5. Transportation & Supply Chain Analysis

Transcription

1 5. Transportation & Supply Chain Analysis

2 Transportation & Supply Chain Analysis Logistics is a challenging and important activity because it serves as an integrating or boundary spanning function. The logistics network consists of suppliers, manufacturing centers, warehouses, distribution centers and retail outlets, as well as raw materials, work-in-process inventory, and finished products that flow between the places and facilities. With ever-growing competition in today s global market place, it is essential for communities and firms to use their resources to focus on opportunities that will connect them effectively to the world. NGKF has evaluated the current logistics network in Northeast Minnesota s region to assess local and regional transportation and supply chain infrastructure, capabilities, and capacities. Our objective was to identify gaps in the regional supply chain and determine if there are opportunities to build on existing logistics strengths. This section is divided into two sections: Analysis of commodity and freight movements through Minnesota and Koochiching County; and Assessment of three modes of freight transportation in the county: Rail, Air, and Truck. The methodology included data analysis from publicly available data sets, interviews with companies, and on site tours and inspections of facilities and transportation infrastructure. Koochiching County & International Falls Economic Adjustment Strategy 2

3 Regional Freight Movement: Transportation Modes Minnesota Transportation Modes In 2012, one billion tons of freight moved over Minnesota s transportation system. By 2040, the Federal Highway Administration forecast indicates total volume to amount to 1.8 billion tons, with mode shares remaining almost entirely unchanged. Total freight tons in the State of Minnesota will increase by 80% by 2040 compared to 60% nation wide Koochiching County & International Falls Economic Adjustment Strategy 3

4 Regional Freight Movement: Rail Minnesota Freight Flow by Rail In 2012, 49% of the rail freight flows by weight were through moves that neither originated nor terminated within the State of MN. Outbound rail freight was the second largest component, accounting for 21% of the 2012 total. Intrastate rail freight (i.e. point to point inside Minnesota) was the third largest component in 2012 with 18% of the tonnage. By 2040, total rail volume will grow and through moves that are expected to comprise a growing majority (59%) of rail freight traffic in Minnesota. Outbound rail freight will remain the second largest component (20%). Inbound freight will account for 12% percent of the total rail movements by Intrastate rail freight is expected to shrink to 9% by The majority of product moved by rail is simply passing through the State of Minnesota or outbound, leaving a shrinking percentage of product volume to target for possible value-add activities Koochiching County & International Falls Economic Adjustment Strategy 4

5 Minnesota Commodity Flows: Inbound Top inbound rail commodities moving in Minnesota by weight in 2012 and projections for The top growth for inbound commodities will be in the following three categories: Chemicals and Allied Products Farm Products Others Mainly Medical Products Inbound Commodities by Weight Inbound Commodities by Value Koochiching County & International Falls Economic Adjustment Strategy 5

6 Minnesota Commodity Flows: Outbound The largest commodity group exported out of the region is Metallic Ores, which accounts for 65% of all outbound tonnage or 66.8 million tons. The second largest commodity group exported out of the region is Lumber or Wood Products with 11% or 9.8 million tons of all outbound tonnage. The remaining top three exported commodities are Non-Metallic Minerals, Farm Products, and Waste or Scrap Materials. Ohio is the top market for goods leaving the region, receiving 20% or 13.6 million tons. The second largest export market is Indiana with 17%, followed closely by Wisconsin with 16%. The remaining top export markets are Illinois, other areas of Minnesota, and Canada. The high Metallic Ores export volume reflects substantially the movement of taconite out of the Iron Range to steel mills in other states. Koochiching County & International Falls Economic Adjustment Strategy 6

7 Minnesota Commodity Flows: Outbound Top outbound rail commodities moving in Minnesota by weight in 2012 and projections for The top growth for outbound commodities will be in the following three categories: Farm Products Food or Kindred Products Others Mainly Medical Products Outbound Commodities by Weight Outbound Commodities by Value Koochiching County s opportunity to participate in these trade flows is diminished by its northern location, the through flow of the CN Rail line, and its overall small market presence. These inbound and outbound produce segments are worth monitoring and investigating further, nevertheless. Koochiching County & International Falls Economic Adjustment Strategy 7

