KC's industrial, transportation, logistics shine through stormy 2020

During what has been a stormy 2020, even hurricane-like for some, Kansas City's economy continues to shine brightly, beaming light of even more sunny days ahead.

“From a transportation, supply chain, logistics, industrial, whatever word you want to use, Kansas City is on fire,” said Chris Gutierrez, president of KC SmartPort and moderator of a webinar panel discussion organized by the Mid-America Region of the Design-Build Institute of America (DBIA-MAR) and hosted by McCownGordon Construction on October 14, 2020.

Gutierrez’ remarks preceded his introduction of the panelists: Eric Goodman, regional manager economic development at BNSF Railway, Andy Kyser, marketing manager at UPS, David Long, deputy director of Aviation - Properties & Commercial Development at Kansas City Aviation Department and Jon Stephens, president and CEO at Port KC. 

The panelists discussed the activities of their respective organizations and the implications for Kansas City, the effect of COVID on each organization and outlooks for the future.

Goodman said the big focus for BNSF in Kansas City is its development at Logistics Park Kansas City (LPKC) where BNSF’s facility opened in 2013. 

“Since then, we’ve had 17 million SF of development pop up around there. That’s going to be our anchor, our footprint here for intermodal for the next 50 years,” Goodman said. 

“The part of our business that’s doing really well for us right now is our intermodal business, both domestic and international.  We had a dip in that volume back in March, into April and into a little bit of May, but that volume has been going absolutely gangbusters ever since that date,” said Goodman. 

Goodman said he recently read a statistic that every single stored intermodal car that BNSF had in its network was back in service.  At one point, BNSF had parked approximately 2,000 locomotives.  

“Business is definitely back. We’re definitely seeing that there’s a lot of interest in intermodal growth coming off the west coast ports and domestic volume coming into Kansas City,” he said.

According to Kyser, UPS views the Kansas City region as an integral part of its overall strategy. 

“Our mission is to be better not bigger and to really do that by being customer first, people led and innovation driven. That’s where Kansas City fits in, both on the people led and the innovation driven standpoint,” said Kyser.

Kyser noted that UPS has made significant investments in its facilities at the airport and in Lenexa, Kan. UPS recently expanded its facility in Lenexa from 226,000 SF to 430,000 SF. 

“During our peak day, we used to be able to process about 1 million pieces throughout a day; that’s going to ramp up to be almost 2 million based on the infrastructure we’ve built here at the Lenexa facility. There’s miles and miles of conveyor throughout the facility. The crazy thing is that it only takes about 20 seconds from a package to get unloaded until it’s getting loaded on the outbound,” said Kyser.

Kyser said UPS is investing nearly $21 million to expand its facility at KCI. 

“We’re adding about 370,000 SF- for a total of 534,000 SF- which gives us five additional parking spots as well as remodeling the facility that we have there to take the flow per hour, the capacity from 1500 pieces an hour up to 5000,” Kyser said.

Kyser said that the pandemic has not slowed UPS’ business. UPS hired 50,000 employees during the second quarter as permanent hires, just to handle the 55% increase in business fueled by the burgeoning e-commerce market. 

“We’ve had to staff up and get our operations in a position to be prepared not only to handle what we view as a permanent shift, an acceleration of e-commerce activity of almost 5 to 6 years, but also our peak season, so we’re hiring 100,000 temporaries across our network during peak to be able to handle all that volume,” Kyser said.

Although growth at KCI was down this past year between 50-60% from 2019 numbers, Long said he’s seeing a steady rebound.

“In fact, Monday [October 12] was the most folks that had gone through our security screening checkpoints since the middle of March, and that is a better percentage than the country overall,” Long said.

The pandemic hasn’t slowed the construction of the new KCI terminal, and the airlines remain committed to the 39-gate overall facility, Long said.

“We are on time and on budget for this project. About 85% of the $1.5 billion is actually 100% procured so when I say on time, on budget, we know that’s exactly what it’s going to cost us. On time means March 3, 2023,” said Long.

