firms that did not typically have dedicated tax accounting personnel. The MBT will itself be replaced in the 2012 tax year with a Corporate Income Tax (CIT), which will assess business tax at a simple rate of 6 percent. CIT compliance requirements are far less cumbersome than the MBT, and the new taxation approach is viewed as a positive development, especially for medium to small sized business. A component of the MBT that remains as a stand-alone tax in 2012 is a Personal Property Tax (PPT). Under the MBT, credits for machinery and equipment are allowed. The PPT effective in 2012 eliminates credits for machinery and equipment. This tax disproportionately affects manufacturing companies with large equipment inventories; however, there is an effort underway to repeal the PPT in its entirety. Under the new CIT, almost all tax incentives have been eliminated, and the focus is to grow existing Michigan business, while de-emphasizing attempts to attract business from outside of Michigan. The effects of the Michigan tax changes are unknown at this time; however, The Tax Foundation, which is an organization that ranks States by their “Business Tax Climate”, moved Michigan up 11 places, to 17th place in 2011 from 28th place in 2006. Table 4-6 provides ranking for Michigan and its top interstate trading partners. Of the East North Central States, only Indiana provides a better tax climate than Michigan, according to the Tax Foundation.

4.6 Foreign Trade Zones One trend for companies involved in international trade that has been growing globally, is the use of foreign trade zones (FTZ) for certain types of activities where these zones can provide economic benefits to clients. Customs duties are deferred, or even reduced for items that are stored or handled in a FTZ. For imported cargo simply stored in a FTZ, payment of customs duties are deferred for the length of time the cargo remains within the FTZ. This can be especially useful for warehoused goods that are awaiting sale, where sellers do not have to carry the import duty costs until after the sale of merchandise is actually transacted. Manufacturers or product assemblers also benefit from the use of a FTZ because in many cases, individual imported components of an item carry higher import duties than does the assembled item itself. A feature of a FTZ is that all components used in the manufacturing or assembly of an item are assessed at the rate of the assembled item, at a lower duty rate. Domestic items can also be used in FTZ product assembly. Products exported from a FTZ are free of duty and tax. Import cargo from Asia and Europe may benefit from FTZ tax and import duty reduction programs. Canadian goods, which are not assessed import duties under NAFTA, gain no particular advantage of FTZ processing, unless they are co-mingled with cargoes that are subject to import duties.

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When considering the overall suitability of the Translinked region as a logistics hub, FTZs are a required feature, but do not necessarily provide a logistical advantage because they can be established almost anywhere in the country. The region has gained much experience in the set-up and operation of FTZs, mainly due to the automotive industry’s participation in the 1980’s and 1990’s, and assistance to companies interested in setting up FTZ status in the Translinked area is readily available. Finally, having a FTZ is not an advantage, but not having one is a distinct disadvantage for firms that require FTZ services.

4.7 Trends in Transportation and the Near-Term Outlook

4.7.1 Trucking Industry The near-term outlook for the U.S. trucking industry is for rising costs due to rising diesel fuel prices and steadily increasing constraints on labor supply. There is likely to be a continued modal shift away from over-the-road to rail intermodal for highway truckload shipments, and a corresponding need for shippers to be more aligned with intermodal as their distribution networks evolve. Shippers are expected to face increases of 9 to 18 percent in trucking rates by 2012, due to rising truck fuel and labor costs, and will step up efforts to explore opportunities for network changes to substitute intermodal for truck.

Trends in the Trucking Industry: 1995 to 2010

• The volume of trucking activity in the United States, both for-hire and private, is about 8.5 billion tons of freight, accounting for about 70 percent of U.S. freight tons and 40 percent of ton-miles (U.S. Bureau of Transportation Statistics, Commodity Flow Survey).

• Truck shipments, measured by number of Truckloads (TL), Less-Than-Truckload (LTL) tons, etc., have tended to move in tandem with the growth of the U.S. economy and U.S. industrial production, represented by Real GDP and the Industrial Production Index (IP), respectively. Figure 4-9shows these relationships on an annual basis from 1995 to 2010, highlighting the most recent years of recession and recovery, 2008-2010. As shown in Figure 4-9, TL volume tended to grow at a somewhat faster rate relative to the economy (GDP and IP) from 1995 to 2002, and then at a slower rate from 2002 to 2010. The slower growth relative to GDP reflects the growing importance of services relative to goods in the U.S. economy. However, there is even a clear decline in truck volume relative to Industrial Production, which indicates both modal substitution (e.g., rail for truck) and changing logistics networks.

Figure 4-9: Indexes of Trucking Volume (TL and LTL), U.S. Industrial Production and Real GDP: 1995-2010 (1995=100)

Source: American Trucking Associations; TranSystems’ estimates

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• The falloff in truckload volume relative to the economy was particularly severe in the recession year of 2009. By contrast, the growth of LTL tonnage tended to lag the overall economy for the entire period. Also, as shown in the highlighted section of Figure 4-9, both TL and LTL volume significantly lagged the recovery in 2010. Finally, Figure 4-9 shows that the growth of both TL and LTL volume was far more variable over time than the overall economy.

• Trucking pricing and revenue have tended to lag the overall economy as well. Exhibit II shows annual indexes of TL revenue per load and LTL revenue per ton, adjusted for inflation, from 1995 through 2010. As shown in Figure 4-10, the TL index fell significantly from 1995 to 2003, recovered strongly from 2003 to 2006, then fell again from 2006 to 2009, particularly in the recession year of 2009, and recovered slightly during 2010. By contrast, the LTL index increased through 2006, and then flattened in 2007-2008 before declining sharply in 2009. Even in the recovery period of 2010, real LTL revenue per ton continued to decline.

• Figure 4-10 also shows that this overall fall in real revenue per load occurred during a period of rapidly rising real fuel prices. For example, by 2008, inflation-adjusted prices of diesel fuel were, on average, 2.5 times the level in 1995. Although fuel prices fell sharply after mid-2008, by 2010, they were still more than double the level of 1995 and continued to rise into 2011. The inability of truckers to raise rates in the face of rising fuel prices is largely due to competitive forces. In the case of TL freight, rail intermodal shipments have increased their share of longer-haul segments, and LTL shipments have been displaced by competition from small package operators. This severe cost-price squeeze has led to sharp deterioration in finances for many trucking companies and owner-operators.

• In addition to rapidly rising fuel prices, many trucking companies and owner-operators have faced increased difficulty in obtaining financing and in recruiting drivers. This has particularly affected the relatively long-haul segment of the industry (length of haul over 1,000 miles), as shown in Figure 4-11, which presents annual TL volume for 1996-2010 in three broad categories of length-of-haul. TL volume in the long-haul segment fell 25 percent from the peak in 1999 to 2010. The long-haul segment is where the difficulties of recruiting drivers have been most acute.

Figure 4-10: Indexes of Real Revenue per Load for Truckload Freight versus Real Diesel Fuel Prices: 1995-2010 (1995=100)

Source: American Trucking Associations; U.S. Dept. of Energy, EIA;

TranSystems’ estimates

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• Meanwhile, Figure 4-11 also shows that both the medium-haul (500-1,000 miles) and short-haul (less than 500 miles) segments grew significantly over the period. The medium-haul segment grew the fastest, especially through 2007, but has since declined sharply. Indeed, the medium-haul segment showed the most rapid decline in the recent recession and also the slowest recovery. In the case of both the medium-haul and long-haul segments, there has been major competition from rail intermodal service. Intermodal has long been making inroads on the long-haul traffic lanes, driven by rapid growth in international container volumes, particularly for those very long length-of-haul lanes (1,500-3,000 miles) between the West Coast and the Midwest, Gulf and Eastern Seaboard. However, more recently, with heavy investment in rail infrastructure, and as rail service performance and operating cost have steadily improved relative to highway shipments, rail intermodal has gained share in the medium-haul traffic lanes as well, particularly in rail-eligible lanes east of the Mississippi River.

Trucking Industry Outlook for 2011-2012

• Looking forward, as the U.S. economy continues to gradually recover from the recession; the trucking industry will be faced with continued and even more intense constraints on growth and upward cost pressure. The supply of truck drivers has been the major constraint over the last several years, and this constraint will be exacerbated by three major developments on the regulatory front:

o Compliance, Safety and Accountability (CSA) initiative – The U.S. Department of Transportation

(DOT) has placed increased emphasis on tracking of large over-the-road vehicles—buses and trucks—to identify and address safety issues. Truck drivers with less-than-perfect safety performance will be more rapidly removed from the pool of eligible drivers.

o Hours-of-Service Regulations – Further limits on driving hours per week or per day and stricter

enforcement of those limits will increase the number of drivers required for a given amount of freight movement. DOT will implement further restrictions beginning in late 2011 or early 2012.

o Increased scrutiny on illegal aliens – as truck drivers’ licenses come up for renewal, those unable

to provide documentation of U.S. citizenship will be denied a license. Ultimately, this might affect up to 10 percent of drivers.

Figure 4-11: Indexes of Truckload Loads by Length-of-Haul Segment: 1996-2010 (1996=100)

Source: American Trucking Associations and TranSystems’ estimates

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• An offsetting effect on the supply of driver labor is the potential for allowing Mexican truck drivers to enter the U.S. However, this is not a certainty, and, in any case, only applies to cross-border shipments, as Mexican drivers would still not be permitted to move freight on traffic lanes within the U.S.

o A constraint on Mexican truck transportation is being caused by increasing violence in the

northern Mexican states, which is prompting shippers to consider the more secure rail option when possible.

• In addition to driver constraints, the industry will encounter equipment shortages due to increasingly stringent financial requirements placed on borrowers, which are particularly constraining for poorly-financed firms and owner-operators in the long-haul segments of the market. At the same time, there is a strong possibility (although it is far from certain) that diesel fuel prices will continue to climb toward previous peak levels in 2008.

