Memphis: America’s Aerotropolis

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Heading West

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Known for three decades as “America’s Logistics Center,” Memphis has now transformed into a global logistics center and is earning a reputation as “America’s Aerotropolis” — where runway, river, rail, and road converge.

Memphis has been cited as the country’s best example of a four-mode aerotropolis — a new urban form that puts the airport at the core of a transportation-intensive metropolitan business area — by Dr. John Kasarda, who coined the term in conjunction with his work at the University of North Carolina’s Frank Hawkins Keenan Institute for Private Enterprise.

With geography, infrastructure, and a strong logistics industry on its side, Memphis supplements its aerotropolis status as a natural hub for distribution throughout the United States, and across the globe. From Memphis’ central U.S. location, companies can ship goods to more major metro areas next day by truck than from any other city in the country. The city boasts the world’s leading cargo airport, five Class I railroads (Norfolk Southern, Burlington Northern Santa Fe, Canadian National, Union Pacific, and CSX), the country’s fourth-largest inland port, seven interstates and U.S. highways, and an abundance of logistics support and service providers.

Add Memphis’ central location and proximity to the Mississippi River, and it is no surprise that “America’s Aerotropolis” comprises a rich heritage of transportation and distribution excellence.

“Memphis has always been a logistics hub,” explains Dexter Muller, senior vice president, community development for the Greater Memphis Chamber. “Originally it had to do with water transportation on the Mississippi River, then transportation moved to rail, then to road and to air, and now, all four modes are well represented here. We refer to it as the four Rs: runway, road, river, and rail.”

Runways and Roads

As befits a major aerotropolis, air cargo is a key strength in Memphis’ transportation lineup. “For 18 years in a row, Memphis International Airport has been named by Airports Council International as the busiest air cargo airport in the world,” notes Muller. Some 3.6 million tons of freight were moved through the Memphis International Airport in 2009.

Memphis shines as well when it comes to road transportation, with Interstates 40 and 55 providing the city with both north-south and east-west highway connectivity.

In addition, two new interstates that will run through Memphis are being developed now: I-22, which runs from Memphis to Birmingham, Ala., and I-69, which travels through the NAFTA Super Corridor, an area that connects the United States with its NAFTA partners in Canada and Mexico. When complete, I-69 will serve as a major roadway running from Montreal, through Memphis, to the Texas-Mexico border.

“We’re excited about this corridor that will link Mexico and Canada and come through Memphis,” notes Neely Mallory, CEO of Memphis-based third-party logistics (3PL) provider Mallory Alexander International Logistics. “The completion of I-69 will allow us to offer second-day service to almost anywhere in Mexico and Canada via truck. That will position Memphis well going forward.”

An Important Port

The third transportation “R” is taken care of by the Mississippi River, via the Port of Memphis. Situated on the river’s shallow draft portion, the Port of Memphis is the fourth-largest inland port in the United States, regularly handling some 18 million tons of freight each year. It runs along 15 miles of the Tennessee and Arkansas sides of the Mississippi River, and contains 56 terminal facilities moving products such as grains, petroleum, tar, asphalt, cement, steel, coal, salt, fertilizers, rock, and gravel. Three of the five major railways that service the city of Memphis, and two major interstates, I-40 and I-55, access the port.

“Our port is a transfer point in many ways,” explains Randy Richardson, interim executive director, Port of Memphis. “A large portion of the goods that come in are raw products, which are pre-processed here, then shipped somewhere else for finishing.”

One business that operates this way is Cargill, a global agricultural company that maintains a wet corn mill facility at the port. It turns raw product into starch or corn syrup, then ships it via rail or truck to customers that put the starch or syrup into other products. “That operation is typical of the larger industries that use the water frontage here,” Richardson notes. “Ancillary businesses, including Glaxo SmithKline and Ledbetter Foods, are also situated at the port’s non-waterfront areas.”

The port comprises two locations totaling 15,000 acres of land. President’s Island, which accounts for a total of 7,500 acres, is nearly 100-percent occupied, and hosts 4,000 employees serving roughly 135 industries ranging from machine shops to pharmaceuticals to meat processing and storage of grains and fertilizers.