Although Aviation Department officials were worried that there would be delays in the supply chain during the pandemic, “everything has been coming exactly the way that it needed to come,” Long said.

Long said that COVID-related measures were enacted to keep workers on the construction site safe, including adding additional bathrooms, staggering start and stop times, adding wash stations and providing hard hats with sensors that blink and make an audible sound when workers are within six feet of each other. Although there have been as many as 1000 employees on the work site, only seven have tested positive for the virus. 

Long noted that the project has employed 100 minority and women owned businesses which accounted for a little more than $170 million. 

“Having that kind of income into the minority community on that business is just a big shot of adrenaline into the arm, and those are all local folks that will be better skilled, better able to handle the many jobs that will happen in the future,” said Long.

Stephens describes Port KC as “a redevelopment entity and a reclamation entity that really focuses on under-utilized, under positioned places and brings them back to life with private sector partners and sometimes with public sectors.”

In 2015, Port KC brought back to life the Woodswether Terminal in the West Bottoms, which Stephens described as one of the most unnoticed small bulk goods terminal ports in the area.

“We’ve put about $22 million into that facility and we’ve doubled the tonnage every year since 2015. In 2019, we went over 100,000 tons transferred through that facility,” said Stephens.

Stephens also highlighted the redevelopment of the Berkley Riverfront where Port Kansas City continues to see growth in reclaiming the area. 

Stephens noted Port KC has seen “incredible growth” at the site of the former Richards-Gebaur Air Force Base. Port KC recently rebranded the approximately 2600 total acres as 49 Crossing.

“We’re seeing significant job growth down there. That’s one of our goals,” said Stephens. 

And, Port KC recently won a MARAD grant of nearly $10 million from the U.S. Department of Transportation’s Maritime Administration to create the Missouri River Terminal at the former site of AK Steel in the Blue River corridor near Sugar Creek and Independence, Mo.

“We will be working to bring 420 acres back to life with all the Class 1 rail coming through that site. We’re excited to have the MRT facility with will become North America’s first comprehensive transloading facility that combines rail, trucking and water borne commerce,” said Stephens.

Stephens said that a lot of economic development and reclamation is related to hotels and retail, and Kansas City has seen approximately a 75% drop in those sectors during the pandemic.

“On the positive side, multifamily rental units are up 50% year over year, in projects, in total units and total volume for us, 2020 over 2019,” Stephens said.

 “We’ve seen a one-third growth in 2020 thus far as of October 1 in logistics and distribution and ecommerce. We may even go higher than that. In total dollars, jobs and acreage, we’re at about a 65% increase in 2020 so far,” said Stephens.

Gutierrez said he projects that in 2020, build to suit for clients or spec development will exceed 15 million sf.

“That’s a record for this market. And everything I’m hearing is that 2021 is going to be even greater,” said Gutierrez.

“It’s an exciting time to be in the industrial, transportation, supply chain space, especially in Kansas City. We are the center of everything that’s happening with supply chain and transportation growth and we’re going to hit records on industrial development and industrial construction this year and forecast an even better year next year,” said Gutierrez.

Developers say e-commerce, amenities will drive successful future

An ABC Heart of America webinar recap

This week Associated Builders & Contractors (ABC) Heart of America held an online developers panel moderated by Eric Mann with Emery Sapp & Sons.

Panelists included Andy Ashwal, VP, senior asset manager of GFI Management, Mike Bell, senior vice president of Hunt Midwest and Oscar Healy, regional vice president of Opus Design Build.

The discussion focused on the challenges as well as the opportunities surrounding future development resulting from the COVID-19 pandemic.

One of the trends the panelists are seeing skyrocket is e-commerce and the need for additional storage space as the U.S. supply chain has relied on ‘just in time’ delivery for many consumer products that are imported and shipped overseas.

