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Friday, May 15, 2020

Delta County Great Lakes Shipping Infrastructure-Opportunities for National Exports!

We know that we cannot fully grow and develop as a nation unless our infrastructure is ready to handle the materials, supplies, and products that make their way into the global market. The Great Lakes are the world's most important fresh water lakes and offer an important opportunity for American manufacturing rejuvenation. That will require us, as a nation, to make a commitment to not only maintain our infrastructure but also go a step further in order to reclaim manufacturing and be competitive with powerhouse nations like China. Improvement in the Great Lakes navigation by supporting proper funding like Congressman Bergman has is important to the creation of distribution and export infrastructure that leads to improved manufacturing efficiency and capabilities. There is a connection between Shipping Infrastructure Improvement and Manufacturing, Resource and Distribution Innovation that should be ferreted out for greater understanding.

Shipping Infrastructure Improvement 

We know we can't ship products unless we have shipping lanes and  the infrastructure to do so. On the heels of a $123 million construction of second Poe Lock Congressman Bergman pushes for a minimum Harbor Maintenance Trust Fund (HMTF) allocation to focus on reducing Great Lakes Navigation System (GLNS) backlogs. A reduction in backlogs our ships can support regional industry and national exports through improved efficiencies. Without the full funds and the projects they support our harbors and shipping lanes are filling in with sand and silt while our infrastructure breaks down.

The Harbor Maintenance Fund (HMTF) and The Great Lakes Navigation System (GLANDS):

The HMTF is fees collected by companies that ship products throughout the Great Lakes. Approximately $1.7 Billion annually is collected but not all of the money is used to improve shipping infrastructure. According to the American Great Lakes Port Association there is, "$150 million dredging backlog. Breakwaters and jetties need $300 million in repairs, and the Soo Locks require $73 million in upgrades" (2020 para 1). Without this money the infrastructure doesn't get the maintenance that is needed.

Great Lakes The Great Lakes Navigation System (GLANDS) are the "five Great Lakes, their connecting channels, and the St. Lawrence River form one of the longest deep draft navigation systems in the world (The Great Lakes Seaway Navigation System, para 1). Approximately 160 million tons is shipped on these 200 year historical waterways that lead not only to the region but also to international shipping. Keeping these systems functioning properly helps boats make their way from one port to the next bringing needed resources and products.

Principle: Keeping our shipping lanes and infrastructure functioning through proper funding will aid the regional/national economy as well as encourage shipping and manufacturing during America's Re-emergence.

Legislation in Process: Water Resources Development Act of 2020

Approximately 80% of our nations products use waterways in some form or another (House Committee on Transportation, 2020). Therefore, there is a natural funding arm that comes through the Water Resources Development Act of 2020 utilizing the HMTF. According to Congressman Bergman's Letter to Peter A. DeFazio the Chairman for the Committee on Transportation and Committee on Transportation and Infrastructure and Sam Graves the Ranking member Committee on Transportation and Committee on Transportation and Infrastructure It is hoped that the full 10 % GLNS allocation is to both “baseline” and “priority” HMTF funding instead of 9.8% (Bergman, 2020 May 1 Letter). You may see the letter below.

Principle: Congress should consider the merits of maximizing the Great Lakes shipping and manufacturing capacities for economic growth and national security.

What Does the Water Resources Development Act actually Do?

Congress authorizes The Water Resources Development Act to commission research and studies into ways of improving our waterways to encourage greater shipping and economic growth (WRDA, 2020). Furthermore, it partners with the U.S. Army Corps of Engineers to protect the environment our nationally important waterway infrastructure. The exploration and research into ways to improve the water resources should take into account distribution, manufacturing and efficiency needs.

You may want to read the 2018 WRDA Act in full but here is the main purpose, "To provide for improvements to the rivers and harbors of the United States, to provide for the conservation and development of water and related resources, to provide for water pollution control activities, and for other purposes (WRDA Act, 2028, para 1)."

Because the Great Lakes has an abundance of coastline in the world's largest freshwater system that contributes significantly to the national economy it is necessary to protect and enhance these systems. From an economic standpoint, and a desire to improve upon American's manufacturing capacity, it is even more important to restore and enhance our natural waterways to foster efficient shipping that leads to stronger export oriented activities.

Principle: Research into improving the efficiency, functionality of the waterways, manufacturing capabilities, and export capacity is needed.

How Ports Enhance Opportunities for Economic Growth?