The port also contains the 8,500-acre Frank C. Pidgeon Industrial Park, which opened in 1996. The park is home to the CN-CSX Intermodal Gateway Memphis and a Nucor Steel plant, and currently offers 2,000 acres available for development. Companies that build in the park gain easy access to global shipping opportunities by connecting via rail provider Canadian National (CN) to the Port of Prince Rupert on the Pacific Coast and the Port of Halifax on the Atlantic Coast. Renovations currently underway on a number of area crossings, exit ramps, and a new entrance to the park will further boost the park’s value.

Rails: Bullish on Memphis

On the rail side, five Class I carriers provide service to the Memphis area, and all have recently made significant investments in their Memphis facilities.

In 2009, CN completed a $100-million reconstruction that reconfigured and modernized its Memphis rail classification yard. The new yard, named after CN’s recently retired CEO E. Hunter Harrison, is the railroad’s second-largest classification yard in the United States. It has a capacity of more than 3,100 freight cars with 45 tracks in the classification yard.

It also boasts 12 receiving and departure tracks and can handle 35 or more freight trains per day, notes Nadeem Velani, director, business development, supply chain solutions for CN, which provides transportation and intermodal services throughout North America.

In addition, CN invested $35 million to develop Intermodal Gateway Memphis, an intermodal terminal that opened in 2005 and is operated jointly by CN and CSX inside the Port of Memphis’ Frank C. Pidgeon Industrial Park. CN is studying the possibility of expanding the facility by adding logistics park capabilities.

“We are working closely with the city of Memphis, Shelby County, the Memphis Chamber, and the Port of Memphis to develop 800 acres of land surrounding our intermodal terminal,” Velani explains. “If our customers locate warehouses within our terminal, they will cut out several steps in the supply chain — they will not need to have trucks pick up containers to take them to a warehouse miles away.”

Instead, customers located in a logistics park at CN’s terminal would have access to an all-in-one solution. “That is a better service solution, and helps our customers reduce their carbon footprint,” he adds.

CN’s investments in Memphis underscore the importance the company places on the city as a premier distribution point for its North American customers. The railroad operates a container train service to Memphis from the Port of Prince Rupert in British Columbia, Canada — a key gateway for imports of Asian goods. Because the Port of Prince Rupert is geographically closer to Asia than some of the U.S. West Coast ports, Velani believes CN’s Prince Rupert-to-Memphis service offers an important transportation time advantage for shippers.

“We offer a one-to-two-day advantage in ocean shipping time from Asia to Prince Rupert,” Velani explains. “Couple that with the 132-hour, or roughly 5.5-day transit time from Prince Rupert to Memphis, and we offer a very compelling service advantage.”

CN is not alone when it comes to rail investments in Memphis. In April 2010, BNSF unveiled a $200-million expansion of its Memphis Intermodal Facility, which spans 185 acres and will have the capacity to handle one million lifts per year at full build out. Norfolk Southern is building a new intermodal terminal in Memphis with the aid of $50 million in federal funding, and Union Pacific recently underwent a $10-million expansion of its 600-acre intermodal facility located just west of Memphis in Marion, Ark.

Past Meets Present

Along with Memphis’ tradition of providing great transportation infrastructure, two modern supply chain trends have continued to boost the area’s distribution and logistics prowess, Muller says. The switch to offshore manufacturing means most companies today import containerized goods from Asia and around the world to ports on the U.S. West Coast, then send the goods via rail and truck to various markets around the country. Memphis’ location and ample infrastructure has helped to make it a popular place for distribution under this new strategy.

“Because Memphis is centrally positioned to reach key Northeast and Southeast markets, and can offer shippers the necessary intermodal capacity to effectively move containerized goods from the West Coast, it has become one of the strongest distribution points in the country,” Muller explains.

The city also offers companies the flexibility to import those goods through nearly any port in North America. “If your supplier decides to bring goods in from Asia through the Port of Seattle instead of the Port of Long Beach, for instance, you can still access a direct connection to Memphis,” Muller explains. “We connect to all the different entry points via multiple transportation modes.”

The second trend upholding Memphis’ status as a logistics powerhouse is distribution network consolidation. While it was formerly common for companies to operate 10 or 15 medium-sized DCs around the nation, most companies today have switched to using fewer — but much larger — warehouses.

“The shift to using larger facilities led many companies to locate DCs in the center of the country in order to easily reach both coasts — and Memphis is ideal for that,” explains Muller.