“You’re going to see a change from ‘just in time’ deliveries to having a 5% safety stock being held in distribution facilities. Based upon different national brokers, you’ll hear numbers ranging from 500 million to 750 million SF of additional industrial space needed just to supply distribution centers that 5% safety stock,” said Bell. 

“It will bring manufacturing back to the US. I think ‘Made in America’ will mean something more than it has in the past, said Healy.

The panelists also predict a surge of data centers to help fuel e-commerce.

“Kansas City is seeing the first wave of data centers. We’ve always been seen as a lower-level tertiary market, said Bell. 

Panelists agreed other side-markets to the e-commerce industry include an increase in the need for robotics and higher, stacked building spaces.

The importance of the ‘live, work, play, stay’ concept of living is not going away anytime soon. Having amenities for offices and apartments will become of even greater value to millennials who might be staying in lofts and apartments longer than they expected.

“I think the trend of millennials staying in multifamily or maybe moving up to larger multifamily spaces is going to continue (as) they’re going to start to have children. They’re going to need services for their children there and play spaces. That has not existed in the Kansas City market, said Ashwal.

The need for additional on-site package delivery storage was also discussed.

“The ripple-effect of what’s going to happen on the office and multifamily side is there will be a need for larger package rooms to accept trackable deliveries. Refrigerated storage in office buildings will be a new trend to accommodate employees that want packages delivered to their office to bring home,” said Ashwal. 

Some of the obstacles the panelists are seeing now and going forward are cost of construction and shortage of labor.

“Material increases and labor shortages have caused issues on our side from a development perspective, said Bell.

The panelists agreed that municipalities that are “developer-friendly” will be more attractive to developers going forward more than ever before.

“If you don’t have a tax incentive or tax abatement in some of our various cities or counties, you’re at a competitive disadvantage,” said Healy.

The discussion ended with hope that the pandemic is creating opportunities, especially for industrial development because of Kansas City’s well-built infrastructure and land availability. Also, KC offers 90% of the U.S. within a two-day shipping window.

Associated Builders & Contractors Heart of America is a commercial construction trade association serving contractors and construction related firms across Missouri and Kansas. ABC connects contractors to industry information and safety resources; serve as advocates at the state, local, and federal level; and provide a variety of educational opportunities for those in the industry including our federally registered apprenticeship program in multiple trades.

Sponsors of the event included: Nabholz Construction, Emery Sapp & Sons, Fogel-Anderson Construction, IMA Financial Group, HTH Corporation and Autodesk.

MWM's power-panel agree workforce and speed-to-market are top industrial drivers

MWM's power-panel agree workforce and speed-to-market are top industrial drivers. Here's what else the panel had to say at last week's MWM Industrial Summit:

Elli Bowen, Vice President Business Development, KC SmartPort

“More and more of our clients are coming to us with only one thing in mind at the beginning of the site selection process – workforce. They’re not interested in discussing real estate or the specific specs of the project. They provide us with their top ten job categories and want us to provide in-depth analysis on market wages, turnover rates and what’s increasing/reducing them, supply and demand numbers and more.

“They want a full picture of today’s labor force - their skill sets, where they’re coming from and how far they’re willing to travel – and proof that as a region, we’re doing what’s needed to ensure the future pipeline of talent is substantial and relevant to industry needs. Truly, workforce is the number one factor driving every industrial deal we’re touching now.”

Aaron Schlagel, Vice President of Real Estate Development, Ryan Companies

“We are running construction crews around the clock to meet the demand we have for industrial properties.  As tenant requirements become more specialized, development and construction teams like Ryan are able to move exceptionally fast to meet these demands.”

“If you want to talk about one thing that can change our entire industry, particularly in a region that’s spread out like we are, it would be autonomous vehicles.  You start removing the cost of surface parking lots, the cost of structured parking in a market like ours, it has a significant impact on everything we’re doing.  I know that this region has a lot of different opinions on it, but autonomous vehicles are coming.”