Ports have significant economic value to cities and the national economy. History has shown that cities that maintain active ports have experienced growth way beyond those without them (Chan et al., 2014). We have seen  similar phenomenon occur in the past through ancient Arab trade routes, major airports, or a connection of rail yards. The Great Lakes has a long history of commerce that can be rejuvenated if we focus on the development of an export infrastructure that is matched with encouraging manufacturing.

In the diagram we find that improving port infrastructure has an impact on Logistics Performance, the Competitiveness Index and Global Competitiveness. We can think of logistics performance as the efficiency of moving and distributing products in the U.S. and around the globe.

The Competitiveness Index is an improvement in worker (and other competitive) welfare markers based on 12 pillars that range from health and education to innovation. The World Health Organization published the 2019 Global Competitiveness Report that Ranks the U.S. as 2nd under Singapore (Schwab, 2019).

We are ready and prepared as a people to compete with any nation in the world. We also have the basic infrastructure to do that but further fine tuning our export oriented infrastructure will make a significant differences in our production capacity. Investment in ports and distribution can make a big difference in our ability to maintain and improve our position in a way that leads to a rebalancing of the trade gap.

Principle: Investment in ports and shipping infrastructure improves shipping efficiency which in turn impacts global competitiveness and the national economy.

U.S. Export Position and Improvement in Trade Gap:

At present (2018) the U.S.(12.2%) is below China (19.5%) Exports of GDP (% GDP World Bank, 2018). This means that as a total output China was exporting a higher percentage of their production capacity and catching up to the U.S. Those numbers don't necessarily tell us how much is actually being exported by the country.

The trade gap with China improved between 2018 ($-419,527 Million) and 2019 ($-345,617 Million) and (U.S. Census Bureau, 2020). That is one of the first significant times the growing trade imbalance trend has started to reverse since we began importing more than exporting to China somewhere around 1985.

In 2019 we exported to China 106,627 Million and Imported from China $ 452,243 Million creating a -345,617 trade gap. Covid sort of changed those numbers a little as in 2019 U.S. share of the total trade volume was 19.1% and in 1Q of 2020 it was 22.5% which is a small re-balancing. Total volume of trade with China is down as well and will need to wait until the end of the year to fully understand what happened (is happening). There could be a lot of things from Trade Deals, growing public distrust of China, global lock downs and consumer changes in habits that may be influencing the numbers.

Principle: Without radical reinvestment and change in our manufacturing abilities and export infrastructure we will not compete with not lead the market. 

Manufacturing, Resource and Distribution Innovation

The Economic Benefits of Warehouse & Distribution Centers:

To gain a better grasp of the economic benefits of warehousing and distribution centers it is helpful to look at some statistics. Prologis is a large warehousing and distribution logistics company they published some solid numbers on their website developed by the knowledgeable economists at Oxford Economics. Warehousees generate around $2.1 million of intermediate and final goods flow per thousand square feet (Prologis, 2017) Furthermore, there is approximately $1 of GDP impact per $1 of final goods bought.

Taking a further look at the numbers Prologis offers we can start calculating some basic values for what the potential impact of a local warehouse/distribution could be. To do this well we need to know what the average new warehouse size (Actual size would be dependent on flow of goods, distribution need and capabilities). The company  CBRE Group, Inc published an average new warehouse of size of 184,693 square feet (CBRE Group, 2017). 

-Assuming an average 184. 7 thousand square feet X $2.1 Million =387.87 Million a Year +/-

-That would also be $387.87 million impact on GDP per year. Not bad!

-An employee can manage 1,000 to 1,200 (using average of 1100 square feet). That would mean......

-184.7 K square feet / 1.1 K square feet = 167 employees (I'm assuming full capacity and not including management). There would be additional impact to trucking, shipping, rail yards, and much more that are not included in this. Based on the information Prologis offers and creating a few multipliers from their site there is a wider employment impact (Prologis, 2017).
  • 167 Direct (Not including management) X .81 = 135 Indirect Employment Jobs (Doing business with Distribution Center)
  • 167 Direct (Not including management) X 1.08 = 180 Induced Employment Jobs (Those providing other services based on wages spend by employees at facility). 
We then come to an average amount of employment....
167 Direct
135 Indirect
180 Induced
==========
482 New Jobs. (That doesn't include enhancements to other industries such as manufacturing, mining, lumber, and shipping.)

