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					                       Growing Strength
                                                     of Railroad
      Intermodal Facilities

                                           By Mark T. Sonnenberg, CCIM, SIOR

                                           “I’ve been working on the rail-       Consumer and manufactured
                                           road” has returned as a familiar      goods actually overtook coal as
                                           refrain heard across the country.     the top freight category in 2003,
                                           America’s railroads are spending      White reports. And while domes-
                                           billions of dollars each year to      tic shipments of products des-
                                           keep up with the increasing           tined for distribution across the
                                           demand for freight hauling. Last      country and for export are an
Mark T. Sonnenberg, CCIM, SIOR,            year alone, U.S. freight railroads    increasing part of the mix, the
serves as the Director of the Industrial   spent $8.3 billion to improve         influx of imported goods stands
Sales and Leasing Team for Colliers        roadways, buildings, and equip-       out as a key component in the
Turley Martin Tucker’s Kansas City,        ment, according to the Associa-       growing importance of railroads
Missouri, office. He specializes in        tion of American Railroads (AAR).     in the intermodal market.
landlord and tenant representation            “Over the past 10 years, rail-        In fact, intermodal volume set
services throughout the Kansas City        road spending for capital expen-      a new record of 3.7 million loads
Metropolitan area and the United           ditures has averaged 18 percent       in the third quarter of 2006,
States. Mark also serves on the            of the freight haulers’ revenues,”    according to the Intermodal
advisory board of the Colliers             says Tom White, AAR spokes-           Association of North America’s
Multi-Modal Services Group.                man. That’s four times greater        (IANA) Market Trends and
                                           than the 3.8 percent of revenues      Statistics report published last
                                           spent in the manufacturing sec-       November. Imports spurred an
                                           tor, and it demonstrates the rail-    8.6 percent rise in international
                                           road industry’s commitment to         traffic during the quarter, mark-
                                           increasing capacity and efficiency.   ing the 18th consecutive quarter
                                              Intermodal shipments are the       of growth, according to the IANA.
                                           primary driver of the railroads’         With international intermodal
                                           hurried pace of expansion, along      shipping growing at 15 to 20
                                           with record amounts of coal           percent a year, imports are the
                                           shipped from the Powder River         leading factor in this explosion.
                                           Basin in Wyoming and elsewhere.       China has become powerful in
the global economy. Goods
from China are shipped on
massive 8,000-container
ships, and each ship unloads
the equivalent of 27 double
stack-container trains that
would stretch for 41 miles
or a series of tractor trailers
that would line up for more
than 80 miles.
   In a presentation last year,
Skip Kalb, Director of
Strategic Development for
BNSF Railway, noted that
China accounted for 70 per-
cent of the Asia Pacific                                     Further, White of the AAR explains, “The
imports landing on the West Coast. And there’s no         growth of both exports and imports mean that
end in sight. Led by products from China, imports         large volumes have to move long distances, either
are expected to climb nearly eight percent annually       from port to markets or from production facilities
over the next four years.                                 to ports. The rail advantage over highway grows
                                                          as distance and volume increase.”
The Return of the Iron Horse
Intermodal shipments are a huge part of the rail-         Industrial Revolution
road’s resurgence, but other factors are playing a        Against this backdrop, SIOR brokers from across
role as well, such as the rising cost of fuel, the con-   the country have seen unprecedented demand for
tinuing shortage of truck drivers, and the growth         industrial space, especially large modern bulk facil-
of international trade.                                   ities served by railroads.
   In the 1950s, America embarked on building its            Numerous developments have been completed
massive interstate highway infrastructure, which,         or are in the works across the country to satisfy
pardon the pun, placed trucking in the driver’s           this demand (see sidebar on page 25).
seat. As freight volume diminished, railroads pared          In particular, the railroads and many developers
back their investments, particularly in real estate.      are looking outside the West and East Coasts, the
   By the 1980s, though, imports began to take            nation’s primary ports that are rapidly nearing
center stage. After partial deregulation, it became       capacity. (The longshoreman’s strike on the West
increasingly clear that railroads would have an           Coast a few years ago also led many companies,
opportunity to become an important part of mov-           especially retailers such as Wal-Mart, Target, and
ing goods efficiently from ports to distribution cen-     Costco, to rethink their distribution strategies and
ters across the country.                                  locations.)
