Mike Ammann, president & CEO of the San Joaquin Partnership says there is revolution underway in warehousing and distribution and California’s San Joaquin valley is leading the way.
Mike Ammann, president and CEO of the San Joaquin Partnership based in Stockton, CA, says that there is a boom in new warehousing, and the size of warehouses, being driven by Amazon and other fast-delivery retailers that is having a revolutionary effect on the logistics industry.
In a wide-ranging interview with the American Journal of Transportation AJOT, Ammann said the boom is occurring despite the fact that California has higher taxes, higher wages and more regulations than most other states.
When AJOT interviewed Ammann, he’d just returned from a conference in Chicago where he met with a number of site selection consultants for major companies. Ammann was able to promote locating warehouses in San Joaquin County because of improvements in infrastructure and the new economics of e-commerce. Under Ammann’s leadership at the San Joaquin Partnership, new warehouse development in San Joaquin County has been on the rise.
Low Labor Costs Less Important
When Ammann was asked about claims by Nevada state officials that Nevada’s lower taxes, lower wages and fewer regulations provide a competitive advantage over California, he responded that these issues are not as important as in the past, “We’re not living in the 1970’s anymore. New industries, such as the electric car industry, are being driven by just-in time factors, such as the requirement of Tesla that some suppliers be located within a radius of 125 miles of its Fremont, CA plant.”
In addition, “As companies, such as Tesla and Amazon, automate their production and distribution processes, California’s labor costs are no longer the factor that they once were. And the same holds true for higher taxes and regulations. Northern California has a population of 12 million including the northern San Joaquin Valley. This means that servicing consumers in Northern California requires a massive distribution infrastructure.”
He says, “The result is that because of the market size and wealth, San Joaquin County with its location and infrastructure to service 12 million consumers [means that] the impediments of the business climate can be overcome while maintaining profitability.”
The projection is that distribution centers owned by Amazon, Safeway and Walmart will be servicing 24 million consumers by 2040.
“It is faster for these distribution centers to reach their customers from the San Joaquin Valley than it is for them to reach their customers from Nevada, or even Mexico, because time is money. With automation and software, lower labor costs in Mexico, or even China, are less important than they once were. In California we have the people, and the people want their products fast.”
Boom In San Joaquin County Warehousing
There has been a huge boom in warehousing since 2013. “Since 2013, San Joaquin County has seen an increase of 6,959,171 sq/ft for new warehouses and manufacturing. There is an additional 3.5 million square feet under construction and 3.4 million square feet that is planned,” Ammann said.
He pointed out that warehouse sizes are also on the increase, “Whereas a few years ago, a 500,000 square foot warehouse was considered huge, today, San Joaquin County is seeing new warehouses of 800,000 to 1.1 million square feet. At the same time, California companies, such as Tesla, are taking advantage of the increased distribution capability to also add assembly and manufacturing to their operations.”
The warehouse/distribution center development has a market that includes San Francisco, San Jose, Oakland and surrounding cities.
Ammann says Amazon now operates three warehouses in San Joaquin County and “business is so good that warehouses are now being built on spec and rapidly finding new owners.”
Amazon is becoming a vertically integrated logistics company that adds to the need for transportation and logistics support. The expansion of warehousing by Amazon is accompanied by its expansion into other areas such as becoming a logistics company that manages freight forwarding, trucking and the purchase of container space on ocean-going vessels. This is eliminating the role of freight forwarders, customs brokers and other logistics middlemen, he notes.
At the same time, “Amazon is now flying air cargo planes with the Prime Air logo in and out of the Stockton Airport. This is a company that has also acquired its own diaper service and its own audio book service so that it owns and controls a vast amount of the supply chain… at highly competitive rates with next-day and same day deliveries.”
He says there is a huge change in the composition of the retail industry. Macy’s is closing 100 stores. The reason is that younger people are not going to the malls or stores the way their parents did. Increasingly, they are ordering their products online (or from their phones) and expect those products to be delivered to them the next day. A young mother doesn’t go to the store to buy diapers. She orders them online and they are delivered to her home. So, the rationale for going to the department store or shopping mall is declining with a new generation of shoppers. This enhances the role of the warehouse, but it is going to lead to the abandonment of department stores and shopping malls, which will economically impact communities that relied on shopping malls for jobs, sales and taxes.
Ammann says that major infrastructure investment in San Joaquin County has helped position the County for e-commerce growth. The County is seeing major new investments at the Stockton Metropolitan Airport, Union Pacific (UP) and Burlington Northern Santa Fe (BNSF) intermodal rail facilities, the Port of Stockton and in roads and bridges:
• The Stockton Metropolitan Airport
Ammann says that years of effort to modernize the Stockton Metropolitan Airport is now coming to fruition, “I worked closely with Harry Mavrogenes who was the Economic Development Director for San Joaquin County. He assumed the leadership at the airport at a time when the road connection along Arch Road linking I-99 and I-5 was completed. He is now the Director of the Stockton Metropolitan Airport. The new road link in front of the airport opened up 250 acres of land for warehouse development. There had been a 30-year battle about the direction and development of the airport that has finally been concluded. With Harry overseeing the airport, and with the (San Joaquin) Partnership in support, the airport was able to attract Allegiant Air, which provides air links to Phoenix, Las Vegas and San Diego. We are hoping to develop a link to a major hub, such as LAX (Los Angeles International Airport), very soon.”
An important development attracted Amazon to begin air cargo service at the airport, “At the same time, Harry and I met with Air Transport International, which works with Amazon, and discussed air cargo possibilities. By January, we had an order for a new air cargo service and by February we had the first daily 757 service for Amazon. This has forced us to fast-track upgrades with the FAA (Federal Aviation Agency), Homeland Security, improvements to the tarmac and building a fabric cargo handling building to accommodate the new service. A second 757 service has been added by Amazon, and there is a possibility for a third. This is going to require construction of more sizeable cargo handling facilities. This complements the growth of warehousing that can now be supported by the air cargo service.
• Rail Connections
The two major railroads, BNSF and the UP, each handle 250,000 lifts per year of 53-foot containers, Ammann notes, and new improvements at their San Joaquin County intermodal facilities will double their current capacity and support new development, “Twenty and forty-foot containers arrive from the (Port of) Oakland and are reloaded into 53-foot containers at the two intermodal rail sites. These containers are then loaded onto trains in double-stack for transport to eastbound destinations. Each intermodal facility is going to require room for major expansions in which each railroad expects to double its lift capacity to 500,000 lifts in the near future. The UP facility is in Tracy and the BNSF facility is located in Stockton. This provides a second synergy for the growing distribution center presence in San Joaquin County.
One big problem is that nearby localities have been attempting to acquire the nearby land for housing rather than allowing the land to remain available for these very essential rail expansions. This is a good example of why the County needs to maintain a balance between economic development and jobs on the one hand and real estate development on the other hand.”
UP is planning a $240 million expansion at its site and BNSF is planning a $120 million expansion at its site.
• The Port of Stockton
The Port of Stockton is a deep-water port with the capacity to handle vessels of up to 40,000 tons. The port has just undergone a major upgrade to improve internal rail lines within the port property.
Ammann says, “The port will also benefit from the extension of the I-5 off-ramp onto the Rough and Ready Terminal. This will improve trucking access to the port and reduce congestion. This will also benefit the warehouse tenants on port property.”
• Roads and Bridges
San Joaquin County has benefitted from a half-cent sales tax that generated $3 billion to upgrade roads and bridges in the County.