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How to become the next big logistics hub

Deborah Abrams Kaplan, Kate Patrick • November 7, 2017

Lehigh Valley's 4 keys to become a logistics hub:

  1. Location: Be just close enough to consumer hubs
  2. Land: Logistics booms require plenty of real estate
  3. Industry: Logistics cannot be the sole economic driver
  4. Labor: Ensure businesses have access to talent

For 50-60 years, Lehigh Valley, Pennsylvania served primarily as a residential neighborhood with big farms, wide open fields and sleepy highways. But if you visit Lehigh Valley today, the landscape is crowded with huge warehouse lots and heavily trafficked state routes that work to support a booming, bustling economy.

E-commerce sites such as Amazon, Walmart and Zulily have moved in and are snapping up warehouse space and spurring local economic growth. Right now, FedEx is building its largest North American distribution facility in Lehigh Valley, and XPO Logistics recently announced plans to rent warehouse space in the Logistics Park.

The Lehigh Valley Planning Commission (LVPC) approved 9 million square feet of industrial space in 2016 alone, up 168% from 2015 when 3 million square feet were approved — and industrial includes everything from manufacturing to warehousing and logistics.

"Right now, there's 32 million square feet in construction or in an approval process," said Becky Bradley, LVPC executive director.

What used to be the home of America's second-largest steel manufacturer and the largest shipbuilder (Bethlehem Steel) is now one of the biggest — if not the biggest — logistics hubs in America, serving 40% of American consumers along the eastern seaboard.

“We’re really the gateway to the northeast,” Bradley told Supply Chain Dive.

Sean Bleiler, vice president for CBRE, said Lehigh Valley's success is starting to replace the import of New Jersey's logistics network.

"Ten years ago it was seen as kind of a secondary market to New Jersey, but in the last five years we’ve really seen an institutional focus on this market, started with tenant demand here," he told Supply Chain Dive. "In this last cycle you’ve seen pretty much every national player jump into this market."

But how did Lehigh Valley attract so many 3PLs and e-commerce companies? Why is it that Lehigh Valley is the second fastest growing market in terms of prime logistics rent? How did Lehigh Valley’s manufacturing industry — which is the biggest source of the region’s GDP — grow more than 15% between 2011 and 2015?

The more pressing question is this: what is it about Lehigh Valley that makes it such a perfect logistics hub, and is it possible to identify what characteristics other companies should look for in other communities to build the next big hub?

1. Perfectly positioned to serve major metro areas

“People love to move here because it’s green and pretty, really connected to two major metros (New York City and Philadelphia), schools are great, taxes are lower,” said Bradley.

In September, the Pennsylvania Department of Transportation began expanding Route 22 — which stretches east-west from Allentown through the New Jersey border — from four lanes to six lanes to accommodate the freight and local traffic clogging the highway. It’s a $64.7 million project, and it’s only one facet of the LVPC’s plan to expand and improve the region’s highways and infrastructure.

But the region’s growth is about more than that. Lehigh Valley Economic Development Corporation President and CEO Don Cunningham said the local governments haven’t been offering tax incentives — he said the current obsession with Lehigh Valley is entirely market driven.

“There are really three main reasons,” he told Supply Chain Dive. “It’s the 3 L’s. The location lends itself as a logistics hub, because 40% of consumers are close by. The No. 2 factor is availability of land. Most of the warehouses are 600,000 square feet to 1 million square feet. You need land to do that. No. 3 is that you need a big enough market that you have labor. Right now they require a lot of people.”

Cunningham is certainly onto something with his 3 L’s — location, land, and labor — Lehigh Valley is perfectly positioned as a landing base for big companies like Amazon and Walmart, but also for 3PLs like FedEx and XPO. Lehigh Valley is just 60 miles from the Port of New York/New Jersey, which means it not only serves several major metropolitan areas, but can also handle imports and exports. Furthermore, the Lehigh Valley Airport is one of Amazon’s biggest air freight hubs.

“I think it’s hard to replicate the access to populations," Bleiler said. "It’s similar to the Memphis market maybe, that’s driven by UPS Ground. Each market has a different driver."

Based on our research and reporting on the Lehigh Valley, Supply Chain Dive identifies four key characteristics — building on Cunningham’s three L’s — that make Lehigh Valley such a perfect logistics hub. Characteristics which we believe can be replicated in other areas of the country:

  1. A central location
  2. Vast amounts of land
  3. A strong labor force
  4. High industry diversity

Using those four factors, Supply Chain Dive uncovered some fascinating aspects about Lehigh Valley that speak to the region as a cultural and economic mecca that can help other logistics and e-commerce companies search for the next big hub.

