Alternative Port Strategies: Getting In With The In Crowd

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Getting In With An Inland Port
Major U.S. Inland Ports

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As maritime seaports in North America reach capacity and seek expansion strategies, inland ports have emerged to provide a solution to increased demand on supply chain infrastructure. Though inland intermodal terminals are not a new logistics trend, the rise in the number of inland ports in the United States is providing new strategies in global trade, and relief from capacity headaches plaguing some North American deepwater container ports.

Paradigm shifts in globalization and intermodal logistics mold the evolution of supply chain networks. Globalization has given rise to expanded intermodal innovations. Global trade initiatives translate to increased containerization, which creates greater interconnectivity among seaports, railroads, importers, and shippers. Consider the double-stack rail cars that increase capacity and throughput from port to an inland yard, eliminating the need for the long-haul truck leg from port to consignee. The benefits of inland facilities extend far beyond container seaport overcapacity issues.

"Inland ports offer major economic benefits to inland regions," says David Bovet of Massachusetts-based supply chain research firm New Harbor Consulting.

What defines an inland port? When envisioning a traditional example of an inland port, a landlocked major inland gateway—such as Chicago, Kansas City, or Memphis—comes to mind. Indeed, these hub cities epitomize the classic prototype of an inland port. However, the inland port concept has expanded beyond the mentality of the U.S. heartland hubs.

Known as North America’s largest inland port complex with a 6,500-acre footprint, Chicago’s CenterPoint Intermodal Center kickstarted the early emergence of inland ports in the United States. Located just off Interstate 55, approximately 40 miles southwest of the Windy City, CenterPoint Intermodal Center incorporates two Class I railheads—BNSF and Union Pacific—and more than 10 million square feet of distribution space in a single logistics cluster.

In fact, CenterPoint’s container volume stacks up to America’s top seaport freight volumes. In 2015, Chicago’s 18 intermodal facilities handled a total of 15.4 million TEUs, ranking just behind the Los Angeles and Long Beach ports in terms of container moves.

Located between the deepwater maritime ports in California, the Gulf, and the Atlantic region, Chicago’s massive intermodal mecca represents the true definition of an inland port—with rail as the central force. Other mega-inland ports are clustered near major population centers. For example, Fort Worth’s Alliance Global Logistics Hub is part of AllianceTexas, a mixed-use residential and distribution development that includes the world’s first airport dedicated to industrial aviation.

When it comes to rail, Kansas City may be the most advanced hub for intermodal infrastructure, with four Class I railroads. Identified as a true "logistics cluster", as defined by MIT professor and author Yossi Sheffi, the KC Smartport also supports foreign trade zone designations and surrounding industrial development to optimize intermodal transportation and warehouse distribution.

History in the Making

For all the press coverage newly announced inland port facilities (often referred to as dry ports, particularly in Europe) receive, they are not an overnight success. Inland ports have been around for the past 25 years, but only since the sun set on the Great Recession have they become a focal point of economic developers. One of the earliest inland port complexes was Pasha Group’s redevelopment of George Air Force Base in Victorville, Calif., roughly 75 miles northeast of Los Angeles.

Originally named the Southern California Logistics Airport in 2002—before the term inland port was in vogue—the master-planned industrial development encompassed more than 5,000 acres for auto processing, air cargo, and intermodal transfers, along with development for distribution and manufacturing facilities.

Two inland facilities in the Southeast and launched in the 1980s were products of slow starts in intermodal volumes. North Carolina’s Charlotte Intermodal Terminal and the Virginia Inland Port at Front Royal experienced low freight volumes for several years after their inception. On paper, Front Royal seemed to meet all the right metrics for success: proximity to Interstates 66 and 81, 220 miles inland from the Virginia Port, and 18,000 feet of Norfolk Southern rail track. However, it wasn’t until the Front Royal Port teamed with local economic development officials one decade later to help recruit distribution centers to the area that the inland port concept began to burgeon.

"Front Royal struggled for 10 years in its early stages because it didn’t have an anchor client or shipper," says Bovet. "Despite the economic potential and area demographics, it took decades before the port came into its own."

CIT Makes a COmeback

Opened in 1984, the Charlotte Intermodal Terminal (CIT) is considered the nation’s first inland port. But freight volumes didn’t support the rail traffic, so the port suspended rail service in the mid 1990s. As container volumes at the North Carolina ports have increased at a 17-percent compounded rate since the Great Recession, the CIT is now flourishing and talks have emerged about a second inland port in western North Carolina.

Traditionally, the presence of a major rail line has been the number one component of inland ports. Today, rail is still the top factor in identifying a viable inland port location, but other critical factors play into the decision. In addition to the Class I railroads, port authorities, shippers, commercial real estate developers, economic development professionals, and government officials support inland ports.

