‘3PL’ is code for economic bright spot
April 17, 2009
The third-party logistics business is beginning to develop as a bright spot in the area economy.
As hard-pressed manufacturers nationwide look for ways to outsource functions, they’re increasingly turning to outside firms that provide warehousing, order-filling, trucking and other distribution services.
The Reno-Sparks region, with a strong history in the traditional distribution business, stands to benefit from the growth in third-party logistics.
An Austin, Texas, provider of third-party logistics ” Newgistics Inc. ” recently signed a lease brokered by CB Richard Ellis for 72,500 square feet in a Spanish Springs building owned by a Seattle developer, Tarragon.
Newgistics specializes in distribution of small parcels for customers in industries such as computers and telecommunications.
That comes on the heels of other big moves in the industry known by the shorthand “3PL.”
ITS Logistics of Sparks, a fast-growing provider of 3PL services for a variety of customers, is adding at least 40 jobs this year as it opened a 125,000-square-foot distribution center at Tahoe Reno Industrial Center.
Other companies in the 3PL business are moving in or scouting potential sites in Northern Nevada. Some existing players in the market are considering expansion, says Aaron Somer of the industrial property group of Colliers International. Mike McCabe, a senior vice president with Colliers, says the interest in third-party logistics is a natural outgrowth of the recession.
“When times are tough, companies reach for savings,” he says. “When you outsource logistics, you can make a decision fast and turn on the savings fast.”
It’s not unusual, he says, for a manufacturer to see first-year savings of $1 million or more after it outsources logistics functions.
Northern Nevada brings natural advantages to that industry, says Clint Steele of Lee & Associates, a commercial real estate brokerage. Its location and transportation infrastructure put the region within one-day freight delivery into major Western markets.
But the recession is giving 3PL a further boost in the region.
At the same time that manufacturers want to reduce their logistics expenses, Steele says, northern Nevada has become more affordable.
Lots of vacant distribution center space is on the market, and owners are looking to cut deals to generate cash flow on vacant space.
And a rising unemployment rate is bringing back 3PL companies who scratched northern Nevada off their lists when the economy was booming.
“A couple of years ago, the unemployment rate was so low that they couldn’t find anyone to hire,” Steele says.
But even while some 3PL companies study new or expanded facilities in the area, Ozburn-Hessey Logistics LLC is trimming a big 3PL operation in Sparks.
Paul Perkins, a senior vice president with NAI Alliance in Reno, says Ozburn-Hessey is seeking a tenant for more than 383,000 square feet of its distribution space in Sparks.
John Peddie, senior vice president of operations for Ozburn-Hessey, says the company lost several clients it had served from its Sparks facility and decided to consolidate other operations. But he says the changes are fairly modest.
“We are still committed to Reno-Sparks,” he says. Peddie notes that while the region remains attractive for logistics providers ” including 3PL firms ” it’s facing stiff competition from the so-called “Inland Empire” region east of Los Angeles.
A key element, he says, is the cost of transporting merchandise manufactured in Asia from West Coast ports to distribution centers. In many instances, he says, companies find it’s less expensive to move merchandise from the Port of Long Beach to warehouses in the Inland Empire than it is to transport goods from the Port of Oakland to the Reno area.
And Reno no longer has a substantial advantage over Southern California in labor costs, Peddie says.
But the region’s other advantages ” including less regulatory hassle ” keep it competitive with California locations for logistics companies, says Tina Iftiger, director of business development for the Economic Development Authority of Western Nevada.
“Nearly 15 percent of the 180 companies currently in our pipeline are advanced logistics operations,” says says. “Our region is a major draw for third party logistics and supply chain companies since they can access one of the world’s largest economies, California, without the cost or burden of doing business there.”