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1 ______________________________________________________________________________ Summary ! The Distribution cluster groups the various industries and businesses involved in moving
goods between manufacture and retail: transportation entities plus wholesale trade. Retail
trade is excluded. ! ! ! ! Nationally, the Distribution cluster exhibited a 15 percent employment increase from 1988-
1996. Most industries within the Distribution cluster are projected to gain employment
nationally from 1997-2005. Air Courier Services, Freight Transportation Arrangement, and
Miscellaneous Transportation Services are expected to grow by more than 2 percent, while
Wholesale Durables, Wholesale Nondurables and Trucking and Warehousing are expected
to grow between 1 and 2 percent. The growth of the related logistics industry is expected to
have a significant impact on Distribution as now defined. ! From 1992 to 1996, the rate of employment growth in the Distribution cluster was slightly
greater than for all industry sectors in the state. During the period, Distribution employment
increased by about 8,200, or 3.3%. ! Statewide, the Distribution cluster accounts for 255,962 jobs, making it the fourth largest of
the 13 clusters identified by ESD, and almost as large as Communications and Media
Services, the third largest cluster. Wholesale Durables (108,699; 42.5 percent), Trucking and
Warehousing (63,803; 24.9 percent), and Air Courier Services (11.5 percent) are the largest
components. Most Distribution employment is downstate. ! The general trend of moving Distribution facilities from New York City has begun to benefit
New York State, as northern New Jersey locations have become less desirable because of cost DISTRIBUTION 2 and congestion, while outlying areas such as Rockland and Orange County have become
highly competitive. Definition The Distribution cluster groups the various industries and businesses involved in moving goods between manufacture and retail: transportation entities plus wholesale trade. Retail trade is
excluded. Specifically, the Distribution Cluster is defined to include Trucking and Warehousing (SIC 42); Water Transportation (SIC 44); Air Courier Services (SIC 4513); Pipelines, Except Natural Gas
(SIC 46); Freight Transportation Arrangement (SIC 473); Miscellaneous Transportation Services
(SIC 478); and portions of Wholesale Durable and Non-Durable Trade (SICs 50 and 51). To capture
only the estimated share of wholesale trade involving trade outside New York the definition includes
50 percent of Durable Wholesale Trade and 25 percent of Nondurable Trade. It could be argued that this definition is somewhat conservative, since these SIC codes may not always capture Distribution employment located within manufacturing or retail operations, such
as the private trucking fleet of a supermarket chain. In addition, note that New York has significant
employment in passenger transportation industries that is included in the Travel & Tourism cluster. Within Distribution, economic development attention tends to gravitate toward Distribution facilities, defined as a centralized operation that: < serves a regional market, < consolidates large shipments from different production facilities, < processes and regroups products into customized orders, < maintains full lines of products for client Distribution, and < is established primarily for movement of goods rather than storage. The size of Distribution facilities differ by industry and firm size. Research on the retail industry indicates that supermarkets and drug stores are most likely to operate 1 million square feet
or more of Distribution space, while mass merchandisers and department/discount stores tend to
operate Distribution centers with less than 100,000 square feet. Companies with sales of $50 million
or less tend to have less than 100,000 of Distribution space, while the majority of those with sales of
$1 billion or more operate at least 1 million square feet of Distribution space. The average square
footage for all centers has increased as companies have reduced the total number of centers. National Profile and Trends DISTRIBUTION 3 Nationally, the Distribution cluster exhibited a 15 percent employment increase from 1988- 1996 (See Figure 1). Most industries within the Distribution Cluster are projected to gain
employment nationally from 1992-2005. Air Courier Services, Freight Transportation Arrangement,
and Miscellaneous Transportation Services are expected to grow over 2 percent, while Wholesale
Durables, Wholesale Nondurables and Trucking and Warehousing are expected to grow between 1
and 2 percent. Water Transportation and Pipelines are expected to lose employment nationally during
the same time period. Distribution is a cluster that suffers from stereotyping. Technological advances have transformed Distribution jobs from low wage, low value-added to fairly well paying. Hourly wages
in New York range from $9 to $16 with $11 to $13 most typical. Distribution workers must be
trained to employ modern technologies such as conveyor systems, bar coding, hand-held computers,
super-flat floors supporting 35-foot racks, and vehicle tracking and on-board computer systems. Such modern technologies allow companies to streamline product flows, meet hurdle rate requirements on new investments, adopt common measures across functions, and change their
