Next-Level Logistics

PUBLISHED NOVEMBER 2023

The history of seismic shifts in Kansas City’s business infrastructure is dotted with one-offs that could have gone bust but developed global reach: Hallmark is one, dating to 1910. H&R Block is another, dating to 1955. Cerner Corp., as well, from its 1979 inception to its recent acquisition by another global player, Oracle.

It’s not unreasonable to think that the area today is witness to another transformation. This time, though, it doesn’t have to go global: the world is beating a path to Kansas City with the continuing growth of the logistics sector here—distribution, and manufacturing.

Each year—and often, in each quarter—large commercial realty interests publish updates that show the Kansas City region continues its march to top-tier status among American cities for that logistics strength. While 2023 has brought a brief pause in that expansion, but by no means a retreat from it, the stars are aligning in ways that suggest a resumption of rapid growth for an extended period:

• A major sea change has come with the reassessment of Just In Time delivery for the manufacturing sector. For several decades, businesses have attempted to shave costs by paring inventory and storage costs, along with the associated labor. Global supply-chain disruptions exacerbated by the pandemic of 2020 have disabused many a manufacturer from embracing JiT.

• Overseas supply chains aren’t just being re-linked, they’re being rebuilt and, in American manufacturing’s case, re-shored. Chinese labor costs, insignificant a generation ago, have risen 14-fold during that nation’s rise to the world’s biggest economy. The same will happen as adjacent economies, such as Vietnam, lift their workers out of poverty. In short, the overseas labor advantage is vanishing.

• Rising costs for energy are making transportation a painful cost center for major manufacturers. Fuel costs have dropped a bit as oil has pulled back from its annual high of $117, but oil prices remain two and three times higher than they were during either of the pre-pandemic lows in 2016 and 2018. 

• Two factors that will remain fixed: America’s coastal contours and mountain ranges. In distribution terms, they are market limiters. Kansas City, in the heart of the Midwest, has a centrality unimpeded by geologic or geographical barriers. As a result, outbound freight can reach most of the country by highway within two days.

• The union of Canadian Pacific and Kansas City Southern Railway last year has put this region at almost the midpoint of North America’s biggest railway grid, with Pacific-to-Atlantic routes forming the cross of a “T” and a spine that connects to ports on the Gulf of Mexico as well as the central Pacific.

• Business costs are vastly cheaper in this region than many areas of the country; industrial property lease rates, for example, are at least 40 percent lower than national averages, brokerage reports show. 

• And there’s a strong, skilled workforce. The region has over 200,000 manufacturing, transportation, and warehousing workers, and they are nearly 15 percent more productive than the national average, as measured by JobsEQ. The abundance of adjacent development-ready land will help us compete for more megaproject facilities like Meta and Panasonic.

For almost any community in the world, that all sounds like a winning hand. But are there wild cards out there that could skunk it?

“Considering all that is going in Kansas City’s favor at the moment, it is critical that we consider what could jeopardize this trend,” says Larry Wigger, a professor of supply chain management at UMKC. “What are the things that would dissuade entities from further investment? And then, how could we mitigate those risks?”

At the very top of that list, he says, is workforce. “Sufficient supply of the full range of labor is crucial to success in any of the current and pending ventures,” Wigger said. The high probability of continued supply of affordable skilled labor has been instrumental in firms’ and government’s bets on the region and Kansas City in particular, but it’s not a bottomless well.

“And of course, supply and cost of labor is not isolated from appropriate housing and infrastructure—they go hand in hand, reinforcing each other,” he said. “It takes labor to build housing, and labor needs housing. It’s hard to have one without the other.”

Those considerations have been top of mind for the civic leadership and corporate executives with Panasonic Energy, which is deep into construction of its $4 billion electric-vehicle battery plant in suburban Johnson County. The surrounding town, De Soto, has a population of just 6,400, and the plant’s staffing projected at 4,000 means workers must come from nearby Lawrence, Shawnee, Lenexa, and Olathe—and likely, Wyandotte County to the north and beyond.

There’s good reason to be concerned about securing that asset.

“Workforce and labor is still typically the No. 1 driver of decisions for companies picking a distribution or manufacturing location in Kansas City, or in multiple markets while they’re looking at Kansas City,” says Joe Orscheln, an industrial broker for CBRE. “Labor is always a factor in that decision.”

If labor is the first building block of support for the logistics system, the others have to be the support network for those workers, he said. Housing, transportation, and education—all will be instrumental in adding enough depth to the labor pool to keep current growth stoked.

Still Gathering Steam 

Multiple industry publications and associations have been tracking industrial growth here for years, so their annual updates only reinforce what people in the logistics sector have long known. But for most commuters zipping past the rising behemoths of warehousing and distribution—going up close to 1 million square feet at a time—the realignment of this region as a power player in that space isn’t nearly as obvious.

Here’s one way to think about it: From approximately 258 million square feet of marketwide industrial property at the start of 2013, the region exploded to 349 million square feet at the start of 2023, up more than 35.2 percent. Last year alone, while Kansas City accounted for about 2 percent of the nation’s total industrial space, the ongoing appetite for new construction helped push the absorption rate for that space to more than 4.3 percent—almost twice the national pace.

Wigger, the UMKC professor, has come up with a sort of agenda for civic leadership to embrace if we’re to keep the momentum going here:

“At a minimum, when presented with funds, we should be prioritizing development of the full spectrum of workforce housing,” he says. “The real-estate market will typically pursue higher end, but affordable middle-class housing is the first to be squeezed out, so we need focus on developing at scale the types of homes and apartments that workers desire.”

Then should come the continuing focus on workforce competency in science, technology, engineering, and math, something Wigger calls “the price of entry for tomorrow’s workforce—and by tomorrow, we mean today.” STEM education and training in the full spectrum of K-12, community college, and university should be a priority, he says.

The next step should be welcoming transplants and assisting them with integrating into local communities. “We are fortunate that people want to come here, or our population would be in severe decline, but we need to intentionally support those looking to make their home here,” Wigger said.

As a final point, he cited the associated infrastructure investments: More people mean more internet users and more students in schools. More homes mean more electricity demand and more roads and mass transit.

Things are good, but Orscheln believes better is on the way.

“With CPKC, I think we’re going to see a lot more rail products coming to Kansas City. The demand? It’s here now. So I think that over the next 12 months, we’re going to see great activity coming from intermodal users.”