Why is Lehigh Valley is so successful? Read on to explore the area’s demographic-driven culture change, strong manufacturing presence and aggressive approach to addressing the supply chain industry’s talent shortage.

Lehigh Valley's rural nature facilitated its growth as a logistics hub. Credit: Kendall Davis/Industry Dive

2. The logistics boom couldn't happen without enough land

Lehigh Valley’s growth has not been without setbacks. Understandably, a once rural community isn’t totally thrilled about all the redevelopment and urbanization of the area. About 62 municipalities span the two counties that make up Lehigh Valley (Lehigh and Northampton counties), and not all of them are in agreement about how much warehouse building should continue in the area.

While the building and the expansion continues to chug along mostly unhampered, the residential backlash is a potential reality for companies looking for the next big logistics hub, because in another state, another county, another township, it could halt developers before they even have a chance to break ground.

Bradley said part of the push-back is residents feel like the reason they moved to Lehigh is disappearing; many move to the area to get away from the big cities (like nearby New York City, for example) to start families or retire. They’re looking for someplace quiet, green, relatively secluded and less populated.

“Every family that moves here wants to be the last family in,” Bradley told Supply Chain Dive. “They don’t want more people coming in.”

The way Bradley puts it, it’s almost as if Lehigh residents have suffered severe culture shock, as big companies have rapidly moved in and started building over the past 10 years.

“Where there was once a wheat or corn field is now a warehouse, and people aren’t happy about that, so politically it’s a very sensitive issue,” Bradley said. “It was residential for 50-60 years, and now it’s different.”

Don Cunningham agrees, and said the rapid expansion has definitely produced “growing pains.”

Kathy Rader, secretary for the Upper MacUngie Township board, said lots of residents have come to township meetings complaining about all of the trucks on the road clogging traffic.

“A lot of people are against the warehousing because of the truck traffic,” Rader said. “I asked them, how many of you order online from Amazon? And then I said, well how do you think it gets here?”

Because the townships are sovereign, they can stop the warehouse building in some areas if they want to — but they’re likely to run out of space before that happens.

“We’re almost filled out and we only have a few slots that are available for warehouses,” Rader said. “Right now the traffic is the big issue.”

The LVPC plans to invest $4.5 million 2017-2020 in highways, transit and bridges. While that will help, it’s unclear how much more infrastructure the region will need to accommodate the staggering growth. Regardless, Lehigh Valley is unrecognizable from just 15 years ago.

“We’re on the edge of a cultural change,” Bradley said.

Multiple generations are evenly dispersed in Lehigh Valley

This data — drawn from the Census Bureau's 2015 community survey of Lehigh and Northampton counties — shows a pretty even distribution of generations in the Lehigh Valley region. (Kate Patrick / Supply Chain Dive)

Demographically, the dispersion of generations in the area is balanced — there are as many millennials as there are Baby Boomers and Gen Xers. That means hordes of millennials aren’t moving away to the larger metropolitan areas of NYC or Philadelphia; instead, they’re choosing to stay in Lehigh Valley. That’s mainly because the economy is doing well: the prime logistics rent vacancy rate is plummeting, the Lehigh Valley area is in the nation’s top 20 for export growth and produced $39.1 billion in GDP last year, which according to the LVEDC is more than the entire states of Vermont and Wyoming and 97 other countries.

Plus, there are lots of jobs. Total employment in Lehigh and Northampton counties “will soon exceed” 30,000 jobs, whereas five years ago there were less than 20,000, according to the LVEDC, and the downtown areas of the valley’s three cities — Allentown, Bethlehem and Easton — are bustling with new restaurants, bars and music venues.

“This generation is more urban, so there is an allure,” Cunningham told Supply Chain Dive.

The sharp cultural contrast is representative of what makes Lehigh Valley so successful; millennials like the urbanization (which is a result of the logistics boom), but Gen Xers and Baby Boomers — who may have originally moved to the area as a rural escape — tend to focus on the negative effects of the urbanization.

The local unrest is all the more reason for companies moving in to be “good neighbors,” which it seems like has already been a bit of a challenge. According to one local newspaper’s recent coverage, working at Amazon’s Lehigh Valley warehouse can be an unpleasant experience, which adds insult to injury.