Low-Cost Benefits Add Up

In addition, businesses choosing to place distribution centers in the Memphis area benefit from the region’s relatively low operating costs for labor, taxes, utilities, and warehouse space. While storing products in a DC in California can cost up to $7 per square foot, Memphis rates are closer to $2.50 per square foot. “A business operating a 500,000-square-foot facility can save several million dollars a year just by locating in Memphis,” Muller says.

These perks have helped Memphis add new industries to its traditional agricultural-based economy. The transportation/distribution/logistics field is now one of the city’s strongest industries, and Memphis has a growing base of new manufacturing sprouting up as well.

“The tremendous growth in distribution here has been led by companies such as Williams Sonoma, Nike, and Technicolor, as well as a variety of manufacturing firms that have chosen to put distribution and manufacturing facilities here because they can ship and receive parts quickly from anywhere in the world,” says Mallory. His company, Mallory Alexander International Logistics, has been based in Memphis for 85 years and currently maintains its corporate office, seven warehouses, and a large forwarding and customs brokerage operation in Memphis. The company, which opened its doors in Memphis in 1925, is now a global supply chain management firm that provides services to customers around the globe in all modes of transportation, transportation management, and lead logistics.

“The Memphis region keeps growing, and not just in existing industries — we are adding industries, too,” Mallory says, citing the examples of Nike moving most of its U.S. distribution to a new $100-million facility in Memphis; Nucor Steel’s $300-million steel manufacturing facility that produces one million tons of automotive-grade steel annually; and Riviana Foods’ $100-million rice manufacturing plant in South Memphis.

For Mallory Alexander, being based in Memphis brings the advantage of offering clients easy access to expedited service. “Between the five big railroads, the excellent air cargo service, and the tremendous number of truck lines that are based in Memphis or have major hubs here, we can meet our customers’ overnight needs through any transportation mode,” Mallory notes.

The FedEx Factor

It is impossible to paint the complete Memphis logistics picture without adding the influence of transportation and shipping giant FedEx. FedEx’s North American hub in Memphis has helped to make the area a magnet for businesses that thrive on time-critical transportation.

“We are lucky that FedEx decided to make Memphis its hub,” Mallory says. “It spawned Memphis’ tremendous growth in later years, bringing the major players we have here today.”

With more than 15,000 employees supporting day and night sorts, the FedEx Memphis hub handles more than three million packages per day. From Memphis, FedEx can deliver to any North American location within 24 hours and to most major global cities within 48 hours.

FedEx’s presence is partly responsible for making Memphis the second-largest orthopedic device-manufacturing center in the country, with companies such as Smith & Nephew, Medtronic, and Wright Medical Technology all operating facilities in the region. “One of the main reasons medical device firms continue to grow here is because of our logistics capability,” Muller says.

FedEx Express in Memphis offers some of the latest drop-off times in the country, allowing these medical device companies the ability to get late notice from customers and deliver products throughout the country the next day.

The opportunity to take advantage of FedEx’s Memphis facility — and the resulting late cut-off times for sending critical next-day shipments — is also what lured New Breed Logistics, a High Point, N.C.-based 3PL, to the city. New Breed began its Memphis operations in 2001 and today runs five facilities there, totaling 2.3 million square feet. Because New Breed focuses on high-value, high-velocity services including finished goods distribution, aftermarket parts and services, returns processing, and special project work, the ability to get next-day delivery for products ordered late in the day makes Memphis a big draw for its clients.

“Being able to accept next-day orders late in the day is critical for many of our clients, so Memphis is the ideal spot for us to service them,” explains Joe Hauck, vice president of sales, marketing, and communications for New Breed.

From its Memphis locations, New Breed services companies including Avaya, Boeing, Logitech, Laerdal Medical, Siemens Medical Solutions, and Verizon Wireless. To keep up with the demands of its marquis clients, New Breed has built a hard-working and dedicated Memphis workforce that is capable of providing the value-added services the company focuses on. Its 1,385 Memphis employees have helped New Breed establish an excellent reputation in the market, and as a result, Hauck views the city as one of the best places to serve its clients.

“We are proud of the workforce we have in Memphis,” he says. “We have extremely low employee turnover, and many employees have been with us since the beginning.”

The Memphis market has also proved fertile for long-time business resident Patterson Warehouses. When the company was founded in Memphis in 1856, its stagecoaches had to travel 55 hours on dirt roads to deliver goods from Memphis to Nashville. Today, getting from Memphis to Nashville — and indeed much of the country — is a far simpler and more efficient process, says Patterson Warehouses Vice President Buzz Fly.