   The cost-effectiveness and efficiency of railroads        Michael R. Haverty, Chairman and CEO of
have become even more evident as the trucking             Kansas City Southern, noted in a presentation last
industry faces several challenges: rising fuel costs,     October, that Los Angeles and Long Beach are
tougher emissions standards that will require             nearly at 80 percent of their capacity. Therefore,
immense investments in new equipment, tighter             railroads are often looking to the Heartland to
regulation of hours of service rules for drivers, and     ensure capacity is increased to meet rising demand
rising insurance premiums. Plus, the trucking             from intermodal shipments.
industry faces a critical shortage of long-haul driv-        Terry Stieve, SIOR, a Senior Vice President for
ers, with estimates placing the shortage of truck         Colliers Turley Martin Tucker in St. Louis, has
drivers at 110,000 by 2014.                               seen this increased interest as the Gulf Coast and
the Mexican port of Lazaro                 Midwestern cities, already boasts more than 223 mil-
Cardenas become important ship-                                        lion square feet of industrial/manu-
ping/intermodal lanes.                                                 facturing space. A planned inter-
   “In recent years,” he says, “Wal-    already established as modal hub in Plainfield, the
Mart built two side-by-side distri-                                    Indianapolis area’s largest base of
bution facilities totaling four mil-      major players in the modern bulk distribution, will only
lion square feet near the Houston                                      catapult its importance.
port on the Gulf, and other retail-                                       “The evolution of an intermodal
ers such as Home Depot have fol-
                                            regional/national hub in Plainfield, combined with
lowed Wal-Mart’s lead.”                                                the continued price increase for oil
   In all, Stieve says that more than distribution channel, and gas, may lead to more rail
one-third of Wal-Mart’s containers                                     requirements in the months ahead
now go through Houston. St.
                                         stand to benefit from as companies look for cheaper
Louis will gain in stature as a                                        ways to ship goods,” says John
major distribution hub as interna-                                     Huguenard, SIOR, Senior Vice
tional shipments arrive at ports              investments in           President in Colliers Turley Martin
outside the West Coast. “The                                           Tucker’s Indianapolis office.
significance [for] St. Louis is that intermodal facilities.               The development of the
now those containers are coming                                        Plainfield project, plus the fact that
1,000 miles closer than they were                                      Indianapolis is improving its ports,
before,” Stieve says. “We are per-                                     means that railroad freight may
fectly centered, we have the land and we have the     soon be able to move directly to Indianapolis
railroad (the nation’s third largest track system),   instead of first passing through Chicago, a city
air, water, and highway infrastructure. Things are    that has become a bottleneck for freight,
not just changing a little bit, they’re changing      Huguenard says.
   He points, for example, to Gateway Commerce        Kansas City: Here We Come
Center across the river in Illinois. Since it opened  Perhaps there’s no more promising potential for
in 1998, more than 6.6 million square feet of space huge intermodal facilities than in Kansas City,
has been built there, including large distribution    Missouri, a town long known for its railroad con-
centers for Hershey Foods, Procter & Gamble,          nections. Two massive projects are in the works.
Unilever, Dial, Lanter, and Buske Lines. Just min-       BNSF has outgrown its existing intermodal facil-
utes from the St. Louis Arch, Gateway Commerce        ity in Kansas City, Kansas, which in recent years
Center has established a base for regional distribu- has been finishing second only to Logistics Park-
tion centers and logistic services. And there’s still Chicago in intermodal volume growth on BNSF’s
room for the development to grow.                     network. For its central location, the railroad
    Near the massive Gateway development, Triple      chose Kansas City, Missouri, which has long
Crown Services has built a $7 million intermodal      served as a distribution center for much of the
facility on 62 acres in Edwardsville, Illinois, and   population in a five-state region. It also helps that
Lakeview Commerce Center recently opened on           Kansas City is the second largest rail hub in the
600 acres with the potential for 6.5 million square   country.
feet of distribution space when completed.               The combination of BNSF rail lines passing
Ozburn-Hessey also has four million square feet of through the Kansas City area en route from the
flexible distribution space to serve a number of      ports in Northern and Southern California and
companies bringing products to market.                Kansas City’s freeway network created the oppor-
   Midwestern cities, already established as major    tunity for BNSF’s third logistics park in that area.
players in the regional/national distribution chan-   BNSF will begin construction on a 1,000-acre
nel, stand to benefit from investments in inter-      industrial development near Gardner, Kansas, a
modal facilities as well. Take Indianapolis, which
growing community in the southwest-
ern part of the metro area. Last
                                             Intermodal Developments
October, BNSF reached an agreement
with The Allen Group, one of the             The growth of intermodal container traffic, especially from the
nation’s leading industrial development      rising tide of imports from China, has challenged railroads to
companies, to develop the logistics          handle the load. To meet this need, developers and the railroads
park.                                        have been working feverishly on a number of projects through-
    Trains hauling container shipments       out the country. Here are a few of the more publicized inter-
from Southern California’s ports would       modal facilities either undergoing expansion, under develop-
use the facility to transfer cargoes to      ment, or in the planning stages:
trucks so these goods can be hauled to         • Union Pacific is working on a 342-acre intermodal facility
regional destinations or be stored on        with The Allen Group in South Dallas.
