Ever thought about how those cheap consumer goods from China make their way to the local Target or Macy’s? Probably not, because most of us are concerned only that the merchandise we want is available when we need it. For us, the trip from a toy factory in Peking to the Toys R’ Us on Route 1 might just as well take place on a magic carpet.
Richard Johnson, senior vice president of development for Matrix Development Group, used to think that way until he realized how much the global logistics system affects his commercial real estate business. Matrix (www.matrixcompanies.com) is a real estate development and investment firm based at Exit 8A of the New Jersey Turnpike, and about half its business is in warehouse and distribution centers adjacent to turnpikes, interstates, and major east-west connectors. The rest of its business is a mix of hospitality, urban mixed-use development, and some residential and golf courses.
The central New Jersey distribution centers owned and managed by Matrix handle merchandise from the nearby Port of New York/New Jersey. With the help of these distribution centers in Mercer and other nearby counties 28 to 30 million people can be reached within a four-hour drive and 30 to 40 percent of the United States population in a single day.
Johnson will speak on “How is Mercer County a Player in the Port System?” on Thursday, June 19, at 11:30 a.m. at the Princeton Marriott for the Mercer Regional Chamber of Commerce. Cost: $55. For more information, call 609-689-9960.
The existing distribution system for goods from Asia to the northeastern United States is on the verge of big changes that will make it easier and cheaper for Asian manufacturers to ship goods directly to the East Coast. But to understand the changes on the horizon, businesses need to understand the global distribution chain.
A consumer product manufactured in a Chinese factory has three options for sending goods to the eastern United States: shipping to California and transferring to train or truck; crossing the Pacific and using the Panama Canal; or going through the Suez Canal and across the Atlantic.
About 60 percent of what comes into the Port of Los Angeles leaves California, and these products are usually transported by truck a short distance to an intermodal facility, where a switch is made to rail transportation. To reach the East Coast, the container crosses “the land bridge,” which is the rail network from the West Coast, usually through either Kansas City or Chicago, and on east. Products may also leave California by truck, with routes dependent on the particular trucking companies’ distribution centers. Sometimes products are transported on a truck that moves by rail.
But when a product’s destination is close to the East Coast, the cross-country routes tend to be less efficient and more expensive than keeping the product on a ship all the way to the East Coast. “There is enormous movement toward an all-water route, because it is the cheapest,” says Johnson. “You get more economy of scale, and with the size they are going to, it is amazing how much product they can carry.” The size of the new ships is staggering. Each one will be large enough to fully outfit 12 regional shopping malls.
Reliability, however, is sometimes valued more than price, particularly for consumer goods that are seasonal. “If goods get stuck because the harbor is too crowded, the rail line is too congested, or trucks are stuck in traffic;” says Johnson, “it’s not doing anybody any good if stuff for July 4 starts to show up on July 5.”
Johnson tells of one retailer who told him that saving a single day on average in his shipments translates into $100 million to his bottom line.
Moving products entirely by ship from China to the East Coast can happen via two possible routes. Smaller ships that are not too wide to fit through the Panama Canal — Panamax ships — may sail to the canal either directly or after dropping freight in Los Angeles.
The trend, though, is toward much larger ships, carrying more containers. Ship capacity is measured in TEUs, short for 20-foot equivalent units. Containers are generally 40 feet long and hence each one contains two TEUs. Currently most ships coming to the port of New York range from 4,500 to 5,000 TEUs. The larger ones will range from 18,000 to 20,000 TEUs, meaning it has the capacity to carry 9,000 to 10,000 40-foot containers.
To enable the passage of larger ships, the canal is now in the midst of an eight-year widening project. Whereas currently ships wider than 110 feet at water level cannot use the canal, the updated canal will stretch the limit to 180 feet at the base and 160 feet at the top.
Ships that take the alternative route from China to the East Coast through the Suez Canal do not have to worry about size limitations until they reach New York Harbor. To make room for the larger ships, the primary channel of New York Harbor has already been dredged to a depth of 45 feet, with a final goal of 50 feet.
