ABQ has intermodal hub facility potential

Albuquerque had the 22nd-lowest cost among 29 western cities to operate a 500,000-square-foot distribution center served by rail, according to a recent study by The Boyd Co., which provides third-party site selection services.

The comparatively low cost could make Albuquerque a contender for large companies looking for a place to put an intermodal facility — meaning served by the different transportation modes of train, truck and sometimes even cargo plane — John Boyd Jr. told the Journal during a recent visit to Albuquerque.

“This is a very cost-sensitive industry,” he said.

Albuquerque is served by Fort Worth-based BNSF Railway, formerly the Burlington Northern Santa Fe Railway, which has an intermodal facility in the South Valley and a major inspection, maintenance and fueling rail yard in Belen to serve trains on its major east-west transcontinental corridor.

The metro area isn’t usually thought of as a potential distribution hub due to its geographic isolation and relatively small population, thus making the Boyd Co. study’s inclusion of Albuquerque rather unusual, said Jim Smith of CBRE, a commercial real-estate services firm.

“I think it’s neat we’re in the conversation. It’s good publicity,” he said. “We’ll have to see how it all works out.”

In the Boyd Co. study, Albuquerque’s cost to operate a 500,000-square-foot distribution center was about $16.5 million a year, lowest in the Southwest. In addition to being 20 percent lower than Los Angeles, it was 10 percent lower than Phoenix, 6 percent lower than Denver and 4 percent lower than Las Vegas, Nev.

Albuquerque did well in four out of the five expense categories in the study. Among the 22 U.S. cities in the study — the other seven are in Canada — Albuquerque had the second-lowest labor cost, third-lowest amortization cost and fifth-lowest costs in both the electric power and tax categories.

The comparatively low amortization cost surprised local brokers in the industrial real-estate market because it estimated the cost to finance the hypothetical distribution center’s land, building and equipment costs over 25 years at a low interest rate.

Raw industrial-zoned land is comparatively expensive in Albuquerque, as a rule, while the state’s 7 percent gross-receipts tax on construction serves to make building projects more expensive than elsewhere, said both Smith and Keith Meyer of NAI Maestas & Ward.

Albuquerque lost ground in the “shipping cost” category, where it had the second-highest annual cost after Union Pacific-served Tucson, according to the Boyd Co. study. The shipping category represents the estimated cost to get freight by rail from the source to the hypothetical distribution center’s loading dock.

The size of the hypothetical distribution center, at 500,000 square feet, would be out of character for Albuquerque, which has a relatively undersized industrial real-estate market. Ken Schaefer of Colliers Internationl said the two largest warehouses in the metro are just over 350,000 square feet.

The potential for such a large intermodal distribution center in Albuquerque stems from what John Boyd described as a looming change in the freight shipping pattern.

The current prevailing pattern is a latitudinal movement of freight, from east-to-west or west-to-east. For example, Asian imports arrive at West Coast ports then get shipped east by rail to inland intermodal facilities, where they are transferred to trucks for the final leg of the journey.

Boyd said several factors play into the potential for change to a longitudinal, from south-to-north or north-to-south, movement of freight:

⋄  The country’s two busiest ports, Los Angeles and Long Beach, are functioning near capacity. Expansion of those ports would be expensive and likely to be challenged on environmental grounds. In addition, Boyd said California’s tendency to overregulate industry drives up shipping costs.

⋄  The current expansion of the Panama Canal, expected to be completed in 2014 or 2015, will enable larger container ships to bypass congested West Coast ports for alternatives like Houston or Savannah, Ga.

⋄  Mexico, which has gone through a massive restructuring and privatization of its port system, offers an alternative to West Coast ports.

The Port of Lazaro Cardenas is connected to the East Coast by the KCS Railway, formerly Kansas City Southern. The Port of Manzanillo was a top 10 port for container traffic in North America in 2011, according to the American Association of Port Authorities. Both ports have seen big jumps in usage.

The Albuquerque metro’s strategic location at a crossroads of railroad tracks not far from the border with Mexico could attract attention from logistics providers, Boyd said. The longitudinal shift in shipping patterns likely would provide the impetus.

The shift could be signaled by an increase in truck traffic through Albuquerque on north/south Interstate 25, Meyer said. “If you drive I-25 right now, you don’t see a lot of trucks,” he added. “On I-40, you’ll see a ton of trucks.”

The north/south railroad tracks that pass through Albuquerque don’t see a lot of freight trains, noted Jim Wible of NAI Maestas & Ward. BNSF sold the stretch of tracks from Belen to Lamy, near Santa Fe, to the state in 2005. The Rail Runner Express, a commuter rail service, now has priority on that stretch.

BNSF and New Mexico recently canceled the state’s previously agreed-to purchase of the tracks from Lamy to the Colorado state line, Wible said. The cancellation could be a sign that the north/south tracks may one day see a revival of freight traffic, he said.

The recession was hard on the freight-shipping industry, forcing it to look at ways to develop economies of scale.

“For many shippers, improving the bottom line on the cost side of the ledger is far easier than on the revenue side,” says the Boyd Co. study.

Over-the-road trucking costs are expected to increase by about 5.6 percent in 2013, the study says. The upward pressure on costs stems not only from fuel prices, but also from driver wages and health-care coverage as well as equipment upgrades.

The Boyd Co. is counseling its warehousing clients to locate their regional distribution centers as close to rail access as possible. The idea is to reduce dependence on trucking and increase use of cheaper rail service.

“Compared to over-the-road shipping, rail moves one ton of freight on average 405 miles on a single gallon of gas,” the study says. “This is the equivalent of your SUV getting 250 miles to the gallon.”

One driver of Boyd Co.’s rail-use advocacy is the “branding value” of operating a business in a green-friendly manner, Boyd said. In shipping, that means low CO2 emissions.

“The EPA estimates that railroads account for less than 10 percent of all transportation-related CO2 emissions,” he said. “It also alleviates highway congestion.