site in warehouses. The logistics park
will place distribution centers adjacent       • Argent/ProLogis are jointly developing a 200-acre site near
to the intermodal hub and may eventu-        Union Pacific’s South Dallas development.
ally offer as much as 10 million square         • Hillwood Development Co. purchased an additional 1,670
feet of distribution space.                  acres on the north end of Alliance, Texas, Logistics Park
    Although it will take several years to   Alliance in the Fort Worth area.
complete, BNSF’s intermodal facility
and The Allen Group’s logistics park             • A 457-acre facility is well underway in Sauk Village,
will be a powerful engine for economic       Illinois, and a second development is taking shape on an old
growth in the Kansas City area.              LTV steel property on the south side of Chicago. The LTV site
    BNSF has been a leader in such facil-    provides rail and barge options. The Chicago area actually han-
ities, with similar centers completed        dles almost as many container boxes as Los Angeles/Long
recently in Elwood (suburban Chicago),       Beach and New York/New Jersey combined.
Illinois, and Fort Worth, Texas.                • BNSF and CenterPoint have an immense intermodal/ logis-
    As in those areas, BNSF’s intermodal     tics center in Elwood, Illinois, with plans for developing 219
facility and The Allen Group’s logistics     more acres and greatly expanding capacity in the coming years.
park will build on Kansas City’s stature
as a major trade thoroughfare, Kalb             • CSX has purchased land in Winter Haven, Florida, for an
says. “This center represents a signifi-     integrated logistics center, and it also has plans for an inter-
cant investment in BNSF’s future in the      modal terminal in Chambersburg, Pennsylvania.
Kansas City Region, and it strongly             • An 8,500-acre development known as Southern California
enhances the area’s future role in the       Logistics Airport is underway at the site of the former George
global economy.”                             Air Force Base in Victorville as development continues in the
    And BNSF and The Allen Group             Inland Empire. Sterling Enterprise, DCT Industrial Trust, and
aren’t alone in targeting the Kansas         BNSF Railway are involved in the massive project.
City region. CenterPoint Properties has
agreed to purchase 1,400 acres on the           • Canadian National Railway has made investments in new
former site of the Richards-Gebaur Air       equipment to handle growth in traffic from the port. A new
Force Base that was shuttered in 1976.       intermodal terminal at the Port of Prince Rupert, British
    Kansas City Southern (KCS) led in        Columbia, Canada, is expected to open in the third quarter of
the development of the former base in        this year.
2000, when the International Freight            • Canadian Pacific Railway expanded capacity at its inter-
Gateway opened. The full-service auto-       modal terminals by investing more than $160 million on over-
motive complex allows Mazda of               hauls and new locomotives. Another $141 million was spent to
North America to distribute Mazda            increase intermodal capacity from the Port of Vancouver.
Tributes throughout the United States
and for export to 100 countries.
Additionally, Mazda processes             . . .developments           storage capacity for 1.8 million
vehicles for shipment to                                              TEU’s (20-foot equivalent units)
Midwestern dealerships within a                                       annually or the equivalent of
300-mile radius.
                                         across the country           more than 400 large container
   The development’s next phase                                       ships. He added that nearly 85
will further use KCS’s extensive         clearly show that            percent of those containers
rail operations leading to the                                        would then be loaded on rails
site. Most importantly, it will        railroads are driving for the trip through the heart of
link Kansas City to the Mexican                                       the country, with possible stops
Pacific Coast city of Lazaro            growth both for the           at several existing intermodal
Cardenas. The port is undergo-                                        centers along the way or eventu-
ing extensive expansion to create      economy and in the             ally to CenterPoint’s develop-
an alternative route from the                                         ment in Kansas City. And once
increasingly congested ports of                                       in Kansas City, KCS can either
Los Angeles and Long Beach.
                                         nation’s industrial          drop freight at the CenterPoint
Freight traveling from Asian                                          development or hand it off to
ports to U.S. markets can be                    markets.              four other rail carriers in the
directed to Lazaro Cardenas,                                          area.
where KCS can move it to the heart of the country.     These extensive rail operations give the
   Haverty noted in his presentation last October    Richards-Gebaur and the BNSF sites an added
that future expansion at Lazaro Cardenas will add advantage: they can serve all of North America.
                                                                  The rail services form an important
                                                                  link in the NAFTA trade channel, so
                                                                  goods can be shipped anywhere in
                                                                  the United States, as well as to and
                                                                  from Mexico and Canada.
                                                                     These developments and dozens
                                                                  more across the country clearly
                                                                  show that railroads are driving
                                                                  growth both for the economy and in
                                                                  the nation’s industrial markets.
                                                                  SIOR brokers have happily got

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