Where there was once a wheat or corn field is now a warehouse.

— Becky Bradley, President of the Lehigh Valley Planning Commission

In fact, warehouses in the area are now reportedly struggling to find enough employees, a problem that came to a head just a few weeks ago when British fast-fashion e-tailer ASOS declined to build a warehouse in Lehigh Valley, citing fear of labor shortage.

"You’re starting to see pressure on wages for retention," Bleiler said, referring to the labor concerns.

While the labor problem is fairly recent and may straighten itself out over time, it could be indicative of some of the cultural tension simmering beneath the surface. That’s something to look out for when choosing where to build your next warehouse, distribution or fulfillment center.

But when scouting locations, not only is it critical to evaluate the potential local response on a cultural level, but it’s also important an area have a couple of main industries that are already doing pretty well and lubricating the economy. In Lehigh Valley, that’s the manufacturing industry.

Manufacturing also thrives when logistics infrastructure is strong. Credit: Kendall Davis/Industry Dive

3. The local economy hosts robust industries besides logistics

Manufacturing is struggling in some parts of the United States, but it’s booming in Lehigh Valley. Despite the rise in warehouses and logistics companies in the area, manufacturing still hires more people, with a second quarter estimate of 31,865 jobs in manufacturing to 28,772 in transportation and warehousing. Why is that?

The area’s manufacturing history is best known as the home of Bethlehem Steel, the country’s second largest steel manufacturer, whose products built the Golden Gate Bridge, the Chrysler Building and Madison Square Garden, in addition to military use in large caliber guns and armor plates during World Wars I and II.

The plant closed in 1995 after 120 years in operation. It may be out of business, but Lehigh Valley residents recall that history when visiting the SteelStacks ArtsQuest Center, built in 2011. Bethlehem Steel’s five large furnaces tower over the 10 acre campus, where locals enjoy concerts, festivals and other community programming.

The steel plant may be gone, but manufacturing continues. There's been strong new job growth in fabricated metal product manufacturing and electrical equipment, as well as manufacturing of machines, appliances and components, wood products, plastics and rubber products, and the job growth is expected to continue at least through 2020. Output and productivity is rising, due to technology and advanced productive machinery.

Location is perfect to serve close-by major metros

Part of the draw is Lehigh’s location. “Lehigh Valley is a desirable place to live,” said Jan Brna, director of postsecondary and workforce education at the Lehigh Career and Technical Institute (LCTI). “We’re in a great location, close to Philadelphia, New York and New Jersey. The cost of living here is a little higher than some areas of the state, but not as high as the Philadelphia and Bucks County area. It has a lot to offer. When people are looking to relocate, there are good schools, from elementary to college.”

There’s also easy access to major highways and ports, good for logistics companies. Plus, “We’re in good proximity to a lot of land developed into warehousing,” said Vicki Phillips, a supply chain and logistics instructor at LCTI.

Lehigh Valley targets four specific industries to set up shop: high performance manufacturing, high value business services, life science research and manufacturing, and food and beverage processing. For the latter, they tout their access to agricultural products, including preserving 26,000 acres of farmland and providing farmer training.

In recent years, the Lehigh Valley attracted Bimbo Bakeries. The facility, which produces under the Entenmann’s, Sara Lee and Thomas brands, bakes bread and buns for Northeast stores. Last year, they announced that the French company Norac was opening its first U.S. manufacturing location in Lehigh Valley, making French-inspired snacks and baked items under the Bakerly name.

The list of companies either opening up shop here or already established is a mix of familiar and unfamiliar names. Have you heard of Just Born? That’s the company that makes Peeps and Mike and Ike candies. They moved from Brooklyn to Bethlehem in 1932 and continue to employ locals at their factory. On the newer side, Ocean Spray opened a 315,000 thousand square foot plant in Upper Macungie Township in 2014.

This is what makes Lehigh Valley such a prime logistics hub: the region discovered its niche industry (manufacturing) and honed in on the region's unique talents and offerings. By focusing on the local economy, Lehigh Valley started doing well on its own, so naturally other companies — Amazon, for example — saw a booming, developing economy as an attractive new location.

The LVEDC actively recruits companies to come to the area. Along with the Pennsylvania Department of Economic Development, the LVEDC hit the road a few years back, touring western Europe to spread the word about Lehigh Valley.