“Within 600 miles of Memphis, we can hit Chicago, Atlanta, Dallas, Houston, and every location in between — overnight,” Fly says.

Today, Patterson operates out of a 1.3-million-square-foot, four-building headquarters in Memphis. “As a regional logistics provider, Memphis is our only location, and for a lot of distribution companies that might be difficult,” Fly explains. “But for us, being in Memphis is an advantage because it’s such a great distribution point.”

Patterson primarily provides import-to-retail services, handling more than 4,000 containers per year for customers shipping goods to retailers such as Target and Walmart. The company also provides display build, kitting, light assembly, and packaging services.

“We operate an in-house dedicated drayage service that pulls containers back and forth from the railroads so we can ship orders out as quickly as possible,” Fly notes.

A Place for Logistics Providers

Memphis offers strategic advantages for many other logistics and supply chain businesses, too. Logistics service provider Cornerstone Systems, for instance, uses its Memphis location to support nearly half of its nationwide business. While it maintains offices and customers across the United States, the company’s Memphis headquarters — where about 85 employees work — serves as a nerve center for its operations and IT functions.

“Geographically, Memphis offers a great location for logistics and warehousing businesses,” says Rick Rodell, CEO of Cornerstone, which provides intermodal, truck brokerage, and on-site logistics services to a variety of customers transporting goods ranging from toys to tires, cotton, wine, and electronics.

“We offer many services out of Memphis, and we can easily ship freight from Memphis to anywhere in the United States, Canada, and Mexico,” Rodell explains.

Rodell also lists the presence of FedEx, the many major truck carriers serving the region, and abundant warehouse space as reasons why Memphis is a natural fit for logistics providers and their customers.

Memphis also fits well for CTSI, a supply chain management solutions provider with global headquarters in Memphis. “Memphis is a great location for shipping product anywhere in the world. It makes sense for us to be located here,” explains CTSI CEO Ken Hazen, who purchased the company in 1982. Since then, CTSI has expanded rapidly, and now operates international offices in Ireland, Singapore, Hong Kong, and India.

CTSI is best known for its freight bill payment and transportation management software products. “We provide a hybrid product,” Hazen explains. “We offer robust freight bill payment software and excellent TMS service.”

The company’s software can pay freight bills in 34 currencies, and its TMS product includes modules for international carrier selection and modeling, shipment execution, and event management. Its new Web site also boasts the ability to translate into 10 different languages. “Even though English is a global business language, we have to be able to attract business from all over the globe,” notes Hazen.

Part of what makes the company an effective global supply chain partner is its strong workforce in Memphis. “We are situated at the apex of three states — Tennessee, Arkansas, and Mississippi — so we are able to draw on a very strong labor pool,” Hazen says.

These top-notch employees have helped CTSI attract area customers including PFSWeb, Technicolor, Schering Plough, Terminix, Merry Maids, and Pathmark Transportation.

“We have a strong base of loyal customers in the Memphis area,” Hazen says. “It’s a great market for us.”

Another logistics company that has taken advantage of Memphis’ transportation and distribution assets to build a strong base of customers — both in Memphis and across the globe — is Centrix Logistics. Centrix began operations in Memphis in 1970 as a subsidiary and logistics arm of Dunavant Enterprises Inc., one of the world’s largest cotton distributors.

Today, Centrix Logistics offers complete supply chain solutions to a variety of customers in the retail, commodity, energy, infrastructure, consumer goods, and food products industries. “We have perfected our global supply chain expertise through managing millions of commodity shipments during the past four decades,” says Richard McDuffie of Centrix and Dunavant.

From its start in Memphis, Centrix has expanded to include branches in China and throughout North America, along with key partnerships in Africa, Australia, Europe, and South America. But its appreciation for Memphis’ strategic position in global shipping and distribution has not waned.

“Memphis will always be our headquarters and home to our global load control center,” McDuffie says. “Many of our domestic and international clients frequent Memphis regularly for quarterly operations reviews, to develop innovative supply chain concepts, and to see the management of their operations in real time.”

Memphis’ strategic location has proved ideal to meet many of Centrix’s customers’ global supply chain needs. It has also helped Centrix offer unique advantages to both Fortune 500 and small to mid-size companies that want to move their businesses forward globally, McDuffie notes.