8 Trading Partners Key trading partners are identified by combining the inbound and outbound freight flows between Minnesota and its trading partner regions. The chart displays current and future values of traded commodities for each of Minnesota s top trading partners. The top U.S. trade markets are in-state, nearby Iowa, Chicago, and Wisconsin. International trade markets are China, Canada, and Mexico. Koochiching County & International Falls Economic Adjustment Strategy 8

9 Regional Manufacturing: Employment Despite downsizing at PCA and in the wood and paper product industries, Paper continues to dominate the employment numbers in Northeast Minnesota. Koochiching County must support its largest employer but also look to businesses in the smaller sectors to support growth Northeast Minnesota Region Employment by Sector Total Manufacturing Employment: 8,916 Share of North Eastern Regional Employment: 8% Koochiching County & International Falls Economic Adjustment Strategy 9

10 Regional Manufacturing: Wages & Salaries Wages in the Paper and Primary Metal sectors are the highest in the region. $90,000 $80,000 $70,000 $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 $0 Northeast Minnesota Region Average Wage by Region and Industry Total Manufacturing Employment: 8,916 Share of North Eastern Regional Employment: 8% Koochiching County & International Falls Economic Adjustment Strategy 10

11 Trading Partners: NAFTA & Free Trade Zones The impact of trade programs such as NAFTA are difficult to discern and hotly debated. The chart displays the top manufactured commodities traded between the U.S. and Canada (the northern NAFTA partner) and shipped through the major ports of entry on the shared border. A key finding from this table is that a very small percentage of the most traded goods between the two countries moves through International Falls. The large percentage of Other goods reflects the high volume of containerized imports from Asia and bulk commodities from Canada items that cannot have value added by stopping in Koochiching County. Top Five Commodities Traded between the U.S. and Canada through Major Ports of Entry (% Share) Port Name Motor Vehicles Electrical Machinery Computers Mineral Fuels Plastics Other Detroit, MI Buffalo-N.Falls, NY Port Huron, MI Champlain, NY Blaine, WA Portal, ND Sweetgrass, MT Pembina, ND Int l Falls, MN Alexandria Bay, NY Koochiching County & International Falls Economic Adjustment Strategy 11

12 Trading Partners: NAFTA & Free Trade Zones Free Trade Zones are also a debated subject in economic development circles, particularly with regard to their impact on regional economic growth and utilization of transportation and logistics assets. A foreign-trade zone ( FTZ ) is a designated location in the United States where companies can use special procedures that help encourage U.S. activity and value added - in competition with foreign alternatives - by allowing delayed or reduced duty payments on foreign merchandise, as well as other savings. Magnet Sites are usually located at ports or industrial parks, and are open to multiple zone users. Subzones (or Usage-driven) sites are typically smaller and approved for a specific company or use. In the FTZ, landed merchandise may be assembled, exhibited, cleaned, manipulated, manufactured, mixed, processed, relabeled, repackaged, repaired, salvaged, sampled, stored, tested, displayed and destroyed. Production activity must be specifically authorized by the FTZ Board. According to the U.S. Department of Commerce, there are 250 general-purpose zones and over 500 subzones approved and in existence across the United States. The Koochiching County Free Trade Zone, coupled with the new Multi Modal Park, certainly creates a greater opportunity for the county in a highly competitive landscape of logistical options. Koochiching County & International Falls Economic Adjustment Strategy 12

13 Trading Partners: Great Northern Corridor Coalition The Great Northern Corridor is a strategic supply chain link spanning the northern United States and reaching key southern points in Canada. The Corridor includes 3,331 rail route miles across eight states, and interconnects with seaports, multimodal yards, inland waterways, and highways. The key rail routes on the Corridor flow into Duluth and Minneapolis-St. Paul via the BNSF Railway. The northern geography of Koochiching County takes it out of the primary flow of the Great Northern Corridor. The working relationship between BNSF, CN Rail, and short-track operators should be examined to identify further opportunities. Koochiching County & International Falls Economic Adjustment Strategy 13