• The effects of these regulatory and economic factors will generally be to reduce supply and raise prices in over-the-road trucking. The effect on shippers will vary by traffic lane and will depend on the lengths-of-haul and presence of viable competition from rail in a particular lane. In cases where rail intermodal competition exists, over-the-road service will continue to rapidly lose share to rail, especially as railroads continue to invest heavily in the infrastructure for intermodal—both terminals and right-of-way. As fuel prices increase, the prices of both rail and truck will increase, but overall, truck prices will rise relative to rail. In addition, shortages of drivers and over-the-road equipment will put highway trucking at an increased disadvantage, particularly for longer length-of-haul traffic lanes and during periods of peak seasonal demand. Rail competition will limit price increases in these lanes. For traffic lanes not well-served by rail, however, truckers will have significant pricing power and rates will rise sharply. On average, supply constraints due to labor and equipment will increase truckload rates by 5 to 10 percent by 2012 over 2010 levels, with larger increases occurring in lanes that face no intermodal competition. In addition, increases in diesel fuel prices could add up to 10 percent in additional truckload rate increases by 2012.

• In view of these factors, the outlook for the next two years, 2011-2012, is for a continued steady decline of the highway share of Medium-to-Long-Haul shipments. In fact, with the increased constraints on the supply of drivers, there may even be a decline in the amount of longer-haul over-the-road TL shipments, even with a continued recovery of the U.S. economy.

• Therefore, shippers are advised to be alert to impending truck shortages and rate hikes, particularly during periods of peak seasonal freight movement. Longer term, shippers should consider orienting their distribution networks, to the extent possible to take maximum advantage of rail intermodal, where there are no comparable constraints on supply.

4.7.2 Trends in U.S. Containerized Trade The international container trade, particularly imports, is by far the fastest-growing driver of freight transportation activity in the U.S. In terms of tonnage, the international container trade (there is a moderate-size domestic container trade, mainly between the mainland U.S. and Alaska, Hawaii and U.S. territories) accounts for approximately 3 percent of the U.S. freight market. However, when measured in ton-miles, it is nearly 12 percent. Moreover, a substantial portion of the freight traffic moving in the U.S. classified as “domestic” is actually imports moving from import distribution centers in the vicinity of the inbound ocean ports to second-tier warehouses or to final destinations. Similarly, a significant portion of

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export freight moves as “domestic” from interior U.S. origins to ports for loading into containers to be shipped to overseas destinations. The growth of the international container trades to and from the U.S. averaged 5.3 percent per year over the past 15 years, with imports growing at a faster annual rate, 6.4 percent, and exports growing at 3.8 percent. The growth of the total international container trade was 6 to 7 times the annual growth rate of about 0.8 percent per year for domestic freight over the same period. Although growth of the container trade is likely to slow considerably over the next several decades, it will still be significantly faster than domestic, and developments in international trade will continue to play an increasing role in shaping the pattern of freight flows and logistics networks in the U.S. The following sections describe the container trade, its size, geographic distribution, commodity composition and growth; the major trends in the trade and their effects on transportation and distribution patterns in the U.S.; and the impact on the Midwest and the Translinked area. Growth of Containerized Imports and Exports In 2010, the most recent full year for which data are available, containerized imports into the U.S. from foreign overseas ports totaled 16.9 million twenty-foot equivalent units (TEU) and exports from the U.S. to foreign destinations totaled 11.0 million TEU. Domestic shipments between the U.S. Mainland and Alaska, Hawaii and U.S. territories totaled an estimated 2.9 million TEU.

Figure 4-12 shows the fifteen-year trend in containerized imports and exports, 1995 to 2010. As shown, the growth of imports over this period, 6.4 percent annually, far outpaced the growth of exports, 3.8 percent. Due to the disparity in growth, the ratio of import to export TEU increased sharply, from 1.07 in 1995 to a high of 2.14 in 2006 and 1.54 in 2010. This import/export imbalance has had major implications for the routing of both domestic and international loads in the U.S., as explained below. The relatively rapid growth of imports over this period is mainly due to an unprecedented growth

in goods consumption in the U.S. and an acceleration of the trend toward off-shoring of production of both consumer goods and related capital goods. After falling almost continuously from the end of World War II, the share of goods in total U.S. consumption began to rise in the early 1990s and continued a gradual increase up to 2007. The rapid growth in goods consumption was further boosted by the housing market boom of 2002-2007, which increased the demand for such goods as Building Materials and Furniture, which were being increasingly sourced from overseas, and produced a “wealth effect” on consumption from rising

Figure 4-12: Growth of U.S. Containerized Import and Export Loads, 1995-2010

Source: JOC Piers and TranSystems’ estimates

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home values. However, when the housing boom turned to bust, containerized imports reversed course. In 2007, imports declined slightly, and then in 2008, by 7.9 percent, the first significant yearly decline ever. This was followed by a further 14.9 percent in 2009. Even with a 13.1 percent increase in 2010, imports were still 11.3 percent below the peak annual volume reached in 2006. Exports grew at a rate substantially less than imports over the past 15 years, but overall have had a more robust performance than imports since 2006, as shown in Exhibit I. The key reasons for the recent surge in exports are a sharp decline in the U.S. Dollar relative to most major overseas currencies and continued strong growth of production and incomes in overseas economies. The sourcing of U.S. imported merchandise has been increasingly dominated by Far East countries, particularly China. Figure 4-13 shows that for imports, the share of the Far East increased from 59.9 percent in 1995 to 69.7 percent in 2010. By contrast, the Far East share of U.S. exports was essentially the same, 50.1 percent, in both 1995 and 2010. But with imports still the “heavy leg” in U.S. container trades, the steady shift to sourcing from the Far East tended to increase the role of West Coast port gateways. Impact of Container Trade on the U.S. Supply Chain The effect of the container trade on transportation and logistics in the continental U.S. depends on the particular commodities moved. Imports are mainly relatively high-value, light-density consumer goods and related capital or semi-finished goods, which are mainly sensitive to trends in U.S. real disposable income, industrial production and wealth. By contrast, exports tend to be lower-value raw or semi-finished products, sensitive to the value of the U.S. Dollar relative to other currencies and growth of overseas economies. Trends in commodity composition are shown for containerized imports and exports in Figure 4-14. For imports, those commodities most closely related to housing led the surge over the period 1995 to 2006, increasing their share of total imports from 14.8 percent to 24.1 percent over this period. However, these same commodities fell most rapidly in the 2007-2009 downturn, and stayed well below their peak share during the 2010 recovery. The share of the highest-value imports—Electronics, Apparel, Industrial Machinery, etc.—remained remarkably constant over the entire 1995-2010 period, falling only slightly from 37.8 percent in 1995 to 36.9 percent in 2010. Trends in exports show an increasing share of the lowest-value commodities—Forest Products, Recycled Material, etc.—although certain higher-value commodities such as Vehicles & Parts showed significant growth. The lowest-value export commodities increased their share from 33.5 percent in 1995 to 41.0 percent in 2010, and this was largely due to increased demand from China.

Figure 4-13: Far East as a Share of U.S. Containerized Imports and Exports, 1995-2010

Source: JOC Piers and TranSystems’ estimates

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Since containerized imports are oriented toward consumer goods, the geographic distribution of these goods by their ultimate destination in the U.S. tends to resemble the distribution of the population. By contrast, exports tend to originate in the coastal areas near container ports. The mismatch between the origin of exports and the destination of imports leads shippers to use domestic freight to reposition back to the port of entry those containers carrying imported merchandise to inland destinations.

Interior destinations such as in the Midwest are primarily served by intermodal rail service from the port of discharge. Destinations near the coasts are served either by truck from a nearby ocean port, or, in the case of many imports from the Far East, by intermodal service from West Coast ports. However, increasingly for long-distance inland movements—by rail or truck— international containers, 20-foot and 40-foot, are being unloaded at locations close to the discharge ports and their merchandise is reloaded into higher-cube domestic containers, normally 53-foot units. This transfer is done either at special-purpose transloading facilities or, more often, at Import Distribution Centers (IDCs) near the discharge ports. The capacity of two 53-foot domestic containers can typically absorb the contents of three 40-foot international containers, and this produces significant savings on inland linehaul costs. In addition, the “round-trip” economics of the inland shipment are improved with the 53-footer, which can be more easily repositioned back to the port area loaded with domestic freight. By 2010, the major California ports handling containerized imports—Los Angeles, Long Beach and Oakland—were shipping an estimated 55 percent of imported merchandise to inland destinations via high-cube domestic containers. The trend to transferring imported merchandise from

Figure 4-14: Trends in the Composition of U.S. Containerized Imports and Exports, 1995-2010

Source: JOC PIERS and TranSystems estimates

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20- and 40-footers into 53-foot units also increases the importance of IDCs in areas near major containership ports. It is also important to note that the transfer of the imported merchandise from an international container to a domestic unit, whether in a straight transload or via an IDC, changes the designation of the shipment from “international” to ‘domestic,” even though, in most cases, the merchandise hasn’t changed in any significant way. This is seen in a high percentage of so-called domestic freight coming in from a coastal origin to an inland metro area such as Detroit that is labeled “Warehouse and Distribution” freight. Most of this is essentially imported merchandise. All-Water versus Intermodal Service for Far East Imports Despite the proximity of West Coast ports to Far East markets and the widespread availability of intermodal rail service from West Coast ports to destinations in the interior as well as the East Coast and Gulf Coast, the West Coast has lost share of the Far East trade over the past 10-15 years. The West Coast share of Far East containerized imports went from a high of 85.1 percent in 1997 down to 71.4 percent in 2009. Geographically, the main destination areas affected by this shift were points along the U.S. Eastern Seaboard. Starting around 1997, rapid growth of Far East imports produced a series of intermodal service failures on the West Coast, particularly at the largest port complex, L.A./Long Beach. These failures accelerated the shift, already underway, of major retailers such as Walmart, Target and Home Depot to diversify their import distribution away from too much reliance on West Coast port gateways. Ocean carriers accommodated these shifts by expanding capacity and improving service to East Coast and Gulf Coast ports. The share of Far East imports moving in “all-water” service (AWS) through the Panama Canal and Suez Canal to East Coast ports (and, beginning in 2004, Gulf Coast ports) was the mirror image of the fall in the West Coast share. Most of the AWS traffic is “eastbound” from the Far East via the Panama Canal, but more recently, since 2007, vessel deployments from the Far East are moving “westbound” via the Suez Canal, particularly where vessels are too large to fit through the Panama Canal. Such westbound deployments also include not only U.S. East Coast ports, but also ports in Eastern Canada such as Halifax, and several U.S. and Canadian ports can provide reverse intermodal rail service for Far East imports to inland destinations such as Detroit. The trend toward increased share of AWS was halted in 2010, however, as the West Coast share of the Far East increased slightly to 72.1 percent versus a low of 71.4 percent in 2009. Moreover, there is a significant likelihood that AWS share of the Far East may stop increasing and even decline going forward. There are several reasons for this, and international distribution to the Midwest and other interior locations is a key determinant.