cultures in an overall pursuit of lower costs. These lower costs are reflected in the rapid movement
of goods through the typical Distribution facility. Most facilities operate in a “cross-dock” mode,
where product enters through one door and almost immediately goes out another. Technological advances have benefitted the trucking industry as well. Many trucks are now equipped with satellite-linked communications systems. These systems pinpoint truck location within
100 yards, a useful capability in the event of a breakdown or hijacking, or when monitoring time-
sensitive freight. Satellite communications create further efficiencies by facilitating reroutes to avoid
traffic congestion or schedule pick-ups even after a run is underway. As indicated above, Distribution facilities attract considerable attention from economic developers. Distribution facility locations are chosen based on four factors: market proximity; access
to good transportation services; availability of suitable sites at a competitive price; and availability of
workers. In general New York is competitive in each of these factors, especially market proximity
and work force. The transportation system, although very extensive, suffers downstate from
congestion and system disconnects (e.g., rail access to Long Island). Land is widely available north
of New York City, but is in very short supply in NYC and in Nassau County. Distribution facilities have become increasingly centralized; a typical Distribution center may serve several adjacent states/provinces. Typical Distribution facility location decision factors include:
consolidation of 2 or more Distribution facilities into 1, to serve a 500 mile radius; determining the
least cost location for Distribution in a new sales area; and opening a regional Distribution facility to
provide next day service within a 250 mile radius. For example, Lincoln Electric, a leading
manufacturer of welding equipment and supplies, is replacing most of its 36 local branch warehouses
with 6 major regional Distribution centers. DISTRIBUTION 4 Trucking and Warehousing (24.93%) Water transportation (2.27%) Air Courier Services (11.52%) Pipelines (0.04%) Freight trans. arrangement (5.66%) Misc trans. services (2.85%) Wholesale nondurables (10.27%) Wholesale durables (42.47%) Distribution Cluster Employment by Cluster Industry Sectors Figure 2 All this Distribution activity has made the cluster a hot attraction target to economic developers. An example is Memphis, Tennessee, the home of Federal Express. Memphis, claiming
the title “America’s Distribution Center,” is home to over 60,000 Distribution jobs. Over the past
two years, 55 Distribution operations have set up in Memphis, filling over 7 million feet of warehouse
space. Viewing Distribution more broadly, beyond facilities, directs our attention to the hot growth in the logistics market. Logistics is the management of a product supply chain from raw materials
to final Distribution. Recent growth in logistics was spurred by the growing acceptance of just-in-
time inventory techniques and related management innovations. One can also discern a movement
to “core competencies” behind the logistics boom, as companies whose primary business is non-
transportation shed their private truck fleets. Logistics experts often speak of customer-driven
operations techniques such as quick response (QR) in the retail industry and efficient consumer
response (ECR) in the grocery industry. Some of the non-transportation functions assumed by third-party logistics firms include packaging, labeling, warehousing, inventory control, returns management, minor assembly work, and
information management. Currently a $15 billion market, logistics is expected to triple to $50 billion
by 2001. Major players in logistics include truckload carriers, air express companies, and
warehousing companies. In 1990, Sears, Roebuck spun off its in-house Distribution department into
a separate subsidiary, Sears Logistics Services (SLS). Since then Sears has enjoyed a dramatic
decrease in its Distribution costs, while SLS has become a third party Distribution player (over $1.5
billion in annual revenue), with hopes to take on the logistics operations of other companies. The impact of the logistics trend on Distribution facilities is debated. Some industry observers believe that the need for large-scale, firm-specific Distribution facilities will decline as logistics
outsourcing becomes the dominant form of
freight movement. New York State Profile and Trends Overall Distribution cluster employment
grew by about 8,200 jobs from 1992 to
1996. The rate of employment growth in
this cluster – 3.3% – is slightly greater than
the rate of employment growth in the state
as a whole (Figure 1) . Recent successes
have included a large WalMart Distribution
facility in Central New York, another
WalMart Distribution facility in the Mohawk
Valley, The Gap in the Hudson Valley, and DISTRIBUTION 1 1994 Data 5 245000 247000 249000 251000 253000 255000 257000 7600000 7650000 7700000 7750000 7800000 7850000 1992 1993 1994 1995 1996 Distribution Total NYS Distribution Compared to Total NYS Employment Trends Figure 1 Ace Hardware, Target and Hannaford Brothers
facilities in the Capital Region. Statewide, the Distribution cluster accounted for 255,962 jobs in 1996, making it
the fourth largest of the 13 clusters identified
by ESD, and almost as large as Information
and Media Services, the third largest cluster.
