WEST MICHIGAN — As a state of peninsulas, many people might not associate Michigan with being a logistics hub.
But that’s exactly what the state’s business leaders hope to create, especially building off the existing, extensive manufacturing supply chain already in place.
As companies source more parts from widespread suppliers, business leaders and policymakers have started to focus on logistics issues as a key piece of the state’s competitiveness. Sources MiBiz talked to for this report said there is room for exponential growth in the shipment of goods and services in the state. They also said Michigan, despite being a peninsula, can increase its stock as a major logistics player.
The trouble is that there are a lot of moving parts to deal with, no pun intended. Logistics comes with the baggage of complexity, and sources acknowledge coordinating any effort to enhance the sector isn’t going to happen overnight.
Still, organizations like Business Leaders for Michigan and The Right Place Inc. are coordinating with stakeholders and the Michigan Economic Development Corp. to develop plans and to identify the niche areas where the state can excel.
The MEDC, in collaboration with the Michigan Department of Transportation and the Department of Agriculture and Rural Development, is in the midst of defining the state’s assets and where it can best leverage existing infrastructure, said Peter Anastor, director of policy for the MEDC.
“As a part of Governor Snyder’s redirection, the MEDC will lead a statewide initiative to build on the work a lot of stakeholders have done,” Anastor said. “We want to have one strategy and one vision to support logistics and the supply chain.”
Part of that strategy outlines seven focus areas that relate to improving the state’s connectedness:
• Infrastructure — The physical roads, rails, bridges, waterways and air links.
• Business development — The knowhow for increased exports and supply chain knowledge.
• Talent — An across-the-board issue for employers in the state.
• Marketing — Essentially doing a better job of selling what the state excels at already based on manufacturing supply chains.
• Policy development — Examining barriers at the local, state and federal level that hinder companies from linking to the global market.
• Organizational structure — Investigating whether the state should form an advisory body to help manage implementation and emerging issues.
• Access to capital — Research how projects are getting done elsewhere and identify possible funding resources.
“The message we want to give companies right now is that (logistics) is a priority for the governor,” Anastor said. “We have a focus on helping businesses export more to help them grow and gain from value-add services.”
The state doesn’t want to create yet another government program, and the logistics steering committee wanted to avoid reinventing the wheel in the process, Anastor said.
“In our next steps, the first is fixing the barriers,” he said. “The big infrastructure projects are another level down.”
A new information highway
Logistics isn’t just an issue of having well-maintained roads, bridges and rails. Information sharing and efficiencies stemming from technology are equally important.
“Logistics is a broad term and doesn’t include just water, rails and roadways,” said Craig Hall, president of Lee Shore Enterprises Ltd. and founder of Holland-based Lean Logistics. “It includes technology and bandwidth, too.”
In today’s market, companies have to operate quickly and the key is to get more accurate information faster up and down the supply chain, he said.
“If you have impediments in information sharing, you are putting clients at a disadvantage,” Hall said.
More and more companies are realizing the true cost and risk factor of extended supply chains and the disruptions that can affect the flow of business. The auto industry, for one, is making an effort to bring some production back to the United States due to supply chain worries, he said.
Bringing supply sources closer translates into a more responsive environment, Hall said.
“I’m a big believer in clusters,” he said. “On the west side of the state, in disciples like design and furniture manufacturing, there is a pretty sophisticated support structure, which plays into attracting more companies to the area.”
Playing catch up
A new potential trade crossing isn’t the only thing the state is banking on to improve Michigan’s economic potential via logistics. The state’s large manufacturing base is essentially a well-established foundation on which to build, sources said.
“The highest priority is figuring out how do we better use our existing infrastructure,” said Rick Chapla, vice president of business development for The Right Place Inc. “Can we use it as an element of business attraction?”
Many sources pointed to marketable assets such as the rail lines, new intermodal stations and air cargo hubs like Detroit Metro, Grand Rapids and Lansing, which could increase the capacity for exports.
The Michigan competitive logistics and benchmarking study done by Business Leaders for Michigan forecasts total freight moving through state by 2015 via Detroit could exceed $600 million. By 2035, the study projects almost $1.2 billion in freight could be moving through the city.
For Grand Rapids and the I-69 corridor, the numbers are obviously nowhere near the amount of freight potentially moving through metro Detroit, but both channels are predicted to surpasses $200 million each by 2035. (See graph “Cargo movement forecast through 2035” on this page.)
However, the study also points out the strength of the state’s legacy industries are threatened by regional competitive markets. If the state’s current industrial bases aren’t protected other logistic markets could steal some of Michigan’s capacity, said Doug Rothwell, president of Business Leaders for Michigan.
The study points to the increased use of plastics and composites in favor of steel and other basic materials as a potential risk to economic activity in the state.
In relation to immediately competitive markets in Columbus, Indianapolis and Chicago, Michigan hasn’t focused on logistics for as long as the other major hubs have.
“They’ve been working in this longer than we have,” said Rothwell. “To some degree, there is a geographic advantage that we don’t have, but the biggest uphill battle is those places are who people are used to doing business with. It’s very hard to get people to change their ways.”
Competing on cost with other logistics hubs is also an issue as those locations have specific embedded industry sectors, which could be the next step for Michigan, according to Rothwell.
Using several cost and quality data points, the BLM study ranked Grand Rapids and Detroit in a comparative analysis against other Midwest logistics hubs using four core industries.
Companies looking at how they can become more competitive might benefit from working through a third-party handler, said Jill Bland, VP of Southwest Michigan First.
“Using a third-party handler for storage of final assembly can really reduce costs,” she said. “Some companies require a lot of storage space, which can be expensive to house on their own. Cold storage is even more expensive.”
Bland said she is noticing an uptick in the number of companies using third-party handlers, partly related to the high cost of fuel, and of logistics company expansions.
Kenco Logistics, located in the Midlink Business Park near Kalamazoo, is one company already expanding its operation. The company is leasing an additional 100,000 square feet to accommodate a food-industry manufacturing client — a sector that could be a catalyst for increased logistics development.
“Just going out and telling everyone they should do business with us isn’t going to get the job done,” Rothwell said. “We have to translate to the proper sectors.”
Agriculture, automotive, biotech and life sciences are all attractive areas, but the follow-up study from the MEDC should drill down to see how viable those options are to build infrastructure improvements around, Rothwell said.
Ultimately, the effort to support any investment is going to take increased public, private collaboration, sources say. The fifth and final Next Michigan Development Corp., co-run by The Right Place, is one tool Chapla said the organization could use to bolster existing infrastructure.
“It’s not about building new at this point,” he said. “Where we are striving to be better is integrating our systems.”