• In the first place, the major gains in AWS share of Far East imports have already been achieved. For example, in 2000, about 60 percent of Far East imports to destinations in the Northeastern U.S. were shipped via intermodal service over the West Coast, but by 2010, that share had fallen to less than 6 percent, meaning that over 94 percent of these shipments were entering the U.S. via East Coast ports. Similar conditions prevail in the Southeast.

• Secondly, the Eastern Seaboard region, which has the highest potential for AWS, is growing relatively slowly as U.S. population and industry gradually move in a southwesterly direction.

• Finally, the railroads have sharply improved the performance of their intermodal services off the West Coast, and, at the same time, AWS ocean carriers have shifted to so-called “slow steaming” in order to reduce fuel costs and mitigate air pollution. These developments have led to an

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improvement in the overall service performance of West Coast intermodal over East Coast services, especially for high-value, time-sensitive cargo.

• Even if AWS maintains its very high share of the Eastern Seaboard destinations, it is unlikely that AWS could be substituted for intermodal service from the Far East to the interior of the U.S., particularly the Midwest. The routings via the Panama Canal to the interior are too circuitous to make sense and for either Canal, the transit time differential between AWS and intermodal service off the West Coast would be even greater than for shipments to the Eastern Seaboard. The only significant potential for shipments from the Far East to Midwest destinations via East Coast ports is for westbound traffic using the Suez Canal. However, the potential for these routings appears to be minimal.

4.7.3 Trends in Intermodal Rail Intermodal rail volumes in the U.S. and Canada have grown at an annual rate of 2.6 percent over the last decade, as shown in Figure 4-15. Like most segments of the U.S. freight market, intermodal rail volume in the most recent full year, 2010, is still well below its peak. In the case of intermodal, 2010 volume, at 13.4 million loads, is still 5.9 percent below the peak volume of 14.2 million loads in 2006. Exhibit I also shows that growth of intermodal has been volatile over this period, particularly from 2007 to 2010, a period of deep recession followed by partial recovery. Intermodal growth has also varied by type of equipment. As shown in Figure 4-16, use of standard truck trailers in intermodal service declined sharply over the period 2000-2010, at an annual rate of -5.0 percent, while the share of container loads, both international and domestic, increased at a rate of 5.0 percent per year. Exhibit II also shows that among the containers, the fastest-growing are the 48- and 53-foot high-cube units, growing at a rate of 7.4 percent annually. With the percentage of high-cube domestic containers growing rapidly (and 53-footers rapidly replacing 48-footers), the merchandise moving in containers is growing at an even faster rate. When adjusted for container size, it is estimated that the growth of merchandise moving via intermodal service in containers is growing at a rate of 5.6 percent per year from 2000-2010, which is about twice the rate of growth of the U.S. and Canadian economies (Real GDP) over this period. The fastest-growing intermodal markets are long length-of-haul (1500+ miles) east-west traffic lanes, particularly those associated with containerized imports moving through ports on the West Coast to points east of the Rockies. Container volumes on these lanes have been growing at a rate two to three times as fast as the real growth of the U.S./Canadian economies, particularly with a growing dominant share of the Far East as a source of merchandise imports. In addition, since 2008, domestic intermodal volumes have gained an increased share of medium-haul (500-1,500 mile) traffic lanes at the expense of over-the-road truck service.

Figure 4-15: Annual North America Intermodal Rail Volume, 2000 to 2010

Source: IANA

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The growth of international container volume is the principal driver of rail intermodal growth, and loads arising from international imports or exports (mostly imports) account for about 60 percent of total intermodal loads. The share of international in total intermodal volume is even greater when expressed in terms of container-miles or ton-miles, because, as noted above, international loads are typically moving in the long length-of-haul traffic lanes. In terms of container (or trailer)-miles, international accounts for about 75 percent of total intermodal volume. However, as noted above, more recently intermodal has made significant gains in the domestic freight market, as

• Operating costs of over-the-road truck service have risen rapidly relative to rail and are expected to increase further, due to substantial increases in the price of diesel fuel and intensifying shortages of truck driver labor. The threat of a labor shortage is particularly prevalent in medium- and long-haul traffic lanes, and could create spot shortages of truck service, particularly in peak months.

• Rail service (e.g., transit speed and reliability, terminal dwell times, service frequency and coverage of origin-destination pairs) continues to improve due to major rail investments in infrastructure, such as expanded terminal facilities and improved right-of-way.

As an example of improved rail service, Figure 4-17 presents quarterly data on the average intermodal linehaul speeds, in miles-per-hour (mph), for the two major U.S. western railroads, the BNSF and the UP, from the first quarter of 2000 to the fourth quarter of 2010. BNSF’s average intermodal train speed increased from a low of 30.5 mph in third quarter 2004 to a high of 39.3 mph in second quarter 2009. The latter quarter was near the trough of the recent recession and was positively affected by light traffic volume, but even by fourth quarter 2010 after a substantial recovery in traffic, BNSF average speed was 36.3 mph or 19 percent faster than the low point. Similarly, the UP’s

Figure 4-16: Growth of North America Intermodal Service by Equipment Type, 2000 to 2010

Source: IANA

Figure 4-17: Quarterly Average Intermodal Train Speeds for North American Class I Railroads, 2000-2010

Source: IANA

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average speed increased from a low of 24.3 mph in fourth quarter 2005 to a high of 33.6 mph in third quarter 2009 and most recently at 32.4 mph in fourth quarter 2010, or a 33 percent improvement over the worst quarter. Also, the improvements in transit speed for both BNSF and UP by fourth quarter 2010 were achieved with substantially greater traffic volumes than in their periods of slowest intermodal train speeds. Containers and Transloading As shown in Figure 4-16, the container is rapidly becoming the dominant unit for intermodal transport in the U.S. and Canada, and higher-capacity containers are increasing their share of both international and domestic intermodal shipments. In 2000, the first year for which data are available, intact highway trailers accounted for 27.2 percent of total intermodal moves, and detached containers, both international (20-, 40- and 45-foot) and domestic (48- and 53-foot), the other 72.8 percent. By 2010, the share of intact highway trailers had fallen by more than half to 12.6 percent of total intermodal moves. Since 2000, use of containers has grown dramatically with the relatively rapid growth of international and the increasing dominance of double-stack service (DSS). The use of higher-cube domestic containers, particularly the 53-foot units, has grown most rapidly. Use of domestic 53-foot containers has been spurred by their role in transloading of inbound international containers at locations close to the inbound container port for movement inland. This transloading is performed at special-purpose trans-load facilities or, more often, at Import Distribution Centers (IDCs) for inland movement. Typically, the contents of three 40-foot international containers can fit inside two 53-foot units, and this conversion

• Saves on rail linehaul and destination drayage costs

• Provides for more efficient repositioning of units with loads back to container port areas

• Allows importers to re-allocate merchandise by destination at a point in time only 5 to 10 days before scheduled delivery, providing a better match between supply and consumer demand.

By 2010, containers accounted for 87.4 percent of intermodal loads (and an even higher share of intermodal ton-miles). The share of 53-foot containers was about 31 percent in 2010, up from 8 percent in 2000. Moreover, as noted earlier, 53-foot containers have significantly larger cubic capacity and account for an estimated 38 percent of the merchandise moved in intermodal transit. West Coast Intermodal versus All-Water and East Coast Intermodal As noted in an earlier section on the international container trade, the growth of the international component of intermodal volume has been affected by the change in share of West Coast discharge versus East Coast or Gulf Coast discharge of containerized import cargo.

• The West Coast share of imports has tended to increase, due to the growing dominance of Asia, particularly China, as the source of containerized merchandise. Approximately 60 percent of Asia-origin cargo discharged at West Coast ports makes its way (either as intact international containers or trans-loaded domestic containers) to destinations east of the Rocky Mountains, and nearly all of this traffic moves via intermodal.

• However, the extraordinarily rapid year-in/year-out growth of the Asia trade beginning in the late 1990s led to a deterioration of intermodal service off the West Coast, and a steady shift to alternative routes from Asia via the Panama and Suez Canals to East and Gulf Coast locations. The share of such all-water service (AWS) from Asia increased from a low of 14.8 percent in 1997 to a

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high of 26.7 percent in 2009. Destinations on the Eastern Seaboard within 200 miles from the East Coast shifted almost entirely to AWS.

• At the same time, import cargo via East Coast ports from Europe or via the Suez Canal to destinations in the Midwest shifted from highway truck to intermodal. This service was enhanced due to major initiatives by Eastern railroads like CSX’s National Gateway and Norfolk Southern’s Heartland Corridor.

• Beginning in mid-2009, the share of Asia-origin import cargo discharging on the West Coast began to rise again. For the full year 2010, the West Coast share increased to 73.1 percent, up from 71.8 percent in 2009. The main reasons for this shift appear to be (1) the exhaustion of opportunities for expansion of AWS to destinations on the Eastern Seaboard, and (2) the improvement in intermodal service relative to AWS—including the steady improvement in intermodal transit speeds referenced above, and the advent of “slow steaming” in AWS vessel deployments.

• The re-emergence of the West Coast advantage appears to have significant staying power. The AWS share is not likely to exceed the peak in 2009 even after the expansion of the Panama Canal in 2014-15 increases the capacity and potentially lowers unit costs of AWS.