Joe Oliaro, Managing Director, Newmark Grubb Zimmer

“Prologis recently did a study comparing costs within the supply chain.  The study showed that real estate only accounts for approximately 5% of total costs across the supply chain, whereas transportation (45-55%) and labor (25-30%) makes up the vast majority of costs.  In other words, a 1% savings in labor and transportation equates to a ~15% spend in logistics real estate.  So, as costs for labor and transportation get more scarce and competitive, companies will begin to justify increased real estate/occupancy costs where they can realize greater savings.  Real estate is very much the tail wagging the dog, but also creates an opportunity for markets where property, highways and people intersect.” 

“For every billion dollar increase in online sales, you need to have 1.25 million square feet to support that growth.  E-commerce in 2018 was $517 billion which was a $77 billion increase over 2017.  That’s 96 million square feet that needs to come onto the market to support that kind of growth.” 

“I have a client who has been looking for a fleet mechanic for the last 6 months and they can’t get anyone to apply because all the fleet mechanics are working somewhere.  As soon as they come on the market, they’re snatched up.  The average age of a truck driver is 55 years old. We’ve got to step it up as a region to give incentives to younger folks to get into training programs to get their CDLs; to get into training programs where they are becoming skilled labor.” 

“When you talk about e-commerce fulfilment space, the density increases drastically.  You’re looking at 70 to 80% more employees per 1000 square feet of fulfilment space.  As e-commerce continues to grow, that demand is only going to continue to increase.  It’s a big deal and something we need to address.”

Brian Smith, President/CEO, Wagner Logistics

“We have fairly decent labor laws and a pretty good source of labor.  It’s tight now, but it’s tight everywhere across the country.   We have space, unlike the east coast or the west coast.  And, we have the open land to build which drives some of that growth.  I think all those factors contribute to companies choosing this location.  Lastly, if you’ve ever looked at a parcel map, you can ship a lot of stuff from the Kansas City area and it will get there the next day without paying for the next day rates.”

“Who bought anything online in the year 2000? Nobody did.  But they do today.  Maybe you bought from a catalog in 2000 and you expected to get it in two weeks.  Now you buy something online and you expect to get it tomorrow or maybe you expect to get it today.  Obviously, that has sped up our supply chain.”

“Kansas City is no worse than any other market so far as the labor force is concerned. We can usually find people.  We’re not struggling with that part. We can usually find people to come in and work.  The key is to keep them.  There’s a lot of turnover in the first year of employment.  We’re doing all kinds of things I never thought we’d do with people walking in the door—we’re trying to change the environment.” 

Austin Baier, Vice President, CBRE

“We’re lucky to have some good [industrial growth] drivers here.  We have e-commerce, we have great UPS and FedEx around them, we also have two of the best-selling Ford vehicles with the Transit and the F-150 and having GM in town.  Those are big drivers that are bringing people to Kansas City. Between Ford and GM, we get a lot of  3PLs (third-party logistics) that are coming to Kansas City to service them.  That creates a lot of demand for the market.”

“I think last year 60% of the deals that were done in new buildings were by parties new to Kansas City. So they’re coming to Kansas City and the first conversation they are having is: What are the statistics here for labor?  That’s the key—how do we get them to Kansas City and show them we have good labor.”

Mike Kellam, VP Business Development, McClure

“The topic of the decade is workforce.  I think that is a key point in the location of these facilities because you have to have people be able to get there and be able to work.  We constantly struggle with folks filling these jobs and then not being there regularly for transportation or other reasons.  I think there’s going to be a demand for determining sites within the 435 loop or closer to the center just from the simple fact of the workforce but also what we look at a lot is the challenges of development and utilities.”  

“I think it’s important to take stock in where we have redevelopment sites too.  There’s a lot of opportunity, greater capitalization on the use of waterways and those types of things.  There are a lot of interior sites being looked at and that’s what really intrigues me from an industrial manufacturing perspective because when you start to look at those sites, you’ve got a workforce ready site, where you’ve got people living in and around so that takes care of that transportation issue.  It makes it easier, it creates a little bit more of a community.  You might see a return to that.”