Of the 19 major business expansions or new additions to the area, eight were international, including companies from France, Ireland, Japan and China. For manufacturing, that included a plastic flatware manufacturer, Fuling Plastics, and a medical device manufacturer, Nihon Kohden.

A warehouse in Allentown can offer same-day delivery to five cities

City Estimated travel time by Truck
Baltimore 2 hours and 40 minutes
Philadelphia 1 hour and 15 minutes
Pittsburgh 4 hours and 30 minutes
New York City Between 2 and 2.5 hours
Washington 3 hours and 30 minutes

Brna says she sometimes gets calls from the LVEDC, when they’re taking companies around the area.

“We’ve entertained several groups when they’ve asked us to meet with manufacturers in the logistics field,” she said. “They’re assessing everything about Lehigh Valley.” They tour the schools to learn about the pipeline of new workers and educational opportunities they can provide to new and current workers.

Like other states, Pennsylvania provides tax incentives to relocate companies, and to help retrain their workers.

“We have a nice package to sell,” said Brna, including an educated workforce. “We just need more people to come into it. Unemployment is below 5% — almost everyone is working. If you want a job, you can have one.”

She said that the western part of Pennsylvania has fewer jobs and a depressed economy. “We say that if you just drive four and a half hours across the state (to the Lehigh Valley), you could have a great job. But people don’t want to leave their comfort zones.”

They don’t always hit home runs — ASOS’ refusal to build a warehouse in the area is an example. Brna said that the potential worker shortage isn’t unique to Lehigh Valley, though.

“Whatever you read statewide and nationwide, everybody is experiencing the same thing. They may have seen something in another region that makes them believe it will be easier to find a workforce than it is here. But everywhere I go, it’s the same story.”

They're assessing everything about Lehigh Valley.

— Jan Brna, Director of postecondary and workforce education at the Lehigh Career and Technical Institute

One thing Lehigh Valley has going for it is its career and technical education offerings. Their manufacturing and electromechanical machining labs are filled with millions of dollars in state-of-the-art equipment.

It's held up nationwide as a model for logistics education," she said. "Some schools have it, we have it on steroids."

With so many opportunities for students to learn on the same equipment they will use in a manufacturing facility, they’re being trained at the highest level. “That’s a selling point when people tour our programs. We’re getting them ready for the real jobs.”

A bustling economy helps attract and retain new talent. Credit: Kendall Davis/Industry Dive

4. Lehigh Valley offers plenty of labor to new businesses

Unlike some other residential and rural areas, Lehigh Valley isn't losing hordes of millennials to the nearby big cities like New York City, Philadelphia, Baltimore and Washington D.C. Two-thirds of Lehigh Valley employees work locally, with the others commuting to nearby areas.

Having workers locally is important, as many jobs in manufacturing and distribution centers aren’t ones with recruitment budgets. A pipeline of skilled workers is imperative to maintaining the region’s workforce.

So, what is Lehigh Valley doing well, in terms of developing, recruiting, and keeping talent?

One factor is the region’s coordinated effort between the LVEDC, the Lehigh Workforce Investment Board, the school systems and employers. The region’s career and technical schools draw in high school students and adults for practical training and education that prepares them for these skilled jobs.

“Manufacturers, the economy and the workforce drives everything we do,” said Brna. While the school gets recruiting calls from employers in New Jersey and other parts of Pennsylvania, there are enough local jobs to keep graduates happily employed, with the majority heading into the Lehigh Valley workforce. And that’s good for the area, as “there’s not enough people to feed that pipeline,” Brna said.

Many of those who leave the region for post-secondary education return to Lehigh Valley, said Adam Lazarchak, the Bethlehem Area Vocational-Technical School (BAVTS) executive director. “We’re filling available jobs with local people. You learn here, earn here and stay here,” said Lazarchak.

The technical schools are splitting at the seams. BAVTS draws students from three high school districts for its 24 career and technical programs, which include manufacturing specialties. BATVS experienced a 25% enrollment increase since 2008.

It currently enrolls 1,390 students, all sophomores to seniors except 80-100 freshman who participate in a one semester rotation program, with most enrolling the next year. The school is at capacity and turned students away the last two years.

LCTI offers high school students and adults a popular logistics and supply chain program, drawing students from nine school districts. Their high school supply chain and logistics program teaches 90 students warehousing, inventory control, picking and packing, and forklift operations from their 17,000 square foot on-site distribution center.

“That’s our classroom, our training facility,” said Vicki Phillips, one of the instructors.

