As Economy Improves, Kansas City is Primed for a Logistics Surge

Relative to many other cities its size, greater Kansas City has fared comparatively well during the economic struggles that overtook the nation beginning in 2008. As business indicators start picking up, the region can expect significant development in several markets. But Kansas City, regional business executives say, won’t need to rely on an unqualified recovery to prosper: Several national trends—and international trends, as well—are bringing focus to the area’s longstanding advantages in transportation and distribution, and now even with global trade.

Although all three areas involve outside forces that defy easy projection, fundamental geographical and transportation strengths of greater Kansas City are already drawing development and interest. And the underlying business trends taking place appear to be accentuating the benefits of these regional advantages.

The most obvious examples are the two huge intermodal centers, CenterPoint-KCS Intermodal Center in south Kansas City, and Logistics Park Kansas City Intermodal in Edgerton. CenterPoint opened three years ago, while Logistics Park has broken ground and lined up its first tenant. Yet the presence of these 1,000-plus-acre developments and other logistical efforts illustrate Kansas City’s growing recognition as an important center for transportation, distribution, and international trade.

The foundation for all of this is not new. Historically a rail center that also benefited from its proximity to the Missouri River, greater Kansas City today boasts five Class I rail lines that connect with every corner of North America—including ocean ports in California and Mexico. The Mexican connection, not coincidentally, is part of efforts by Kansas City Southern Railroad, a partner in the CenterPoint Intermodal development.

Though not unique to CenterPoint, the concept is built on the practical business model of shipping international goods to a deepwater port, then moving by train to an intermodal center, where the goods are loaded onto trucks for final distribution. Because of its location, Kansas City by truck is within three days of 90 percent of the U.S. population.

Other factors are at work in Kansas City’s favor as well. Locales such as New York, Los Angeles, Dallas, and Chicago have historically dominated much of these markets, but those locations have lost some luster. Higher fuel prices mean Kansas City’s centrality is more significant, while congestion in those larger metropolitan areas means trucking is simply not as efficient there. One competing route from a Canadian port through Chicago needs three days just to pass through the Windy City.

Other advantages favoring Kansas City are even more basic.

“We generally have inexpensive land in this market; that makes it a pretty good area,” noted C. Patrick Robinson, director of development for the Allen Group-Kansas City, which is developing the more than 7 million-square-foot distribution area surrounding the Logistics Park intermodal center. “We have some very real geographic advantages, as well.”

Although logistics operations are not employee-heavy, the total of all these plans when they reach fruition would be significant. The Edgerton facility alone is projected to create 10,000 jobs when complete. Kansas City’s labor costs are low by national averages, while the region also brings an educated labor work force.

Building Up

Some local advantages represent planned developments. Air travel in greater Kansas City is not a natural advantage, but progress in that arena is evident.

Passenger travel at Kansas City International Airport is growing as the nightmare days post-9/11 and the Great Recession fade farther into history. The most significant news, however, involves air cargo: The Kansas City Aviation Department and the Trammel Crow Co. are collaborating to build the 800-acre KCI Intermodal BusinessCentre, a project that will eventually include 5.4 million square feet of air freight and cargo processing, warehouse, and distribution facilities.

While the city has nearly completed key infrastructure, including access roads, Trammel Crow is developing pad sites. As with growing interest in Kansas City’s ground transport locations, the airport site is drawing interest.

“We have had several major companies talking about locations here,” said Mark VanLoh, Kansas City’s aviation director. “These are companies with products that you know about. The economy held things up for a while, but we’ll have announcements very soon. It’s moving forward.”

Other notable public/private combinations are evident. Near Edgerton, in southwest Johnson County, the intermodal development received a significant boost when the Kansas Legislature agreed to make $35 million available to support the project. The funds will be repaid through revenue generated by state sales taxes on utilities used at the intermodal complex—essentially the massive electric bills that will occur because of giant electric cranes used in the intermodal operation. Before that approval was made, the project had been stalled by the nation’s economy. Work, however, has resumed.

The Allen Groupwill develop the approximately $500 million logistics park, which itself will surround the $250 million intermodal hub being developed by BNSF Railway. Nearly 700 jobs are projected to build the sprawling business park, and nearly 9,000 permanent jobs are predicted when construction is complete.

Timing is a notable factor. “Companies are starting to talk again,” Robinson noted. “The projects might be a little smaller than they were two or three years ago, but they’re making inquiries. These are companies that make products you use and hear about every day.”

Bigger is Better

The size factor is leaning toward larger sizes in some areas—the sign of another significant trend impacting the areas’ transportation and, especially, distribution markets. A few miles from the Edgerton site, the Kessinger/Hunter Co. has built the largest speculative commercial space in recent Kansas City history: a 600,000-square-foot building nearly filled two years after completion. The company has announced an 800,000-square-foot structure, the first of four to be built in the same location.

“What’s been going on along the coasts for years is making its way here in these large, bigger boxes,” principal Dan Jensen explained. Jensen noted that not only were the footprints five to 10 times larger than traditional distribution centers here, but they are up to one-third taller, allowing more stacking. Other trends include more automation and larger parking areas to accommodate a fleet of trucks.

“The economy is turning,” Jensen said. “Not as quickly as we’d like, but these buildings take up to 12 months for construction. The market is definitely there and growing, and we want to be ready.”

Historically, Kansas City’s “big boxes” were in the 100,000-square-foot range until companies such as FedX and Musician’s Friend began building their own larger structures. Developers also note that the vacancy rate here for large distribution facilities is as low as 2 or 3 percent—essentially zero—even when compared to cities such as Memphis, where large speculative centers sit ready for development.

With so much relying on the state of the area’s highway network, the status of those arteries is a mixed blessing. Missouri and Kansas highway funds have been reduced during budget cuts in both Jefferson City and Topeka. Kansas’ roads, which also benefit from a toll for the key I-70/I-335 route, seem to have weathered the storm in somewhat better shape. Kansas has also opened key interchanges on Interstate 70 near Tonganozie in Leavenworth County, and plans for additional ones on I-35, including one near the Edgerton intermoda in Johnson County. Some of the most important projects on the Missouri side have been the massive Three Trails Crossing interchange, now complete, as is the Christopher S. Bond Bridge.