Implications for the Midwest The Midwest share of total North America intermodal traffic has generally increased over the last decade, and the main driver of this increase in share has been inbound loads with imported merchandise. As shown in Figure 4-18, Midwest inbound volume increased from 2.55 million loads in 2000 to 3.53 million in 2010, a compound annual growth rate of 3.3 percent, well above the overall North America intermodal growth rate for 2000-2010 of 2.6 percent. For shipments originating on the West Coast, most of which are imported merchandise, Midwest destination volume increased at a still faster annual rate of 4.5 percent, and the Midwest share of intermodal shipments originating on the West Coast increased from 38.7 percent in 2000 to 45.8 percent in 2010. The composition of intermodal loads into the Midwest has been shifting more towards high-cube 53-foot domestic containers and a lower percentage of 20-, 40- and 45-foot international containers. For example, in the West Coast-to-Midwest intermodal market, the share of 48- and 53-foot container loads increased from a low of 18.6 percent in 2005 to 30.0 percent in 2010. The increased share of the high-cube domestic container suggests that import containers moving through West Coast ports with merchandise ultimately bound for the Midwest are increasingly being unloaded on the

Figure 4-18: Midwest Inbound Intermodal Volume from West Coast and Share, 2000 to 2010

Source: IANA

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West Coast with their contents transferred to high-cube domestic containers. Therefore, an increasing percentage of this import merchandise has already been through one “tier” of import distribution by the time it reaches a Midwest destination. Accounting for the higher cube of the domestic container, approximately 40 percent of the import merchandise coming through the West Coast to the Midwest has already been through one tier of distribution. This tends to reduce the share of total import distribution activity in the Midwest. The remainder of inbound intermodal volume into the Midwest is domestic loads plus a relatively small amount of import loads via East Coast and Gulf Coast ports. These loads grew at an average annual rate of 1.9 percent from 2000 to 2010, well below the overall average North America intermodal growth of 2.6 percent. Among the import loads via East and Gulf ports, an increasing percentage of the first-tier import distribution is handled in the area of the ports. The flow of intermodal freight to and from the Detroit BEA is similar to that of the total Midwest area. Figure 4-19 presents estimates for 2009 of total intermodal tonnage inbound to and outbound from the Detroit BEA for 2009 (see analysis Section 2.6.3). As shown, most of the largest intermodal lanes are inbound from and outbound to port related BEAs – Los Angeles, New York, Seattle, Norfolk and Jacksonville. In the case of these port-related BEAs, the “import” designation represents only those imports that are moving “intact” in international containers destined for plants or first-tier distribution warehouses in the Detroit area. As noted previously in Section 2.6.3, a substantial portion of what is labeled “domestic” actually represents freight that is essentially still import merchandise that has moved through an IDC or a transload facility and will be part of second-tier distribution in the Detroit BEA. For exports, a portion of freight that is labeled as “domestic” moving from the Detroit BEA is actually export cargo, to be transferred to export containers at the port.

In summary, growth of Midwest and Translinked region distribution activity has been increasingly driven by the relatively rapid growth of import merchandise, but the Midwest role in the distribution of much of that

Figure 4-19: Detroit BEA - Top-10 U.S. Intermodal Rail Lanes by Cargo Tons in 2009


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merchandise is shifting to second-tier. This is not to say that the Midwest role in first-tier import distribution is disappearing—indeed, in 2010 an estimated 60 percent of import merchandise to the Midwest via the West Coast is either going to a manufacturing facility or first-tier distribution. However, the percentage appears to be declining.

4.8 Representative Service Providers and Shippers A sample of major logistics service providers within the study region is presented in Table 4-7 and Table 4-8. The value added services provided by such companies, such as trucking, warehousing and distribution, enable shippers to service population and industries within the Translinked region and in surrounding areas. The companies and services support the various supply chain strategies and freight flows discussed in this study.

Table 4-7: Sample of Logistics Providers in the Study Region – Located in Michigan

Provider Value Added Services Offered Location

Michigan

All American Warehouse and Cold Storage Refrigerated warehouse services Detroit

APL Logistics Warehousing, 3PL transportation contractor Farmington

Bay Logistics Inc. Warehousing, 3PL transportation contractor Various

Detroit Machinery Center Inc. Warehousing, transportation services for machinery and parts

Detroit

Expeditors Intl. Air freight, ocean freight, customs brokerage, trucking, warehousing, logistics

Romulus

FedEx and FedEx SmartPost Small package, truckload and LTL trucking, logistics, ocean and air freight management, supply chain management

Detroit

Freezer Services of Michigan Refrigerated storage, import/export inspection, blast freezing, rail access

Detroit

Furniture Turn LLC Furniture manufacturing and distribution Detroit

Hollingsworth Logistics Management, L.L.C. Hollingsworth Logistics Management, L.L.C. Dearborn

JB Hunt Warehousing, 3PL transportation contractor Detroit

Kuehne & Nagel Air freight, ocean freight, customs brokerage, trucking, warehousing, logistics

Romulus

Nippon Express Air freight, ocean freight, customs brokerage, trucking, warehousing, logistics

Romulus

NorthGate Warehousing and distribution of automotive parts

Flint

UPS Small package, truckload and LTL trucking, logistics, ocean and air freight management, supply chain management

Livonia, Grand Rapids, Taylor, Madison Heights

Source: Hoovers and TranSystems

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Table 4-8: Sample of Logistics Providers in the Study Region – Located in Ohio and Ontario

Provider Value Added Services Offered Location

Ohio

Cauffiel Technologies Corp. General warehousing, manufacturing and distribution services for the steel industry

Toledo

CSX Intermodal Yard Intermodal rail terminal North Baltimore

Midwest Terminals Port terminal, warehousing Toledo

Toledo Harbor Warehousing Corp. Freight consolidation, trucking warehousing, cross-docking, trans-load services

Toledo

Ontario

Cargill Grain Warehousing Sarnia

Cole International Freight forwarding, 3PL warehousing and transportation,

Windsor

Con-Way Freight Trucking, and Less then Truckload (LTL) services'

Windsor

Harbour Warehousing All purpose warehousing complex with rail access

Sarnia

Laser Transport, Inc. Trucking warehousing, distribution Windsor

VersaCold Canada Corp. Warehousing and processing of refrigerated and frozen food products

Chatham-Kent

Wolverine Freight Systems Trucking, warehousing and distribution Windsor


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A representative sample of major shippers within the Translinked region is shown in Table 4-9, based on the presence of large warehouse facilities in the area and major commodity groups. It should be noted Logistics providers listed above are also major shippers in their own right, in light of the large amount of freight that they control and manage on behalf of multiple shippers. Small to medium-sized shippers in particular favor the use of 3PLs to manage their supply chains.

Table 4-9: Sample of Major Shippers in the Study Region

Company 2010 Revenue

(Billions) Commodity Segment

Federal-Mogul Corporation $6.84 Transportation Equipment

Ford Motor Company $134.12 Transportation Equipment

General Motors LLC $149.17 Transportation Equipment

The Chrysler Group LLC $41.90 Transportation Equipment

TRW Automotive, Inc. $15.97 Transportation Equipment

Alticore, Inc. (Amway) $92.00 Secondary Traffic

CVS, Inc. $104.01 Secondary Traffic

KMart Corporation $16.03 Secondary Traffic

Steelcase $2.64 Secondary Traffic

Target Corporation $69.24 Secondary Traffic

Whirlpool $18.80 Secondary Traffic

Domino's Inc $1.60 Food or Kindred Products

Meijer Companies, Ltd $0.02 Food or Kindred Products

Spartan Stores $2.58 Food or Kindred Products

Dow Chemical Corporation $59.66 Chemicals or Allied Products

Kelloggs $13.04 Farm Products


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Freight Forecast

5 DETROIT BEA FREIGHT FORECAST

5.1 Introduction Section 5 sets out a 10-year forecast of domestic and international, inbound and outbound, freight flows of warehouse-able commodities. The forecasts are used to identify growth sectors, and potential target sectors for development. The forecast methodology is described below followed by the forecast results and findings.

5.2 Methodology The approach to forecasting freight flows uses, for domestic flows, input-output data for the Detroit BEA and for combinations of U.S. regions external to the Detroit BEA. The international flows—overland from/to Mexico and Canada, and from/to overseas origins and destinations—are forecast based on commodity-specific econometric models, where freight flows are a function of macro-economic variables such as Disposable Income, Wealth, Exchange Rates and Industrial Production. Forecasts of industry-specific variables (growth of real output and employment) and macro-economic variables used in this analysis are provided by Moody’s Economic.com and The International Monetary Fund. Each of the forecasting techniques is described below. Input-Output Forecasting Inter-industry Input-Output tables are prepared periodically by the U.S. Department of Commerce. The tables specify, for each of 60 industries (mining, agriculture, manufacturing, services, transportation, education, health care, government) the estimated full input requirements for each unit of output of these 60 industries. The input requirements encompass primary, secondary, tertiary, etc. requirements for the output of various industries. For example, a unit of output from the Construction Industry may require direct input of a certain amount of output from the Building Materials industry, which may, in turn, require input from Mining, which may, in turn, require input from Construction and Building Materials, and so on. The input-output “coefficients” incorporate all of these effects. To forecast the inbound freight into the Detroit BEA, the growth rates for all goods-using industries are estimated (using industry data specific to Detroit from Economy.com), and the input-output table for Detroit is used to estimate the growth of goods-input requirements, which help estimate the forecast growth of inbound goods flow into Detroit. These industry-specific growth rates are then applied to the Base Year 2009 commodity- and origin-specific freight flows into the Detroit BEA (described in Section 2) to get annual forecasts of these Detroit inbound commodity-specific freight flows to 2020. To forecast outbound freight flows for the Detroit BEA, input-output tables and Economy.com industry-specific growth rates are applied to industry output for the East North Central Region (Indiana, Illinois, Wisconsin, Michigan, Ohio), which is the destination for most of Detroit’s outbound freight, and the remainder of the U.S. states. These forecasts of Detroit inbound and outbound domestic freight flows derived from input-output analysis are then adjusted as necessary to account for changes in the nature of the goods shipped (e.g., value per ton). Econometric Forecasting For foreign origins and destinations, where input-output data are not readily available, forecasts of inbound and outbound freight flows can be derived from econometric (statistical) models, relating time-series data on freight flows (quarterly or annual) to macro-economic variables related to Detroit, the U.S. or overseas countries. These econometric models are commodity-specific, and, like forecasts of domestic freight flows, forecast growth rates for each commodity by country origin or destination are applied to Base Year 2009 freight flows between Detroit and other countries (based on the data from IHS Global Insight) to forecast the commodity-specific freight flows.