Wholesale Durables (108,699; 42.5 percent),
Trucking and Warehousing (63,803; 24.9
percent), and Air Courier Services(29,475;
11.5 percent) are the largest components (See
Figure 2). Analysis of Distribution at the SIC 4- digit level shows that establishments are
concentrated in Wholesale Nondurables
(groceries, women’s & children’s clothes, drugs, NEC), Wholesale Durables (electronic parts &
equipment, computers & software), General Warehousing & Storage, and Trucking Except Local.
Roughly half the 400+ Distribution establishments are in NYC; about another 25 percent are in
Westchester County or on Long Island. 1 Table 1: New York State Percentage Share of Total U. S. Employment in Distribution: 1996 Cluster Segment 1996 Trucking and warehousing 3.9% Water Transportation 3.4% Air Courier Services 6.6% Pipelines, except natural gas 0.7% Freight transportation arrangement 9.1% Miscellaneous Transportation Services 19.1% Wholesale Durable Goods 5.7% Wholesale Nondurable Goods 3.9% DISTRIBUTION 2 1994 Data 6 Capital (5.65%) Central (5.50%) Finger Lakes (5.86%) Long Island (17.87%) Mid-Hudson (9.78%) Mohawk (1.55%) Western NY (9.49%) Southern Tier (2.39%) North (1.60%) NYC (40.32%) Distribution Employment by Region Figure 4 Cluster Total 5.1% Of the eight components within Distribution, three - Wholesale Nondurables, Miscellaneous Transportation Services, and Freight Transportation Arrangement - have the desirable characteristics
of both forecasted employment growth (1992-2005) and relative concentration (location quotient
greater than 1.0) (Figure 3). 2 New York had 5.1% of national employment in the Distribution cluster in 1996. Within the cluster, the state had the greatest share of national employment in miscellaneous transportation
services, followed by freight transportation arrangement, air courier services and wholesale durable
goods (Table 1). New York City accounts for just under 40% of statewide Distribution employment, at 99,794 (Figure 4). Long Island and Mid-Hudson have the next most sizeable Distribution job totals.
These three regions account for roughly two-thirds of statewide Distribution employment. ESD
calculation of the Distribution “power index” - a weighted average of total employment, relative DISTRIBUTION 3 1994 Data 7 Distribution Cluster Employment Change -- 1992-1996 -2,000 -1,500 -1,000 -500 0 500 1,000 1,500 2,000 2,500 3,000 3,500 Capital Central Finger Lakes Long Island Mid-Hudson Mohawk Valley New York City North Country Southern Tier Western New York R
e
gi
on Employment Change Figure 5 0 0.2 0.4 0.6 0.8 1 Location Quotients Capital Central FLakes Long Island Mid-Hudson Mohawk NYC North STier WNY Distribution Cluster Employment Regional Location Quotients Figure 6 employment, and growth prospects - is
also highest for these 3 regions. Western
New York also ranked high on this index. Regional employment in the cluster shifted somewhat between 1992
and 1996. Long Island gained nearly
3,000 jobs, followed by Western New
York, gaining 1,500 and the Capital
Region, gaining 1,400. Every other
region of the State, except New York
City gained employment in the cluster
during the period (Figure 5). Distribution establishments tend to be small or medium-sized. Some 29
Distribution establishments statewide
employ 500 or more workers, while over
400 establishments employ 100-499 workers. 3 Distribution is one of the six largest clusters in all ten state economic development regions, and is among the top four clusters in six regions. However, it is not the largest or second largest
cluster in any region. New York’s location quotient for Distribution is 0.78,
implying that New York is a
relative importer of Distribution
services (See Figure 6). Regions
showing the greatest strength in
Distribution are Long Island
(0.98), Central New York (0.95),
and Western New York (0.89). One can also analyze Distribution by examining the
location quotients for its
component industries. As noted
above, three components of the DISTRIBUTION 8 Distribution cluster exhibit a location quotient over 1.0 statewide: Freight Transportation
Arrangement (1.39); Miscellaneous Transportation Services (2.93); and Air Courier Services(1.01).