Intermodal to the Rescue

As traditional rail commodity shipments—particularly coal—have diminished in the past decade due to alternative fuel options, Class I railroads are relying on intermodal logistics as a solution to supplement revenues. Carload volumes were down 6.6 percent in September 2016, compared to the same period in 2015, according to the Association of American Railroads.

While not as dramatic, intermodal shipments are slipping as well. Intermodal traffic was down 2.1 percent from 2015, according to a mid-year 2016 report from real estate firm Cushman Wakefield. Despite intermodal volume down-turns, the interest in developing inland port terminals in certain growth markets hasn’t waned.

While the Class I railroads and commercial real estate developers were the first players to show interest in inland ports, port authorities are getting into the act by developing intermodal terminals that enhance container traffic flow in international commerce. Inland ports are not seen as competition to maritime ports, but as complementary solutions to relieve capacity for land-constrained port terminals.

Today, port authorities, railroads, and private industrial real estate developers are forming alliances to develop new inland port opportunities. "All four of our most recently opened inland ports were funded with some type of public-private partnership funds," says Jason Myers, operations manager of Virginia-based Norfolk Southern.

Getting In Greer

In early 2013, the South Carolina Port Authority developed the inland port at Greer, located upstate in the Piedmont area of the Palmetto State near the BMW automotive plant. Situated 212 miles from the Charleston port, Greer is recognized as a rising star among inland port peers in North America.

"Class I railroads see the potential of inland facilities, and now the more progressive port authorities and shippers are recognizing the economic benefits of intermodal," says Bovet. "Port authorities are active today in instigating inland port facilities, especially those who see intermodal as a key driver in economic development."

It’s no surprise that dry ports have traditionally been developed near population centers in the hinterlands, such as Chicago or the Inland Empire. But the latest wave of inland ports is not locating just near major gateway cities or traditional logistics hubs. Industry and shipping volumes are also key variables in identifying viable inland port sites.

"When developing an inland port, the goal is to attract major shippers," says Jannine Miller, director of theGeorgia Centerof Innovation forLogistics. In coordination with the Georgia Ports Authority and CSX, the state of Georgia has unveiled two inland ports to facilitate exports with key shippers.

Location and population are focal considerations, but new inland port terminals are also emerging in second-tier locations. Besides traditional shippers, other industry groups can facilitate the need for inland terminals. For example, agri-business was the primary consideration for Georgia’s most recently developed inland port in Cordele—a town centric to the state’s traditional farm exports, which include cotton, peanuts, and forestry products.

SizING IT Up

Inland ports come in all shapes and sizes. Traditionally, intermodal yards have been developed near primary gateway hubs, such as the Inland Empire in Southern California or at CenterPoint Intermodal Center in Chicago. The latest round of newly announced inland ports, however, is much smaller in scale—some as small as 40 acres. Unlike regional mega-hub locations, some new inland ports are locating in more remote areas, defying the idea that inland port terminals must be located in or near major population centers.

In fact, Georgia’s two recently launched inland facilities are both approximately 40 acres in size and are located in smaller communities (Cordele: population 11,150 and Chatsworth: population 4,300). How does a city with a population of fewer than 4,500 residents support the minimum number of intermodal lifts to justify its existence? In the case of the Appalachian Regional Port in Chatsworth, the freight volumes come from the carpet manufacturing industry in northwest Georgia and Volkswagen’s manufacturing plant in Chattanooga.

Automotive shippers are a major driver for inland ports. The South Carolina Ports Authority’s (SCPA) inland terminal in Greer is a prime example of how the auto industry promotes the need for intermodal and dry ports. BMW’s manufacturing facility in Spartanburg County was the catalyst for developing the Greer facility in 2013.

"The inland facility is important for BMW’s import and export operation," says Steve Williams, a spokesman for BMW North America.

The Greer facility has exceeded projections and expectations, and is on track to handle 100,000 lifts in 2016—a 23-percent increase over 2015. After only three years in operation, the success of the Greer port propelled the SCPA to search the South Carolina landscape for a second inland port location. The second inland terminal, located in Dillon, is slated to open in mid 2017.

AN UpLifting Experience

To justify the development of a new inland terminal, several factors must align in order to achieve success. Potential freight volume is the key indicator for instigating an inland terminal, and the volumes are based on the frequency of the designated rail carrier’s lifts—the number of containers and trailers the railroad moves or lifts on the terminal site. In the intermodal world, the number of lifts is synonymous with TEU tallies in maritime traffic calculations.

"Demand is a key component in the decision to open an inland port," says Bovet. "It is a business case. The minimum number of annual lifts should be 10,000, but 20,000 lifts is ideal to sustain an operating inland facility."

Distance from a major seaport is another overriding factor in the success of a dry port. To ensure that the rail component is competitive with motor carrier transportation, inland ports should ideally be located at least 200 miles from a deepwater port terminal.

Some inland locations are closer to seaports, however, to provide congestion relief. The Inland Empire, for example, serves as a logistics "barbell" to provide port congestion relief. The rail linkage serves as the "bar" portion of the barbell between the two freight clusters.