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5.3 Economic Review and Outlook The Detroit BEA includes seven metropolitan statistical areas (MSA) that generate the vast majority of the region’s economic activity. They are Detroit-Warren-Livonia, Ann Arbor, Flint, Lansing-East Lansing, Saginaw-Saginaw Township North, Monroe, and Bay City. In turn, the Detroit-Warren-Livonia MSA is the largest economy in the region, accounting for 76 percent of the Gross Product generated by the seven MSAs. As shown in Table 5-1, the combined Gross Product of the seven MSAs expanded by 3.7 percent in 2010 after contracting in 2008 and 2009. In 2010, the combined MSAs expanded at a faster rate than the overall U.S. economy, which was partly driven by a recovery in manufacturing activity in the MSAs.

Table 5-1: Real Gross Domestic Product by MSA within the Detroit BEA

Real GDP (Billions of 2005 Dollars)

2006 2007 2008 2009 2010 2010

Growth Share of

2010 GDP

Detroit-Warren-Livonia 194 195 186 174 179 2.8% 75.9%

Ann Arbor 17 18 17 17 18 4.4% 7.4%

Flint 17 17 17 16 17 2.6% 7.1%

Lansing-East Lansing 12 12 11 10 11 1.7% 4.5%

Saginaw-Saginaw Township North 7 6 6 6 6 3.8% 2.6%

Monroe 4 4 3 3 3 3.1% 1.4%

Bay City 3 3 3 3 3 2.0% 1.1%

Total Above MSAs 254 255 243 229 236 2.9% 100.0%

Michigan 368 368 352 335 345 2.9% -

Toledo MSA 25 25 24 23 24 1.6% -

Total USA 12,896 13,144 13,100 12,774 13,100 2.6% -

Source: Bureau of Economic Analysis

The “Gross Product” of the Detroit BEA16 is forecast to grow at an annual rate of 1.3 percent between 2010 and 2020, as shown in Table 5-2. This is significantly slower than the 2.4 percent growth rate forecast over the same period for the East North Central Region, which accounts for about 70 percent of the inbound and outbound flows of warehouse-able freight to/from the Detroit BEA. Projections for the components of Gross Product that pertain to goods movement and storage are also presented in Table 5-2. Among these components, the largest as a percentage of Gross Product are Machinery & Parts manufacturing at 5.7 percent and Transportation Equipment & Parts manufacturing, 5.4 percent. The fastest growth is expected from Electronics manufacturing with a forecast CAGR of 5.0 percent between 2010 and 2020, and Machinery & Parts with a CAGR of 4.4 percent. Food & Related Products manufacturing accounted for an estimated 2.4 percent of the Detroit BEA’s Gross Product in 2010, but is forecast to grow at only a 0.3 percent annual rate from 2010 to 2020. The data in Table 5-2 also indicate that the Detroit BEA’s industries related to goods movement—manufacturing, transportation and warehousing—are forecast to grow faster than overall Gross Product. The weighted-average annual growth rate for these industries in the Detroit BEA is 3.1 percent. However,

16 Projections for the Detroit BEA are based on a review of economic data from the Bureau of Economic Analysis for the MSAs within the Detroit BEA and forecast data from Moody’s Economy.com.

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for Transportation & Warehousing, projected annual growth in the Detroit BEA, at 2.5 percent, is significantly less than the corresponding growth in the East North Central Region, at 3.7 percent.

Table 5-2: Economic and Industry Factors Related to Goods Movement in the East North Central Region and the Detroit BEA: Ten-Year Annual Growth Rates, 2010-2020

Economic Variable

Percent of Detroit BEA

Gross Product in 2010

Forecast Growth Rate

(%), 2010-2020

East North Central Region Gross Product

East North Central Transportation and Warehousing

-

-

2.4

1.3

Detroit BEA Gross Product

Detroit BEA Machinery & Parts Manufacturing

Detroit BEA Transport Equipment & Parts Manufacturing

Detroit BEA Electronics Manufacturing

Detroit BEA Food & Related Products Manufacturing

Detroit BEA Textile & Related Products Manufacturing

Detroit BEA Transportation and Warehousing

Detroit BEA Miscellaneous Products Manufacturing

Detroit BEA Chemical and Plastics Products Manufacturing

-

5.7

5.4

2.8

2.4

2.2

2.0

1.8

0.4

3.7

4.4

3.0

5.0

0.3

2.4

2.5

1.6

4.2

U.S. Gross Product

U.S. Transportation and Warehousing

-

-

2.7

4.7

Source: Based on MSA data from Bureau of Economic Analysis and Economy.com

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Freight Forecast

Figure 5-1: Forecast of Detroit BEA Inbound and Outbound Freight Flows –

Warehouse-able Commodities

Source: TranSystems Forecast for 2010, 2015 and 2020, and

IHS Global Insight Transearch data for 2009

5.4 Freight Flow Forecast The results of the forecast of inbound and outbound freight flows of warehouse-able commodities are summarized in Table 5-3. Total freight is projected to have increased from 89.9 million tons in 2009 to 97.8 million tons in 2010, driven by recovery from the recession and growth of industries in the Detroit region. Total inbound and outbound freight is projected to increase to 112.4 million tons in 2015 and 126.0 million tons in 2020 (Figure 5-1), based on domestic economic growth and the expansion of cross-border trade with Mexico and Canada, and growth of trade with overseas markets. The projected 10-year (2010 to 2020) compound annual growth rate (CAGR) is 2.6 percent. Domestic inbound and outbound trade is projected to grow at a 10-year CAGR of 2.4 percent, this relatively slow growth a reflection of the projected growth pattern of the Detroit BEA and U.S. economies, and the relative maturity of some of the larger commodities (e.g. Food Products) that comprise domestic freight flows. Domestic outbound freight is projected to grow at a faster rate than domestic inbound (10-year CAGR of 2.5 percent versus 2.3 percent) due to stronger economic growth in other regions of the U.S., which generates demand for commodities shipped from the Detroit BEA, notably in the manufacturing sector. Cross-border inbound and outbound freight flows with Canada are projected to grow at a marginally faster rate (10-year CAGR of 2.7 percent) than domestic flows. However, the growth of trade with Canada is lower than that projected for cross-border trade with Mexico (10-year CAGR of 5.1 percent). This reflects the relative maturity of economic integration between Canada and the Detroit region, slower projected economic growth in Canada than in Mexico, and the presence of some relatively mature commodities (e.g. Food Products and Forest Products) in Canada trade. Cross-border inbound and outbound trade with Mexico is projected to be the fastest growing component of freight; with a 10-year CAGR of 5.1 percent, 5.4 percent for inbound from Mexico and 4.6 percent for outbound to Mexico. The stronger performance of Mexico trade relative to the other freight sectors is driven by the composition of Mexican trade and several trends that are expected to influence trade with Mexico in the future. Regional trade with Mexico is centered on higher-value and faster-growth commodity sectors – inbound and outbound shipments of Transportation Equipment and outbound shipments of Chemicals or Allied Products, which includes plastics and synthetic fibers. Economic integration between the U.S. and Mexico continues, including the expansion of manufacturing in Mexico for the U.S. market. Relatively stronger economic growth in Mexico will also support demand for U.S. exports. Overseas Import and Export freight, which is clearly identifiable international cargo moving between the Detroit BEA and U.S. port gateways (e.g. Port of New York/New Jersey), is projected to register a 10-year CAGR of 4.3 percent, with Exports (4.4 percent) growing at a slightly faster rate than Imports (4.2 percent).

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The slightly stronger performance by Exports reflects the projected favorable market environment for U.S. exporters, international economic growth and a favorable U.S. dollar exchange rate. It is important to note that the identified Import and Export flows understate the actual volume of overseas freight flows due to the conversion of international cargo to a domestic cargo move. For example, a large amount of containerized imports arriving at Los Angeles/Long Beach is transloaded from 40-foot marine containers to 53-foot domestic containers, and then shipped inland. This is captured in freight flow databases as domestic freight.

Table 5-3: Forecast of Inbound and Outbound Freight Flows


Trade 2009 Tons 2010 Tons 2015 Tons 2020 Tons CACR 2010

to 2020

Domestic 44,334,660 47,678,414 54,438,636 59,970,374 2.3%

Canada 3,835,424 4,232,502 4,778,201 5,513,774 2.7%

Mexico 1,613,233 1,761,005 2,278,608 2,981,832 5.4%

Import 1,205,197 1,343,248 1,638,317 2,028,841 4.2%

Grand Total 50,988,514 55,015,169 63,133,762 70,494,821 2.5%



to 2020

Domestic 34,989,373 38,422,157 43,783,939 49,083,371 2.5%

Canada 1,512,627 1,665,247 1,962,443 2,218,630 2.9%

Mexico 812,665 927,945 1,209,384 1,451,046 4.6%

Export 1,581,080 1,796,395 2,316,588 2,756,368 4.4%

Grand Total 38,895,745 42,811,744 49,272,353 55,509,415 2.6%



to 2020

Domestic 79,324,033 86,100,571 98,222,574 109,053,745 2.4%

Canada 5,348,051 5,897,749 6,740,644 7,732,404 2.7%

Mexico 2,425,898 2,688,950 3,487,992 4,432,877 5.1%

Import & Export 2,786,277 3,139,643 3,954,905 4,785,209 4.3%

Grand Total 89,884,258 97,826,912 112,406,115 126,004,235 2.6%

Source: TranSystems Forecasts for 2010, 2015 and 2020, and IHS Global Insight 2009 data.