By training on state-of-the-art equipment and learning multiple work methods, students are prepared for any environment in their internships, co-op jobs or post-graduation jobs. While state law requires that workers are 18 to operate equipment like a forklift, students in the LCTI program gain three to four years experience in equipment operations before graduating, as it’s part of their education. They’re considered skilled labor when entering the workforce at 18.

Manufacturers, the economy and the workforce drives everything we do.

— Jan Brna, Director of postsecondary and workforce education at the Lehigh Career and Technical Institute

The LCTI distribution center serves 2,300 customers from its nine sending school districts, providing all their supplies at a discount. They stock 2,000 products on site, with access to other products as needed. School employees order directly from their own computers.

The tech schools form relationships with local industry, advantageous to everyone involved. BATVS and LCTI have occupational advisory committees for each program, with industry advisors sharing the skills they want the school to teach.

“When you have a good relationship with the people who are hiring, you’ll place those students and they’ll stay in the local area,” said Lazarchak.

The local companies provide their workers with tuition reimbursement as well, so graduating high school students or those already in the workforce can get their higher education paid for while working, and the local community colleges have matriculation agreements with area four year universities.

For those moving to the workforce after high school, “they’re not totally skipping college, just taking a different path,” said Phillips.

LCTI also trains and educates adult workers, whether they’re looking for new jobs or getting additional training for current positions. “Automation is moving faster than employee skill sets, so they need to be upskilled,” Brna said.

Companies investing in their own workforce are grooming those at lower level jobs and giving them educational opportunities to move into more highly technical skilled positions, because those higher level workers aren’t available elsewhere. LCTI teaches a course on becoming a midlevel technician, and another on becoming a team leader, teaching higher level inventory control and management skills.

Adult forklift classes are offered every five to six weeks, with six to ten students per class. These students often have jobs by the end of the course.

“It’s like the NFL draft for these people. They leave school with more than one job offer,” Brna said. Coming out of the adult education programs, the graduates are earning $22-32 per hour starting salaries.

Who are the sought-after workers?

At BATVS, the students graduating from the welding and precision machining jobs are in most demand.

“We have a lot of manufacturing companies looking for industrial mechanics, who maintain the automated minds, who can fix the electrical and mechanical parts. That seems to be a challenge for our local employers,” said Lazarchak. They may start a program for that in the next few years, along with a logistics program, “as there’s a huge need in the Lehigh Valley.”

At LCTI, the two largest programs are their manufacturing and transportation programs. Those learning electromechanical (industrial maintenance), and machinists are in the highest demand, said Phillips. “We can’t make them fast enough from the high school and adult education side,” she said.

It's like the NFL draft for these people. They leave school with more than one job offer.

— Jan Brna, Director of postsecondary and workforce education at the Lehigh Career and Technical Institute

These programs have 50 students each. Those working as electromechanical technicians, also known as mechatronics, work in fully automated distribution warehouses, at Walmart or C&S Wholesale Grocers, for instance, keeping the auto conveyors moving. They have the same skill sets that manufacturing companies need, increasing demand for that role.

LCTI is expanding their electromechanical lab, adding a new teacher and lab to double student capacity for the 2018-2019 year. They’re expanding their welding program the next year.

Lehigh Valley maintains and builds the worker pipeline

The schools’ popularity are partly due to their outreach to school administrators, teachers and parents. The technical schools take middle school and high school staff on tours to get the word out that students can get highly coveted technical skills in high school.

They also want parents to feel confident directing their kids to these occupations, eliminating the stigma that manufacturing is “an old dirty environment and that it’s going to go away,” said Brna.

The region is working hard to address the talent supply. The almost 5% unemployment rate is considered full employment, said Brna. “We have a highly skilled workforce, we just need more of them,” said Brna. The LVEDC hired a director of talent supply, who leads the Education and Talent Supply Council initiatives to ensure that a trained workforce is available for the area’s current and future job needs.

“There’s an initiative to address that, to make sure we’re not going to lose companies because of not having a skilled workforce,” Brna said.

Putting it all together

The four factors — location, land, labor and a diverse industry base — are pretty on point in Lehigh Valley, and a deeper understanding of what makes the region successful as a logistics hub can help 3PLs and e-commerce companies search for the next hub.

Another hub like Lehigh Valley will certainly develop, but by studying Lehigh Valley companies can jump ahead of the curve and get in on the warehouse space before it gets crowded.

Top Image Credit: Kendall Davis