14 Key Local Supply Chain Asset Ranier/International Falls is the busiest rail crossing on the U.S. northern border, and is a critical part of CN Rail s network between ports in western Canada and Chicago. Nearly 20% of U.S. imports cross here. These are containerized goods from Asia and bulk goods from Canada that will generally not be removed from a unit train to break bulk in the county. Nonetheless, the MD&W provides a proven, viable option to move freight from truck to rail and then interconnect with CN Rail on a daily basis. The Multi Modal District is an additional business attraction asset. Minnesota Dakota & Western Railway ( MD&W ) The MD&W is a short-track rail company based in International Falls. A wholly-owned subsidiary of PCA (formerly Boise), this stand-alone company runs a profitable business with more than 2,100 rail cars that are leased and deployed around the country. With just 21 employees currently, MD&W s largest customer is the PCA mill but they also service smaller industrial customers in the city and the company can accommodate more growth. The MD&W currently puts 18 cars on and takes 18 cars off of the CN Rail line at the switch in Koochiching County every day. There is no doubt that this is the conduit to the CN line and an underutilized asset that could accommodate more customers who need short-track access to the hook and haul service provided by CN in order to gain access to the entire continent by rail. Koochiching County & International Falls Economic Adjustment Strategy 14

15 Regional Freight & Passenger Movement: Air Falls International Airport (INL) was established in 1945 and is jointly owned by the City of International Falls and Koochiching County. The airport is a U.S. Port of Entry with customs clearance and the main runway is 7,400 feet in length. This is the 2 nd longest runway in Minnesota. The airport receives a federal annual operating subsidy through the Essential Air Services (EAS) program, which is a consistent but not guaranteed funding source. SkyWest, a Delta Airlines partner, flies one daily flight two days a week and two flights daily five days a week to Hibbing and Minneapolis-St. Paul (MSP). There are no scheduled international flights but it is a 24/7 international airport giving it an advantage over MSP, which can only receive and clear international flights between 7:30 AM and 7:30 PM. The physical limitation at INL is that U.S. Customs can only process flights with fewer than 21 passengers, which is at the discretion of the Port Director. Freight is not currently handled at INL. Duluth International is the nearest airport with scheduled air cargo service. Small package freight is a current opportunity for INL, especially for high-value and/or time-sensitive goods, and there is infrastructure capacity at INL to handle some freight volume. This international airport with an extra long runway and U.S. Customs clearance is a competitive advantage. Koochiching County & International Falls Economic Adjustment Strategy 15

16 Regional Freight & Passenger Movement: Air INL is scheduled for an upgrade to the terminal building that will bring efficiencies and a better traveler experience. These upgrades will be carried out in phases. The design of a new terminal is currently in process with construction of phase I is scheduled to begin in 2016, dependent on project funding. Plans to secure funding for phase II are also currently underway with no scheduled construction start date set for phase II. A brief description of the new terminal (divided into the two phases) is outlined below. Phase I Demolish a portion of the existing terminal building; site preparation, including an electrical room or building, utilities, and site civil work; design, construct, furnish, and equip phase I of a new terminal building, to serve the following purposes: ticketing, baggage, screening, boarding, jet bridge, ground transportation, and associated appurtenances of a capital nature for the traveling and non-traveling public at the INL, but not including areas for U.S. Customs and Border Patrol and Transportation Security Administration Offices. Phase II Demolish remaining portion of the existing terminal building. Design and construct phase II to include: U.S. Customs and Border Patrol (CBP) processing and CBP administrative offices, airport administrative offices and conference room, Transportation Security Administration Offices, and associated appurtenances of a capital nature for the traveling and non-traveling public at INL. International flights are currently processed through a very small area which limits the amount of passengers that can be processed. Phase II will add space for Customs processing. Funding Sources include: Federal Aviation Administration Airport Improvement Program (AIP); Federal Aviation Administration Discretionary Funding; Minnesota Department of Transportation, Office of Aeronautics; Koochiching County; City of International Falls; and Minnesota State Bond Funds. Koochiching County & International Falls Economic Adjustment Strategy 16