The Baseline projections indicate that truck shipments will grow at a slightly faster rate than shipments by rail. This result is driven by several factors – (1) the macro nature of the forecast models, with their underlying assumptions on industry input and output relationships, and fixed modal shares for individual commodities, (2) the large amount of freight moving between Detroit and truck friendly origins and destinations in the East North Central region, and (3) the current transportation mode distribution. However, the macro forecast models do not take into account significant transportation industry factors that are expected to accelerate the growth of rail usage. As discussed in Section 3.8, the trucking industry is faced with several challenges that are encouraging shippers to expand the use of rail in their supply chains. These factors include fuel price increases, favoring rail over highway transport, the cost of recruiting and

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Freight Forecast

maintaining truck drivers, investments by railroads in intermodal rail hubs tied to logistics parks, and increased marketing and attractive pricing by railroads of shorter haul intermodal rail services. For these reasons, it is likely that rail freight will grow at a faster rate than projected under the macro forecast growth rates summarized in Table 5-4.

Table 5-4: Macro Forecast Growth Rates by Transport Mode


Trade

Rail

Share 2010

Truck

Share 2010

Rail

10-Year CAGR

Truck

10-Year CAGR

Comment

Domestic 8.8% 91.0% 2.2% 2.4% Rail freight is likely to grow faster than projected here due to truck and rail industry trends – driver recruitment, fuel costs, etc., shipper interest in using more rail, investments by railroads in intermodal hubs, and railroad expansion into shorter distance corridors.

Canada 34.3% 65.0% 2.8% 2.7%

Mexico 60.1% 39.8% 5.0% 5.3%

Import & Export 16.0% 84.0% 4.2% 4.3%

Source: TranSystems Forecasts for 2010, 2015 and 2020

The Base projections of cargo flows shown in Table 5-3 are driven by assumptions related to regional, national and international economic activity, and relationships between industry inputs and outputs. Low and high case projections are presented in Table 5-5. The basis for these alternative projections is that the principal driver of freight flows is economic activity, represented by indicators such as disposable income and industrial production. In addition, housing-sensitive commodities are subject to more uncertainties going forward due to uncertainty as to the timing of recovery in regional housing markets. In general, 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 -0.2 to +1.5 percent per year. The growth sensitivities for international flows are -1.5 to +1.5 percent per year. A stronger recovery in regional, national and international economic activity would be expected to drive a healthy growth of international trade. As shown in Table 5-5, total inbound and outbound shipments of warehouse-able commodities are projected to have a 10-year compound annual growth rate of 2.6 percent under the Base Case, 1.9 percent under the Low Case, and 3.2 percent under the High Case.

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Freight Forecast

Table 5-5: Inbound and Outbound Freight Forecast for 2020 – Base, Low and High


2020 Tons CAGR 2010 to 2020


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%


2020 Tons CAGR 2010 to 2020


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%


2020 Tons CAGR 2010 to 2020


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.

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Comparative Location Analysis

6 COMPARATIVE LOCATION ANALYSIS

6.1 Introduction With the exception of air cargo, “last mile” delivery trucking costs make up the highest portion of transportation expense in a typical supply chain. As such, the location of a regional hub is heavily influenced by the trucking cost to distribute goods “the last mile”, to local area DCs, retail stores, or to local manufacturers. Locating DCs in high concentration customer/supplier areas reduces trucking expenses enough to more than compensate for lower ocean and rail costs to competing regions. The Translinked region must overcome two regional hubs that are well established and in a strong position to compete for DC operations in the Midwest; Columbus, OH, and Chicago, IL. Columbus has the highest U.S. and Canadian population reach of Detroit (representing the Translinked region) or Chicago, and Chicago has superior rail and air cargo services, as well as a large Midwest distribution reach. Both of these areas have competitive labor and industrial real-estate costs as well. Translinked region opportunities lay with companies with specific distribution needs, such as a high 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 that receive materials used in production from nearby sources are other potential candidates. TranSystems recommends a detailed, company by company analysis to identify opportunities based on the Translinked region’s specific advantages. Translinked area opportunities will be aided by addressing perceptions about the unpredictability of U.S.-Canada border crossings, or presenting the region in a “can do”, business friendly light. A short window of opportunity may be open due to concerns over truck driver and rail crew shortages, and volatile fuel prices. Logistics managers are currently open to considering location solutions that drive costs out of their networks, or that build flexibility into their supply-chains. Improved rail facilities that incorporate features of successful rail projects, such as on-site DC facilities, will also elevate the Translinked area as a competitive distribution hub. Importantly, private sector investment is critical to the success of logistics transportation infrastructure projects; therefore, we strongly urge more private industry involvement and representation in the Translinked initiative. Time is of the essence. It should be noted that recent improvements in Ohio, such as CSX’s Northwest Ohio Intermodal Terminal at North Baltimore, Norfolk Sothern’s Heartland Corridor serving Columbus, and BNSF’s Chicago rail terminal at Elwood combined with the CenterPoint Intermodal Center have been noticed in the industry. Other recent success within the Translinked region itself, such as port improvements in Toledo, have been attributed to public/private cooperation, and agreed upon priorities. Barriers impeding Translinked progress should be identified, and addressed. Slow moving initiatives will lose out to locations that are established, and proven. Creating a Translinked Marketing Organization, similar in concept to the successful KC (Kansas City) Smartport initiative, dedicated to identifying companies that would likely benefit from locating in the study area, is recommended as the first step that will identify realistic transportation opportunities.

6.2 Regional Truck/Rail Logistics Comparison Logistics managers evaluate the use of truck and rail within the context of cost savings on an ongoing basis. Improved reliability and transit speeds of railroads, and uncertainty caused by volatile fuel prices, or expected driver shortages have caused supply chain managers to consider the rail option whenever possible; however, the flexibility and transit speed capabilities of the trucking mode is often the only option, especially

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for time sensitive shipments. The choice of truck versus rail is decided based on delivery time and cost considerations.

6.2.1 Transit Time Hurdle When considering a move to rail from truck, the first hurdle that must be cleared is the transit time requirement. Just-In-Time (JIT) cargo needed for manufacturing purposes, for example, often has a very short lead time, and requires a high degree of on-time reliability. A late shipment can cause missed production schedules, thereby quickly erasing savings gained by using lower cost transportation options. Retail sales items that have to arrive in stores on-time, or perishable items are examples of goods that require fast, reliable transit. This cargo is more suitable for truck transportation, given that trucks tend to have faster transits than rail, and provide more scheduling flexibility. Shippers also consider trucks to have greater resiliency to service failures, due to easier access to trucks on highways, as compared to railcars on a rail network. This access enables shippers to change plans “mid-stream”. The lower cost rail option is preferred over trucking, if transit time requirements are acceptable, and rail service is available.

6.2.2 Total Landed Cost Comparison The motivation to use rail is to save money. Once transit time considerations are met, logistics mangers calculate the Total Landed Cost, which is the total of product, transportation, storage, inventory carrying costs, customs duties, transloading and any other costs that are incurred as a result of moving a product from point A to point B. This analysis allows shippers to evaluate modes on an “all inclusive” basis. Transportation costs examples include rail, trucking, barging, ocean or air. A particularly important component of Total Landed Cost is Inventory Carrying Cost, because transit time has a direct impact on Inventory Carrying Cost elements, as explained below:

• Cost of Money – the longer products stay in inventory, the longer money is tied up, incurring interest expense, and opportunity costs. Cargo in-transit is considered as inventory.

• Obsolescence – sales items, or items with a short shelf life, such as high fashion items carry a high inventory carrying cost, as the products become severely devalued after a short period of time.

• Safety Stock – the additional amount of inventory that must be kept on-hand to prevent stock-outs. Longer lead and transit time increases safety stock requirements, Cost of Money, Obsolescence…

Trucking may be more expensive than rail, but trucking’s faster transit may result in lower inventory carrying costs, and no transloading17 costs. Rail may be less expensive than trucking, but rail may incur additional inventory carrying costs, and may also result in truck transload costs. The transportation mode that results in the lowest Total Landed Cost is preferred. One outcome of this approach is that high-value18 goods are often moved by truck, because additional inventory carrying costs caused by longer transits of even a few days, or the threat of lost sales due to late train arrivals, overshadow cost savings gained by using rail. Strategies to carry low inventory in retail outlets and distribution centers factor into the landed cost calculation, and this strategy also favors faster transit trucking in order to reduce the risk of stock-outs, and missed sales opportunities. Even for time sensitive and high-value cargo; however, rail is evaluated. Improved rail reliability and transit capabilities are causing logistics managers to re-consider the rail option.

17 Transloading occurs during an intermodal move, such as from a rail boxcar to a truck. 18 High-value cargo is generally processed or semi-processed goods, and often retail items.

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Table 6-1: Estimated Rail Transits in Hours from Key Port Gateways to Selected Midwest Points

Origin Port Gateway Detroit Chicago Columbus

Halifax 89 73 97 a

Montreal 48 b 96 64 c

New York/New Jersey 68 51 65

Norfolk 63 47 39

Savannah 81 d 65 57 d

Prince Rupert 127 97 124 e

Seattle/Tacoma 162 132 162

Los Angeles/Long Beach 145 78 113

a) Estimated based on Columbus versus Detroit transit difference from NY/NJ

b) Montreal to Toronto + 24 hours c) 24 hours from Detroit d) Based on Norfolk Chicago to Columbus and Detroit spreads e) 24 hours from Chicago

Note: Rail transit times are based on published schedules and do not take account of other factors including congestion, container dwell

time, priority shipments, etc. In practice, transit times may be longer than indicated in the Table.