“With the presence of FedEx — one of the key air carriers in the logistics industry — as well as many of our logistics partners, we are able to capitalize on international needs quickly and more efficiently,” he explains. “With more global companies moving into the region, it helps to have a quality logistics infrastructure for companies with national and global needs. In our 40 years of business, we have built great relationships with our partners in the area.”

Local Talent

Logistics providers in the Memphis area can be assured of a supportive business community that values the contributions of the logistics sector to the region’s economy. “Memphis boasts the highest percentage of logistics workers of any metro area in the country, so it is clearly an important industry for us,” says Muller. That workforce includes employees at more than 400 trucking firms.

Consulting and placement firm Vaco works to connect Memphis businesses with all those qualified workers. Founded in Nashville in 2002, Vaco has grown to a $120-million company with 25 U.S. offices. The Memphis office opened in 2004, and Vaco launched its logistics division in 2009 to locate quality talent for permanent and consulting opportunities in logistics, transportation, distribution, and supply chain roles. The division focuses on placing managerial and professional level employees, including supervisors, senior executives, project managers, fleet maintenance managers, and safety personnel.

“Our ability to help clients fill positions located in Memphis or nationwide is enhanced by the wealth of talent here,” says Steve Gilmore, director and sales manager for Vaco’s logistics division. “As businesses locate their distribution centers in Memphis, we can help them find local talent — especially if their HR function is located elsewhere.”

The continued growth of Memphis’ logistics and distribution sector will attract more businesses that can benefit from Vaco’s services.

“Business owners are making a concentrated effort to promote our city and attract top quality business to the region,” says Gilmore.

Making Logistics a Priority

To support the agendas of those involved in the region’s booming logistics sector, the Regional Logistics Council — which consists of members from Tennessee, Mississippi, and Arkansas — was formed in 2002. The Council works to enhance the region’s logistics competitiveness by focusing on infrastructure improvement, workforce development, strategic partnerships, and marketing the area’s assets.

“We have become America’s Aerotropolis, but we can’t rest on our laurels,” Muller says. “We want to continue to position our region as the logical place to be for distribution and transportation. Memphis is in it for the long haul.”

Heading West

Just across the Mississippi River from Memphis sits West Memphis, Ark., a city that offers the only location on the main channel of the Mississippi River with two railroad bridge crossings. Both UP and BNSF offer service through West Memphis, which makes the city a nice complement to the Memphis market, says Ward Wimbish, economic development director for West Memphis.

“The Mississippi River basically divides the country into two railroad operations, with UP and BNSF running on the west side,” he explains. “Industries concentrated in Memphis that need rail service to the western part of the country find us an excellent fit.”

The city focuses on logistics and distribution as one of its main industries, counting a variety of logistics-related firms among its businesses. West Memphis is home to distribution centers for companies including Family Dollar; DSC, a contractor for Smuckers; and Robert Bosch Tools. Schneider National is the city’s largest employer with 1,300 employees, and USA Trucking and FedEx Ground also have terminals there. In addition, Simplot and United Refrigeration both operate West Memphis facilities that freeze, package, and distribute vegetables.

Manufacturers in the area include Temple Inland, which makes gypsum wallboard; paper bag manufacturer Langston Bag; Warren Unilube, a maker of lubricants for cars, trucks and industry; and Awesome Product, which produces household cleaners.

“We are also the number-one point of diesel sales in the country, and truck stops are a big business for us,” Wimbish adds.

These businesses are able to take advantage of West Memphis’ enviable utility costs, which are roughly 25 percent lower than elsewhere in the Memphis area — an important savings for power-heavy distribution facilities. “Our rates are lower because our utilities are municipally owned and we own positions in two power plants,” Wimbish explains. “We get a significant portion of our power directly from the power plants at producer rates and we pass the savings on to our industries.”

Another important asset West Memphis offers to companies in the distribution and logistics field is a Foreign Trade Zone. FTZ#273 is located in the IDI Interstate Commerce Center, a 340-acre distribution park that sits off Interstates 40 and 55, and between UP and BNSF’s mainlines.

“We’re positioning ourselves in the global market,” Wimbish says. “As more and more Chinese businesses place locations in the United States for tariff benefits, we see the FTZ growing into an important asset for our region.”