Reprinted from CRAIN'S CHICAGO BUSINESS, January 19, 2004

Chicago cashes in on China trade
Asian goods must pass through local warehouses  

Chicago's century-old dominance as a railroad hub, and some wise recent investments, have positioned the region to benefit from the boom in cheap exports from China and the Pacific Rim.

At first blush, it would seem that Chicago, historically a manufacturing town, has little to gain from China's growing manufacturing might. The Chicago region lost 100,000 manufacturing jobs in the most recent economic downturn alone, accelerating a decline that began more than a decade ago.

Jobs such as accounting and consulting have been credited with picking up the slack as factories close. And indeed, professional services account for the largest portion of the local economy-15.8% in Chicago and 13.4% in Illinois.

But Chicago's distribution economy, often hidden from view aside from a passing freight train, is transforming what was once a city of stockyards into a region of stockrooms.

"After our talent pool of skilled workers, transportation is our most competitive advantage," says Rob Hoffman, director of business development at World Business Chicago, a public-private group that promotes economic development. "It's totally ignored. It goes unseen. It's like electricity: Until you get a power outage, you just don't notice."

The shipping and distribution business - ground transportation, warehousing, distribution and wholesale trade—contributed $42.17 billion to the Chicago-area economy in 2002, or 10.8% of the gross metropolitan product, according to an Economy.com Inc. analysis for CRAIN'S CHICAGO BUSINESS. Statewide, the shipping sector is a $50-billion industry or 10.2% of the gross state product.

That's not to say the distribution boom, for all its heft, will make up for vanishing manufacturing jobs. Computers and other technological advances allow more goods to be moved with fewer people and less muscle. But there are pockets of hiring, Rail engineers and truck drivers are in demand. Each new distribution center requires, scores, even hundreds, of workers.

The business of moving and handling goods now rivals manufacturing as one of the region's biggest economic drivers. Manufacturing accounted for 12% of output in the Chicago area and 12.8% in Illinois in 2002, according to Economy.com, a West Chester, PA.-based economic research firm.

From China via Long Beach
"Chicago is a natural hub between East and West and has been since the Erie Canal," says Robert Gallamore, director of the Northwestern University Transportation Center in Evanston.

But in the 1990s, the Chicago area began to lose freight-hauling and warehousing business to other cities in the middle of the country, including Indianapolis; Memphis, Tenn., and Columbus, Ohio, where land and labor costs were cheaper and congestion minimal. A concerted effort by local leaders has put the spotlight back on Chicago's transportation infrastructure and is sparking new construction.

Demand is particularly strong for warehouse space as companies consolidate their distribution systems in the center of the country, says Sophia Koropeckyl, an economist at Economy.com.

Many companies are building warehouses on Chicago's outskirts, where land is affordable and property taxes are low. Much of the activity is concentrated southwest of the city, in part anticipating that a third regional airport eventually will be built in Peotone.

Fueling Chicago's renewal as the nation's cargo catch basin is the heavy influx of consumer goods from the Far East. The United States imports nearly $400 billion in goods a year from the Pacific Rim—more than $125 billion from China alone. And the total is expected to rise as global competition forces companies to slash production costs. Many of those goods make their way through Chicago. The busiest corridor in the U.S. for transporting "intermodal" containers by rail runs from Long Beach, Calif., to Chicago.

Imports arrive via the docks at Long Beach, where workers transfer the containers to trucks for delivery to West Coast markets or onto trains for the journey to cities east of the Mississippi. More often than not, the containers head to Chicago, where they are sorted and sent along, by truck or rail, to towns from Minnesota to Maine.

Fields sprout warehouses
"The fact that so much manufacturing is moving to Asia allows Chicago to be front and center again," as so much freight arriving on the West Coast is funneled through Chicago by rail, says Ann Drake, CEO of DSC Logistics Inc., a Des Plaines-based warehouse and distribution company. "It means that being here, in the middle of the country, and not being on the ocean isn't a disadvantage anymore."

Railroads and real estate moguls are jostling to grab as much of the import business as possible, building new distribution centers in anticipation of a 15% annual increase in intermodal traffic—the practice of shipping 20-foot containers by more than one mode of transport, usually ship, rail, and truck.

CenterPoint Properties Trust, an Oak Brook-based industrial real estate company, built a 2,200-acre intermodal park at the former Joliet Arsenal in Downstate Elwood, aimed at attracting development of 15 million square feet of warehouses, light manufacturing facilities and terminals for moving containers between railcars and trucks.

Anchoring the park is Texas-based Burlington Northern Santa Fe Railway Corp., which expanded its freight moving business in the Chicago area, already its biggest hub, with a new, 621-acre logistics park.

Paul Nowicki, vice-president of government relations for Burlington Northern, expects the Elwood facility to rival its highest-volume rail yards in Los Angeles and on Chicago's South Side within five years.

Omaha, Neb.-based Union Pacific Corp. built a similar, 1,000-acre intermodal center in Rochelle, roughly 80 miles west of Chicago in Ogle County. And in the past two years, a string of high-tech warehouses have risen from farm fi elds in Will County.
© Copyright January 19, 2004, Crain's Chicago Business. All rights reserved. Used with permission.

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