Source: TranSystems, Railroad Websites

6.2.3 Rail Transits Railroad transit times, measured in hours, from major port gateways are shown in Table 6-1. They are based on information from railroad websites; however, TranSystems’ experience is that actual rail transits can vary widely from published schedules based on port and rail corridor congestion, container dwell times at terminals, priority given to various shippers and other factors. The Port of Halifax, for example estimates that actual rail transits to Detroit from Halifax, Montreal, and New York are closer to 125, 103, and 168 hours respectively, if container “dwell time” is included in the transit. Railroad websites suggest a much shorter transit, at 89, 40, and 68 hours from Halifax, Montreal, and New York respectively. The most important characteristic of the inland rail move is reliability. Lead times for rail shipments have already been built into delivery requirements, so logistics managers in many cases can tolerate a day or two extra rail transit if arrival times can be relied upon. A separate market survey of transportation practices undertaken by TranSystems, included an interview with a U.S. retailer who used the fastest rail transit lane available. When the rail operator raised rates in that corridor, the retailer switched to a lower cost rail route because a transit saving of two or three days did not justify the higher rate, as long as the shipments arrived on-time. It is important to note that for some shippers of high-value or time-sensitive cargo, a two or three day shorter transit IS valued, and they would likely consider premium rates for faster, reliable service. Other influences on the use of a rail corridor are the ocean carrier used to import goods, or the type of North America distribution strategy. For example, Prince Rupert advertises the fastest ocean/rail transit from Shanghai to Detroit; however, if a shipper does not contract with one of the two ocean carriers that have vessels calling Prince Rupert, or on carriers that have space sharing agreements with those carriers, fast transit to Prince Rupert is not an option. An inland U.S. transportation strategy might employ a coastal facility that combines shipments from several origins, and redistributes cargo to North American destinations. The location of the coastal facility drives the rail corridor used, which may or may not result in the lowest rail transit in a particular corridor. The overall controlling considerations are service reliability, required transit time, and lowest total landed costs, including ocean, costal distribution, rail, and truck costs.

6.2.4 Transportation Cost Indication by Gateway When a shipper is considering gateway costs, ocean and rail costs are combined to arrive at the total cost per gateway. Transit time, cargo volume, cargo types, and number of services offered in a given gateway all affect total gateway costs. Table 6-2 provides a comparison by port gateway serving the U.S. Upper Midwest

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Table 6-2: Translinked Study Area Cost* Evaluation by North American Port Gateway

Port Gateway Cargo Origin Asia Cargo Origin Europe

Halifax/Montreal Below Market Market

Prince Rupert Below Market No Service

U.S. Northeast Ports Below Market Market

U.S. Southeast Ports Below Market Market

U.S. Pacific Northwest Market Below Market

California Ports Market Below Market

* Cost refers to ocean plus inland costs. Each port gateway is categorized as At Market or Below Market

Note: Based on interviews.

Source: TranSystems

region, categorized by Market or Blow Market cost (ocean plus inland) for imports from Asia or Europe. In general, the shortest transits have the highest rates (e.g. Shanghai to Los Angeles/Long Beach), while longer transit routes have the lower rates (e.g. Shanghai to Ney York via the Panama Canal). A notable exception to this rule is Shanghai to Prince Rupert, where ocean carriers have increased capacity, and have competitively priced the service to attract new business. As a result of severe railroad delays starting in the late 1990’s, and a dock worker labor lockout on the US West Coast in 2002, logistics managers began to diversify the number of gateways used to avoid reliance on a single port. All-Water Service (AWS) from Asia that bypassed the West Coast via the Panama Canal to access Eastern and Midwestern markets became more popular. Prior to this trend, AWS pricing was discounted due to the longer transit time required to sail vessels through the Panama Canal; however, the price gap between West Coast Gateways and AWS East Coast Gateways narrowed, as this route became more popular. The difference between the highest and lowest rate for the same origin and destination, but using different gateways might be comparable, when the total of ocean and rail/trucking costs are considered. The cost evaluations appearing in Table 6-2 are intended to provide a general illustration of port gateway costs. Actual rates are negotiated with ocean carriers and railroad operators on a case-by-case basis, and will vary by shipper.

6.2.5 Trucking Transits and Market Coverage As mentioned earlier, trucking costs make up the highest portion of transportation expenses; therefore, supply chain managers develop strategies that balance truck transit time requirements and trucking costs. Moving distribution centers as close as possible to end customers is a frequent goal. One method supply chain analysts use to determine the suitability of a proposed logistics hub is to calculate the U.S. Population that can be reached within a 10-hour truck drive-time extending outward from a proposed location. Ten hours is generally used as the trucking drive-time threshold due to US Federal Motor Carrier Safety Administration (FMCSA) safety regulations that limit the amount of time that drivers are allowed to spend behind the wheel. “Team driver” arrangements are allowable to extend driver hours, but typical distribution models use single drivers. Figure 6-1 illustrates the 10-hour truck drive-time areas covered by distribution hubs in Detroit (representing the Translinked region), Columbus, Chicago, and Harrisburg, PA. Harrisburg was included to illustrate the market role of more easterly distribution hubs. Table 6-3 displays the U.S. and Canadian populations falling within the 10-hour truck distribution areas of each city. The 10-hour truck drive-time areas were calculated by assuming free-flow traffic conditions and so do not take into consideration traffic congestion on particular routes, which can have a negative impact on truck service areas.

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Table 6-3: U.S. and Canada Population within 10-Hour Truck Drive-Time of Detroit and Selected Cities

Population Millions

U.S. Canada Total

Detroit 74.9 13.4 88.2

Columbus 109.6 8.7 118.4

Harrisburg 102.6 14.7 117.3

Chicago 75.7 8.2 83.9

Source: TranSystems derived from Census data

Detroit, while covering the second smallest population range (88.2 million people), reaches further north into Ontario and Quebec than do other cities included in Figure 6-1. The advantages of Columbus is that it include the highest population coverage of the four cities listed, encompassing 118.4 million people. The coverage offered by Columbus reaches from Midwest markets to the Central Atlantic States of Pennsylvania, New Jersey, Delaware, Maryland, Virginia, and extends south to points in Northern Alabama, Georgia and South Carolina. Harrisburg provides coverage of 117.3 million people and it has distribution advantages in Eastern Quebec, New Brunswick, the U.S. Northeast US and the U.S. Eastern Seaboard States of Virginia North Carolina. Western markets from South-central Minnesota, down to Eastern Nebraska, and across to the Northeast corner of Arkansas are best serviced from a DC in Chicago, as compared to the other selected cities. A total of 83.9 million people can be reached within a 10-hour truck drive of Chicago. Of the cities studied, Harrisburg (14.7 million) and Detroit (13.4 million) have the highest Canadian population reach. Harrisburg would be favored for target customers heavily concentrated in the East, Chicago for Midwestern markets, Detroit for Midwestern plus Canadian markets, and Columbus for population in both Midwest and Eastern markets. The challenge for the Translinked region, as a distribution hub, is its proximity to some of these more favorably located cities – for example, a company with a DC in Columbus can access the largest population of the four locations considered here and provide coverage of the Translinked regional market.

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Figure 6-1: 10-Hour Truck Drive-Time Area Comparison: Detroit, MI, Chicago, IL, Columbus, OH, and Harrisburg, PA

Source: TranSystems

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Table 6-4: Truck Transit Time from Detroit and Selected U.S. Distribution Hubs to Major Cities

Origin (Truck Transit Hours, > 10 Hours)

Destination Detroit Columbus Chicago Harrisburg

Chicago 5.4 6.7 - 12.2

Cincinnati 5 2.1 5.6 8.8

Cleveland 3.2 2.7 6.2 6.4

Columbus 3.9 - 6.7 7

Dallas 22.4 19.1 17.8 25.4

Detroit - 3.9 5.4 9.2

Indianapolis 5.9 3.5 3.5 10.3

Kansas City 14.5 12.1 9.9 19

Milwaukee 7.4 8.6 2.1 14

Minneapolis 12.9 14.1 7.7 19.7

Nashville 10.2 7.1 8.8 13.3

New York 11.8 10.3 14.8 3.6

Pittsburgh 5.7 3.7 8.7 4.1

Saint Louis 10.3 8.1 5.8 14.9

Toronto 4.6* 8.2* 9.7* 7.3*

* Subject to customs inspections, may extend transit beyond 10 hours

Source: TranSystems and Truckloadrates.com

Table 6-4 provides estimated truck transit times from selected cities to major population centers. Transit times shown in red denote corridors that are beyond the 10-hour delivery radius of most DCs. For example, none of the DCs would likely service Dallas. Chicago is within range of most of the largest Midwest Cities, and Harrisburg is the only DC within 10-hour range of New York City. To illustrate how truck volume to destination cities affects overall trucking costs, Table 6-5 displays the populations by U.S. Census Bureau Metropolitan Statistical Area (MSA) for the largest Midwest Markets, and the population of Toronto, ON and truckload rates to each of these cities from Detroit, Chicago, Columbus and Harrisburg. Table 6-5 should be viewed as a basic example of a regional DC analysis of trucking costs, where large regional DCs covering several states feed smaller DCs that service a metropolitan area. If truckload volumes to each destination are proportional to destination city populations, Detroit and Chicago have the lowest average total trucking costs. Chicago is aided by having local trucking rates to the third largest MSA in the cities listed, while other markets would have to pay long distance trucking rates to serve those same Chicago area customers. A regional DC located in Detroit benefits from local truck rates to 4.3 million people in Detroit, as well as the lowest long distance trucking cost to the large population center of Toronto. If Toronto is removed from the analysis, Chicago becomes the lowest cost hub, while Detroit falls to the third place position behind Columbus. It should be noted that, per Table 6-4, Detroit cannot serve Kansas City, Minneapolis, Nashville or St. Louis within a 10-hour truck drive, which may not meet service level requirements of some shippers. Service to Toronto may be affected by inspection and other delays at the border, which could disqualify Toronto from a Detroit DC service area. Interviews with logistics managers suggest that the existence of a border crossing within the distribution area of a warehouse is workable, but not desirable. This emphasizes the importance of addressing concerns regarding border delays, because access to the Toronto market is important if the Translinked region is to be viewed as a leading Midwest distribution location. A common observation of prospective regional hubs is that cargo often passes through their regions, only to be transported back into the area later. Network optimization may cause truckloads to actually pass through their eventual destination. Chicago’s lower DC distribution costs may cause containers to pass through Detroit to Chicago, where cargo might be comingled with other freight, and trucked back to Detroit. In this case, total U.S. network distribution cost savings outweigh rail cost or transit time savings to Detroit, even if containers pass through the Translinked region initially.

