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Economic Forecasts

Deliveries: Bigger is Not Always Better

Midsize cities to benefit as businesses turn to regional centers to cut costs and speed shipments.

Note a growing trend away from centralized distribution centers for goods and parts. After a decade of consolidating operations into just one or two football field-size facilities to service half or more of the country, a slew of companies, including General Mills, Target and QVC, are switching to regional centers.

It spells good news for some cities, notably port cities on the East and Gulf coasts -- Baltimore; Norfolk, Va.; Charleston, S.C.; Mobile, Ala., and others. They’ll see increased development dockside as well as at nearby cargo handling facilities.

The shift is also good for truckers. Long-haul trucking companies are revamping operations to create localized hauling operations to serve the regional distribution networks. Con-way Truckload, for example, has carved out an 11-state region, from Virginia and North Carolina to Oklahoma and Texas, geared to short-haul pickup and delivery at regional warehouses. It plans to create other short-haul trucking regions nationwide. Other major national truck freight firms are shifting operations to regional models, too, including Heartland Transportation, Knight Transportation and YRC Worldwide.

Why the switch to regional centers? Businesses fear more bottlenecks at the dominant ports, such as Los Angeles/Long Beach and New York, once the economy and global trade start to pick up. These ports got swamped around mid-decade by the surge in imports and by substantial export growth. Shipments were waylaid for weeks in some cases as the volume of goods often exceeded truck and rail capacity.

The idea of one distribution center serving the entire country “is moving fast to the wayside because companies no longer can afford the inventory carrying costs” of keeping extra materials on hand in the event of a missed delivery, says Thomas Nightingale, a vice president with Con-way Truckload.

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Businesses figure that having regional distribution centers serviced by short-haul truckers, rather than legions of trucks making cross-country trips to service one giant facility, also will cut shipping costs, especially if diesel fuel prices spike again

Expect to see more port development early in the next decade in anticipation of an enlarged Panama Canal in 2014. A lock-widening project will permit megaships ferrying goods from Asia to serve ports on the East and Gulf coasts.

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