It would take more research to determine the sectors and amount of employees that would be included. We can then look at some of the wage rates for related jobs:
There are a couple of other things we might be able to calculate in the ball park such as state and federal tax benefits of having an average size distribution center in Delta County. Using some more multipliers we can come up with some really rough numbers of $3.9 Million Federal and $1.67 Million State/Local Taxes annually from direct, indirect and induced sources.

Principle: A Delta County warehouse and distribution center can increase jobs and the tax base.

Without going to the source the average will become increasingly inaccurate. Much will depend on volume, need, costs, etc...I'm not an economist by trade so I may be able to come up with some basic numbers with additional research but to truly drill down into this would require significant expertise and often the hiring of experienced economists from firms such as Oxford Economics that provides global forecasting and quantitative analysis.

Can a Delta County Distribution Center Enhance Our Shipping and Exportation?

Logistics distribution centers are part of the global logistic network centers work with shipping in a way that encourages investment and economic development by being a link between manufacturing and end users (Skender, Petra, & Lolic, 2019). I'm taking the liberty of sharing a few ideas of additional ways to build off of our Grate Lakes infrastructure through a strategically located warehouse and distribution center. Delta County Michigan has flat land, an available port, nearby commercial import/export airport, and plenty of railway that can further enhance shipping efficiency and effectiveness the Great Lakes shipping infrastructure and export capacity.


Distribution centers are facilities where products are stored, upgraded and prepared for shipping to other locations. Considering Delta County Michigan's small manufacturing capacities and existing export infrastructure the area it has an opportunity to produce significant value for the region. It would act as a loading, unloading, preparing, modification and eventual redistribution from rail, highway, air, or ship. 

Principle: A Delta County distribution center can enhance value in the logistical supply chain.


Can a New Delta County Facility Help Our Economy?


There are some numbers that need to be crunched and one will need to understand the bigger strategy of export culture. We do know as a nation we need more manufacturing, need a stronger export infrastructure, and want to provide solid jobs and enhance business that leads to Federal, State, and Local tax resources. As a nation we must think about our long-term competitive strategy to bring back manufacturing and jobs to the U.S. 

What I can say is that a strategy should utilize our assets and the Great Lakes and our decaying infrastructure can be an assess to encourage powering up of new manufacturing. China has been beating the U.S. in manufacturing and COVID was a terrible disease but may be enough to rally our country to start thinking long-term about where our country is headed and the opportunities we are providing to the next generation. As China builds the One Belt, One Road initiative that connects 66 countries by land and sea we have not tapped our full source of infrastructure power (Council on Foreign Relations, Chatzky & McBride, 2020).

The Great Lakes and its manufacturing are part of that solution. Resource rich Delta County as a central shipping location may also be part of the puzzle solution. I'm working on a Theory of Transactional Innovative Clusters and hope to apply some of these concepts to foster growth. Building a cluster in Delta County is possible if we think of how multiple factors can lead to local, regional and national growth.  In a growing and innovative cluster each of the aspects build off of each other to create more value and wealth.

Principle: Delta County Michigan is centrally located in the Great Lakes and could benefit multiple manufacturing centers.

While it is outside the scope of this article each of these cluster aspects feed off and improve the other.

-Skills Trade and Manufacturing Education: Trades and manufacturing education for local, regional and state. Improves human capital and intellectual capital that feeds innovation. Local community college could be matched with coordinating business university that offers advanced degrees that focus on needed skill sets in this cluster (i.e. online that can be used in other military/cluster locations).
-Eco-Tourism, Retail & Tourism Micro Manufacturing: Attracts and retains workers in the area while improving quality of life and tourism dollars. It also helps to raise awareness of the environment and protect it.
-SME Manufacturing-Creates new product and enhances products at Warehouse & Distribution Centers as well as maximize natural resource value.
-Resource Extraction: Mining, Lumber, etc... are basic fuels for manufacturing. Further processing these locally can create greater value on the global market.
-Warehousing, Distribution, and Export Infrastructure: Moves basic commodities and enhanced products to other manufacturers throughout the region and the globe. Improves shipping and distribution efficiency in a way that leads to real value for companies.
-Navy & Military: Utilizes shipping infrastructure, local skills, and manufacturing to have more control over the building process. Acts as a spark for other investment and can coordinate the growth of the cluster.

To know if such a system improves value it is beneficial to calculate the flow of different aspects of the cluster and how they relate. There is also secondary and perhaps third level categories behind each of the main industry sectors that make them strong or week. A good economist could probably find the value of all the inputs and where they move throughout the system. If total value created and generated for the market are more than what is put in the system you have what is called synergy. Synergy thrives off of increasing innovation and development that raises ROI and in turn draws in more investment and growth. If that system could work in Delta County it might work in other places as well. Its just theoretical so one would have to do an awful lot of work to fully justify and test.