With the expectation of increasing numbers of large ships, another problem also looms. Because these ships cannot fit under the Bayonne Bridge, they cannot get to some of the most active sections of the port.
Once the goods arrive at the Port of New York/New Jersey the containers must be broken down and the goods sent to retailer warehouses or distribution centers. These centers, many of which are located in Mercer and surrounding counties, are warehouses where high volumes of product come through and leave as speedily as possible.
Mercer is a prime location because of good access to labor and roads as well as proximity to the port. “Mercer County is well located to be a point of distribution to an enormous number of people,” says Johnson. He points particularly to its highway network, with excellent north-south and east-west connectivity. “You can get product to an enormous amount of population within a relatively efficient timeframe,” he explains. As a result, the goods-movement industry makes an important contribution to the economy of the state and the region. The port, in fact, contributes $20 billion to the region’s gross domestic product.
According to New Jersey Future, New Jersey ranks first in economic impact per capita and in wholesale goods distribution, which is a good surrogate for the goods movement system Johnson is talking about. In the New York/New Jersey region the port and the goods movement it generates accounts for 250,000 direct jobs.
For Mercer and other central New Jersey counties, adds Johnson, the impact is not only in jobs, but in the investments the buildings represent and the taxes they pay, and their integral role in much larger goods movement systems.
The local municipalities understand these benefits, and how important it is to plan long-term for these distribution centers and to put in place the infrastructure necessary to support them: roads, water, sewers, and electric service. Mercer County is also working to ensure that the centers have adequate labor supplies for their facilities, shuttles to provide adequate transport, and a county executive who is making people aware of the distribution centers and the employment opportunities they represent. “At the county and municipal levels we have had a terrific working relationship for many years,” says Johnson.
Along with the larger ships and increasing amount of goods , the industry is moving toward greener ships and greener distribution.
Johnson has lived in the Philadelphia area or New Jersey most of his life. His father did marketing for Mobil Oil for 43 years, and Johnson has fond memories of what his father had convinced them were “Sunday drives.” Instead of just enjoying the scenery, they would visit all the competing gas stations in the area and write down their gas prices. “I guess we were his research assistants,” he jokes.
His mother, whom he refers to as “a small but very mighty Irish woman who raised six children,” made sure the five children who survived into adulthood went to college. “It was an incredible testament not just to her will but to her educational capabilities,” says Johnson, who has four children of his own.
Johnson received a degree in architecture from Notre Dame in 1977. After five years as an architect, he decided that it was either not what he wanted to do or that he wasn’t good at it, and he decided to go to Wharton, graduating in 1982 with a degree in real estate and finance. He spent eight years at the Toombs Development Company and then moved to Matrix, where he has been since 1990.
What got Johnson thinking about the importance of the port system was a stack of empty containers he saw when he bought a project in Newark. At first he thought they were no longer functional and were going to be used for scrap. Then he thought that maybe they represented a three-dimensional symbol of the trade deficit — that it was cheaper to store the containers in the United States than to send them back empty.
Neither turned out to be correct, but seeing those empty containers prompted him to develop an understanding of how the goods-movement system works on a global basis — how it affects land-use policy, economic development, planning, and his own business. “How do we understand those forces so we’re an informed participant in the goods-movement industry?” he asks. “We’re not just building warehouses anymore — we’re part of a goods-movement system.”
In the last 10 years Johnson’s business has undergone a fundamental shift, with the growth of markets in the Lehigh Valley in Pennsylvania, Orange County in New York, and northern Maryland. Shippers are looking for the least-expensive distribution system. If a manufacturer in China is looking at the distance on a map between the Port of New York/New Jersey and competing ports like the Port of Virginia in Norfolk, the distance looks tiny. What matters is not just the port itself but the regional distribution system that links the port to retail customers.
From this perspective, Johnson has one piece of advice to the governments, businesses, and people of New Jersey. “What New Jersey needs to be focused on, and is focused on, is to make sure this port is the most competitive port on the East Coast.”