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Table 6-5: Estimated Truckload Costs from Detroit and Selected U.S. Distribution Hubs to Major Cities

Destination

2010

MSA Population

MSA Rank

Origin (Estimated $ per Truckload)

Lowest Cost, 2nd Lowest Cost

Detroit Columbus Chicago Harrisburg

Chicago 9,461,105 3 $555 $474 $150 $645

Cincinnati 2,130,151 27 $462 $534 $584 $549

Cleveland 2,077,240 28 $456 $443 $670 $448

Columbus 1,836,536 32 $456 $150 $678 $446

Detroit 4,296,250 12 $150 $553 $606 $563

Indianapolis 1,756,241 34 $583 $555 $457 $560

Kansas City 2,035,334 29 $1,167 $1,007 $867 $989

Milwaukee 1,555,908 39 $618 $608 $541 $828

Minneapolis 3,279,833 16 $1,053 $1,085 $664 $1,094

Nashville 1,589,934 38 $842 $562 $761 $642

Pittsburgh 2,356,285 22 $680 $489 $1,005 $455

Saint Louis 2,812,896 18 $823 $577 $577 $783

Toronto 5,471,400 - $577 $1,066 $1,150 $956

Weighted Average $612 $645 $615 $709

Source: TranSystems, TruckloadRates.com and Census Data

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6.3 Location Profiles – Columbus and Chicago

6.3.1 Columbus, OH A DC located in Columbus is considered to have the largest population reach of any U.S. location, due to its proximity to the largest U.S. population centers in the Midwest and Eastern states. Over 118 million people live within a ten-hour drive of Columbus. Columbus has also benefitted from recent developments, such as the Rickenbacker Logistics Park, Norfolk Sothern’s Heartland Corridor, with improved transit times from Norfolk to Columbus, and intermodal terminal improvements as part of CSX’s National Gateway Initiative. Table 6-6 summarizes several key logistical characteristics offered by Columbus.

Table 6-6: Columbus Regional Logistics Summary

Columbus, OH

Railroads and Service Area CSX – U.S. East, Midwest, main Western States Access

NS – East, Midwest access

Western States and Canadian cargo connects to railroads serving those areas, i.e. UP, BNSF, CP, and CN.

Highway Description I-70 and I 80 to the north provide east/west access, I 71 and I 75 to the west provide north/south access


U.S. and Canada Population Reach 118.4 million within 10-hour truck driving radius

Total Warehouse Space (sq. ft.) 205.9 – 213.8 million

Vacancy Rate 11.5% – 3.7%

Average Lease Rate ($/sq. ft./yr)* $2.70 – $3.32

Transportation and Materials Moving Occupation Wage (Hourly)

$14.85

Fastest Ocean Gateways Norfolk, New York

Airport

US Rank**** 54th

Total Cargo (metric tons) **** 69,748

Distribution Area Target US Midwest, Northeast, Mid Atlantic


Source: TranSystems, CB Richard Ellis, Grubb and Ellis, Colliers, US Bureau of Labor Statistics, Airport Council International – North America, and Railroad websites

The Rickenbacker Inland Port is the best example of a multimodal/intermodal logistics park in the area. Key features of the facility are on-site access to the NS intermodal rail terminal, the Rickenbacker International Airport, and I-270. On-site rail access accommodates logistics strategies to reduce trucking costs, as cargo can be delivered to DCs that are directly adjacent to rail and air facilities. Because of the multimodal advantages, several Third Part Logistics Providers (3PLs), such as Exel, Kuehne & Nagel, Nippon Express, Expeditors International have locations at Rickenbacker. Regular cargo airline service is offered by UPS and FedEx, with less frequently scheduled cargo services offered by international carriers, such as Evergreen Air and Kalita Air. Attracting dedicated international cargo airlines other than UPS or FedEx is significant because the current trend of these carriers is to limit service to very large air hubs, such as Miami, FL, Chicago, IL, or Los Angeles, CA. The lack of daily service from multiple international cargo airlines into

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either Columbus or Rickenbacker international Airports indicates that the Columbus area is not considered to be a major air cargo gateway into the Midwest; however, air cargo services are an advantage of the Rickenbacker facility. Justification for air cargo services that do call Rickenbacker is based on the needs of tenants, and the large population coverage offered by the location. TranSystems interviews suggest that the Rickenbacker air facility does not break-even financially; however, air cargo services support logistics needs of the airfield tenants, such as The Limited Companies and others, and jobs created by the facility are viewed to compensate for losses.

6.3.2 Chicago, IL Chicago has the third largest U.S. metropolitan population with over 9 million people, and is served by six of the seven Class 1 Railroads that operate in North America. In addition to the local population, over 75 million people can be reached within a 10-hour truck drive from Chicago. Chicago is also North America’s fifth largest cargo airport, with regularly scheduled service from over twenty cargo airlines from around the world, in addition to passenger airlines, such as Air China, Air France, Singapore Airlines and others that transport air cargo on passenger jets. The combination of population mass, ample rail intermodal service, and nearby access to one of the key Midwest air cargo hubs provide compelling reasons to locate Midwest regional DCs in the Chicago area. Rail congestion is noted as an impetus to establish rail facilities elsewhere that allow trans-continental rail service to bypass Chicago. CSX’s North Baltimore project is an example of such a rail facility. Table 6-7 summarizes several key logistical characteristics offered by Columbus.

Table 6-7: Chicago Regional Logistics Summary

Chicago, IL

Railroads and Service Area CSX US East, Midwest, main Western States Access

NS East, Midwest access

UP and BNSF, States west of the Mississippi

CN, Canada Rail Markets, US Central Plain States, Gulf

P, Canada Rail Markets, US Northeast, US Midwest

Highway Description I-94 and I 57 provide north/south access, I 80 east/west, and I 90 northwest access


U.S. and Canada Population Reach 83.9 Million within 10-hour truck driving radius

Total Warehouse Space (sq. ft.) 1.0 – 1.3 Billion

Vacancy Rate 9.3% – 11.3%

Average Lease Rate ($/sq. ft./yr)* $3.90 – $4.39


$16.46

Fastest Ocean Gateways West Coast (Asia origin cargoes)

Airport

U.S. Rank 5th

Total Cargo (metric tons) 1,376,552

Distribution Area Target US Midwest



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An example of a logistics industrial park in the Chicago Area that combines key elements of a successful supply chain cost reduction strategy is CenterPoint’s 2,500-acre industrial complex located in Joliet. The main attraction to this facility is on-site service provided by the BNSF railway, which reduces trucking costs to DCs located at CenterPoint to an estimated $92 per container. CenterPoint considers this to be such a strong selling point that they included a “Drayage Calculator” on their website that estimates cost savings of locating at CenterPoint versus five other site locations in the Chicago area. Companies like WalMart agree with the cost saving potential of the development, and have located at CenterPoint. Separate TranSystems interviews of logistics managers in the Chicago area revealed that the single downside of the development is that BNSF is the only railroad to serve the site. If freight arrives at other railroad terminals, containers have to be drayed back to the CenterPoint facility. The Chicago logistics market is so large that smaller municipalities within the metropolitan area compete with each other for customers. Local government supports development initiatives by providing tax incentives, such as lower tax rates for “urban blight” areas, or they quickly re-zone roadways to accommodate over-weight truck loads, or re-direct roadways to facilitate the flow of freight traffic between key logistics hubs and highways. Cooperative government is a key consideration when selecting a logistics hub, after transportation cost and service requirements are met.

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6.4 Regional Comparison Summary The Translinked region faces steep competition as a Midwest regional logistics hub. Table 6-8 presents a comparison of key transportation hub considerations for Detroit (representing the Translinked area), Columbus and Chicago. Detroit has distribution advantages if Ontario, Canada is included as part of a DC service area. Columbus offers the largest population coverage within a 10-hour truck drive, and the lowest transportation cost, labor rates, and industrial real estate lease rates. Chicago has the edge for railroad, or air cargo service availability. Chicago also has the highest Midwest market distribution reach.

Table 6-8: Detroit, Chicago and Columbus Summary Table

Detroit, MI Columbus, OH Chicago, IL

Rail Access

Railroads CSX, NS, CN, CP CSX, NS CSX, NS, UP, BNSF, CP, CN

Service Area

CSX US East, Midwest, main Western States Access


CN, CP Canada Rail Markets, US Central Plain States, Gulf

CSX: US East, Midwest, main Western States Access

NS: East, Midwest access

Western States and Canadian cargo connects to railroads serving those areas, i.e. UP, BNSF, CP, and CN.

CSX US East, Midwest, main Western States Access


UP and BNSF, States west of the Mississippi

CN, Canada Rail Markets, US Central Plain States, Gulf

CP, Canada Rail Markets, US Northeast, US Midwest

Highway Access

US-69 to Blue Water Bridge to CA-402,US 75, US 375CA-401 via Ambassador Bridge, US-96, US-94, US-275 (to US-80),

I-70 and I 80 to the north provide east/west access, I 71 and I 75 to the west provide north/south access

I-94 and I 57 provide north/south access, I 80 east/west, and I 90 northwest access


Population Reach (10 hour truck radius, US and Canada)

88.2 million 118.4 million 83.9 million

Total Warehouse Space (sq. ft.) 366.8 – 524.0 million 205.9 – 213.8 million 1.0 – 1.3 Billion

Vacancy Rate 13.5% - 14.9% 11.5% - 13.7% 9.3% – 11.3%

Average Lease Rate ($/sq. ft./yr) * $3.87 – $3.91 $2.70 – $3.32 $3.90 - $4.39


$17.24 $14.85 $16.46

Fastest Ocean Gateways Halifax, Prince Rupert Norfolk, New York West Coast (Asia origin cargoes)

Airport

U.S. Rank 27th 54th 5th

Total Cargo (metric tons) 193,344 69,748 1,376,552

Distribution Area Target Ontario, Canada, Michigan Peninsula, OH, IN, WI, IL

US Midwest, Northeast, Mid Atlantic

US Midwest



translinked regional freight study

Business

ihs global

central plain

los angeleslong

rising fuel

fixed modal

primary metal

cb richard

current rail