Principle: Developing multiple sectors in one location can enhance all of the sectors to create more value.

(Much more detail would be needed to justify how each impacts the other.  It is possible to map the interactions within, assuming the data is available within a cluster, based on anything such as technology spill over, human capital movement, supply interchange, innovative capacity, linkages among firms, etc...)


Chatzky, A & McBride, J. (January 28th, 2020)
China’s Massive Belt and Road Initiative. Council on Foreign Relations. Retrieved https://www.cfr.org/backgrounder/chinas-massive-belt-and-road-initiative

American Great Lakes Port Association (2020). Harbor Maintenance Trust Fund, para 1. Retrieved http://www.greatlakesports.org/wp-content/uploads/2020/03/AGLPA-HMTF-20.pdf

American Great Lakes Port Association (Unknown Date).The Great Lakes Seaway Navigation System, para 1. Retrieved http://www.greatlakesports.org/industry-overview/the-great-lakes-seaway-navigation-system/

BLS-Ships (2019).53-5021 Captains, Mates, and Pilots of Water Vessels. Retrieved https://www.bls.gov/oes/current/oes535021.htm

CBRE Group (2017). Biggest Gains Seen In Metros Including Atlanta, Inland Empire, Cincinnati. Retrieved https://www.cbre.us/about/media-center/average-size-of-newly-built-us-warehouses-swells-due-to-ecommerce

Chang Y-T, Shin S-H, Lee PT-W (2014) Economic impact of port sectors on south African economy: an input–outputanalysis. Transp Policy 35:333–340.

Congressman, J. (May 1, 2020). Letter to Peter A. DeFazio the Chairman for the Committee on Transportation and Committee on Transportation and Infrastructure and Sam Graves the Ranking member Committee on Transportation and Committee on Transportation and Infrastructure. U.S. Congress. Retrieved. https://bergman.house.gov/uploadedfiles/5.1.20_bergman_glns_wrda_request.pdf?utm_campaign=1773-424

House Committee on Transportation (2020). Water Resources Development Act of 2020. Retrieved
https://transportation.house.gov/committee-activity/issue/water-resources-development-act-of-2020

Indeed-Distribution (2020). Distribution Center Salaries in the United States. Retrieved https://www.indeed.com/cmp/Distribution-Center/salaries

Prologis Inc. (2017). Economic Impact of Our Logistics Real Estate.
 Retrieved https://www.prologis.com/about/logistics-industry-research/economic-impact-our-logistics-real-estate

Salary-RR.(2020). Hourly Wage for Railroad Worker Salary in the United States
 https://www.salary.com/research/salary/benchmark/railroad-worker-hourly-wages

Schwab, C. (2019). The Global Competitiveness Report 2019. The World Economic Forum. Retrieved http://www3.weforum.org/docs/WEF_TheGlobalCompetitivenessReport2019.pdf

Sharapiyeva, M., Altoni, A. & Yessenzhigitova, R. (2019). The Impact of Port Transport-logistics Infrastructure and LPI for Economic Growth: on the Example of Landlocked Countries. Scientific Journal of Maritime Research. 2019, Vol. 33 Issue 1, p 63-75. Retrieved https://hrcak.srce.hr/201686

Skender, H., Petra, A. and Lolic, A. (2019). The Importance of Logistics Distribution Centers as Nodes in Logistics Networks. Scientific Journal of Maritime Research, Vol. 33 Issue 2, p149-157. 9p

U.S. Census Bureau (2020). Trade in Goods with China. Retrieved https://www.census.gov/foreign-trade/balance/c5700.html#2018

%GNP. (2018). Exports of goods and services (% of GDP) - United States, China. The World Bank. https://data.worldbank.org/indicator/NE.EXP.GNFS.ZS?end=2018&locations=US-CN&most_recent_value_desc=true&start=1960&view=chart

WRDA (2020). Water Resources Development Act of 2020. Congress. Retrieved https://transportation.house.gov/committee-activity/issue/water-resources-development-act-of-2020

WRDA (2018). Water Resources Development Act of 2018. Congress, para 1 Retrieved https://www.govinfo.gov/content/pkg/PLAW-115publ270/pdf/PLAW-115publ270.pdf




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