17 Regional Freight & Passenger Movement: Air Falls International Airport (INL) is a third-tier airport in the State of Minnesota (data for MSP in Minneapolis not shown) but is considered a key airport by the State of MN and is a vital asset in the region. The airport also provides a home for more than 40 small aircraft. Minnesota Airport Passengers Enplanements Passengers 180, , , , ,000 80,000 60,000 40,000 20, Bemidji Brainerd Hibbing International Falls St. Cloud Thief River Falls Duluth Rochester Based Plane Comparison 2015 Duluth I - Falls TRF MSP Brainerd St. Cloud Rochester Bemidji Hibbing Koochiching County & International Falls Economic Adjustment Strategy 17

18 Regional Freight Movement: Road Roadway: Trucks are an essential transportation mode for moving goods throughout the county and the northern part of the State of MN and, to a lesser degree, to and from Canada. The road infrastructure is generally very good. Highway 11 provides East-West transit across the northern extent of the county, through International Falls, and provides bridge access to Canada. The Customs Plaza road access is generally poor. Highway 53 provides NW to SE access to Duluth and from there to the Twin Cities. Highway 71 provides SW access across the county to the smaller cities and towns outside of International Falls and then connects west toward North Dakota and south towards the Twin Cities. Route 332 is a perimeter road that diverts a considerable amount of truck traffic away from city streets. It s importance should only grow over time. Freight truck activity to, from, and in International Falls and Koochiching County is generally light and somewhat challenged. Being at the northern terminus of a domestic highway in a northern state creates empty backhauls and diminished service and growth opportunities. Our assessment of the road and trucking environment is based on data research, interviews, and personal observations. Koochiching County & International Falls Economic Adjustment Strategy 18

19 Regional Freight Movement: Road Canada, Port of Entry and Trade International Falls is not a major point of entry for trucks from Canada, as Thunder Bay, Ontario and Winnipeg, Manitoba are the nearest cities at more than 200 miles distance (~4 hours). Direct access to a major Canadian city creates more truck traffic and hence more work for customs brokerages. Boarder Town Population Ranking on Border crossings by trucks # of Brokerages Canadian City Access International Falls, MN 6,300 15th 1 None Pembina, ND 570 6th 8 Winnipeg, MB Portal, ND th 5 Regina, SK, Calgary, AB and Edmonton, AB Custom brokerage business models now make it possible to clear goods remotely. Staff at the border will be 2-3 people and all other functions will be consolidated at a central U.S. location. Both Pembina and Portal have ancillary businesses like a meat inspection facility, stockyard, warehouses, and truck service and maintenance services that support truck activity. None of the local trucking companies in Fort Frances or International Falls handle products crossing the border as there are not many goods originating locally that are being exported. A high percentage of the rail freight crossing over into the U.S. is Chicago bound and is not cleared at the border. It is bonded and cleared when it gets to Chicago. Koochiching County & International Falls Economic Adjustment Strategy 19

20 Regional Freight Movement: Road Business Growth Freight businesses are very reliant on paper or sawmills primarily. It leaves them very vulnerable with little product diversity. Every company we interviewed has seen a reduction in business steadily over the last 3-5 years. Employment at these facilities were all under 13 employees, some as low as 2 and they don t see growing their employees in the near future. The trucking work force is primarily high school or GED only, with a trucking license (which cannot entirely be obtained locally). General computer skills may be required. There is a high work ethic and low turnover due to a lack of jobs in the market, but when PCA calls people move to the top local employer. Two trucking companies mentioned stringent MN DOT regulations as a hindrance to growth. One has opted out of doing state-wide freight because of it. Their primary route was to the Twin Cities and back. Generally, Koochiching County suffers from a shortage of drivers, a lack of driver test facilities, a small number of trucking companies due to low volumes, one-way (dead head) routes, inconsistent truck courier services, little or no interaction with the truck and freight companies on the Canadian side of the border, and a lack of available parts and service technicians. This is an industry that will grow only as specific sectoral demands in forest products, paper, or other manufacturing expands and requires greater freight service. Koochiching County & International Falls Economic Adjustment Strategy 20