Environmental Effect

While some citizen groups have fought locating an intermodal hub in an otherwise quiet community, one underlying objective of inland port development is to reduce vehicle emissions and remove truck traffic from highways. Intermodal transportation’s positive impact on the environment is compelling when considering the fuel efficiencies in rail versus over-the-road transit.

"One ton of freight can travel more than 410 miles on one gallon of fuel," says Jason Myers of Norfolk Southern. BNSF and the Intermodal Association of North America provide slightly higher calculations, promoting distances between 470 and 500 miles per freight ton on a single gallon of diesel. By any calculation, the argument for utilizing intermodal is compelling from a practical and environmental standpoint.

Moving freight by rail instead of truck reduces greenhouse gas emissions by 75 percent, according to the Association of American Railroads. One major objective of launching the Appalachian Regional Port (ARP), located 85 miles north of traffic-congested metro Atlanta, was to remove trucks from the road.

"Our projections show that the ARP will eliminate 40,000 trucks from Georgia highways in the first year of operation," says Griff Lynch, executive director of the Georgia Ports Authority. "These are trucks that would otherwise pass through metro Atlanta’s congested highway system."

Intermodal terminals not only provide highway and port congestion relief, but inland port developments can offer additional sustainable solutions. Supporting more than 14 million square feet of distribution space as part of Chicago’s inland megaport, RidgePort Logistics Center has initiated several green programs since its inception.

One-third of the RidgePort’s total land area is set aside for natural habitat, which includes a sustainable tree farm. Wastewater is filtered for redistribution using green technology, and occupants in the industrial park are required to participate in a compost program that replenishes the park’s landscaping. Solar and wind energy generation are also an integral part of RidgePort’s sustainable initiatives.

With globalization and the proliferation of container traffic volumes, it makes logical sense that inland ports have become a popular topic in intermodal logistics. The merits of rail and intermodal transportation are economically and environmentally beneficial, as seaport capacity has created throughput inefficiencies and U.S. gateway cities are challenged with traffic congestion. Locating inland port facilities in key areas, which are supported with vibrant economic activity and shipper freight volumes, will continue to be a logistics trend, as long as global trade proceeds on its current trajectory.

Additionally, distribution centers that serve the booming e-commerce market will create additional demand for inland centers. "The next phase of inland ports includes intermediate distribution centers fueled by e-commerce demand," says David Egan, head of logistics research for global commercial real estate service provider CBRE.

A multitude of economic, practical, and operational factors support the trend of developing additional inland ports in North America. The pending driver shortage is also an issue that supports the compelling attributes of intermodal depots. As reliability and service have improved, rail is seen as a viable alternative to long- and medium-haul routes, particularly to and from seaports.

As the popularity of inland ports rises, diversity in size, location, and industry types will drive the expanse of intermodal opportunities in North America. Intermodal logistics is far more expansive and innovative today and not just linked to rail depots servicing central hubs in the hinterlands.

"Intermodal is no longer a fixed model," notes Bovet. "The potential expanse of inland ports is unlimited."

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Getting In With An Inland Port

Before developing an inland port, all parties involved must consider the following factors:

• Collaboration. Cooperation among the controlling municipality, government entity, railroad, port authority, local citizens, private developers, and economic development officials is critical to initiating a successful project.
• Economic demand. The amount of freight and existing industry in the area must substantiate the need for an inland intermodal terminal. Sustained industry, such as a nearby automotive plant, can play a significant role in where to locate an inland port.
• Rail access. Locating along the main track of a Class I rail system is a primary consideration. The number of potential lifts (container or trailer lifts from rail car to truck chassis or vice versa) can be a determining factor in validating freight volumes. Industry professionals recommend a minimum of 200 lifts per day to justify a full-scale, sustainable intermodal operation.
• Location. Similar to any real estate decision, location is a key factor in developing an intermodal terminal. Factors include: distance from a deep-water seaport, proximity to existing industry or distribution clusters, interstate or major highway access, and location within one hour of a major population center.
• Funding agreements. Like with any major development, funding is a critical element in establishing and operating a dry port terminal. Shared-fee arrangements between public and private entities can be complex, particularly if a number of stakeholders are involved.

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Major U.S. Inland Ports

• Centerpoint Intermodal. At 6,500 acres, the Chicago inland port is North America’s largest.
• Richenbaker Inland Port. This Ohio inland port provides rail, air, and ground transportation options.
• Inland Empire. 70 percent of container traffic entering Los Angeles and Long Beach will be transported to the Inland Empire for U.S. distribution.
• International Port of Memphis. The only waterfront inland port in America.
• Logistics Park Kansas City/KC SmartPort. Measures 1,500 acres.
• Alliance Global Logistics Hub. At 18,000 acres, the hub is part of Alliance Texas’ mixed-use development.