Regional location quotients for Distribution component industries are most noteworthy for
Miscellaneous Transportation Services. This industry has an LQ of 10.03 in the Capital Region, 5.60
in Mid-Hudson, 4.59 in Western New York, 5.20 in Central New York, 3.29 in the Mohawk Valley,
2.45 in the North Country, 2.10 in NYC, and 1.53 in the Finger Lakes. In the 1980's Distribution in New York suffered from an exodus of jobs to New Jersey from New York City, as warehousing firms sought larger, less expensive plots of land. For-hire trucking
firms were easily able to follow the warehouses, since federal laws allow truckers wide discretion in
choosing a “domicile.” More fundamentally, this exodus of Distribution activity followed a similar
decline in manufacturing activity. Port Authority data on traffic passing through the Lincoln and
Holland Tunnels show a steady increase in small truck volume and a steady decrease in large truck
volume as the percent of Manhattan manufacturing employment has declined. More recently, this trend of moving further from NYC has begun to benefit New York State, however. Outlying areas such as Rockland and Orange County have become highly competitive as
more central locations in northern New Jersey have become crowded and high cost. An anomaly is
the minimal warehousing presence on Staten Island, which offers proximity and available, reasonably
priced land. Less than three percent of the regional warehousing square footage is on Staten Island. Although increasingly reliant on modern technologies, Distribution remains a low “knowledge intensity” cluster, defined by the percent of workers who work with information. (Nationally only
an estimated 15.5 percent of Distribution workers are knowledge workers.) However, it is
interesting to note that in most of the state the Distribution cluster tends to be more “knowledge
intensive” in New York than nationally, presumably reflecting the highly specialized exporting
services available in Manhattan, at JFK International Airport, and elsewhere in the State. Taken in
this light, Distribution is not only a key facilitator of goods movement but a significant export industry
as well.
Major Companies Statewide, the following firms are among the major Distribution companies operating in New York State: Trucking and Warehousing Yellow Freight System; Maybrook
Wakefern Food Corp; Middletown Wholesale Durables DISTRIBUTION 9 Finlay Enterprises; New York City
Avnet, Inc.;Great Neck
Arrow Electronics; Melville
Olympus America; New Hyde Park
Bulova Corporation; Flushing
Effective Security Systems; New York City Wholesale Non-Durables Getty Petroleum; Jericho
International Paper; Ticonderoga Other W&C Holdings; New York City Case Study: Distribution in Orange County The cluster of Distribution firms in and around Orange County has met monthly since 1994 to discuss issues of common interests. The success of this group, first assembled for the 1993 DED
Mid-Hudson cluster study, illustrates the value of working with industry clusters in general and
Distribution clusters in particular. Distribution has been attracted to Orange County because of its proximity to NYC; its location at the intersection of Interstate 84, Route 17, and the Thruway; the presence of Stewart
International Airport; relatively inexpensive land; and a trainable work force. It is estimated that
Distribution accounts for over 12,000 jobs and occupies 10 million square feet of space. About 20 members attend monthly meetings of the group. Participants include Distribution- only businesses such as Yellow Freight, Wakefern (Shop Rite), but also manufacturer-distributors
such as Fresnius (medical equipment). A steering committee with public and private sector
membership guides the group. Bylaws have been drafted and adopted, and quantifiable goals
established and measured. Administrative support is provided by Orange/Ulster BOCES and the ESD
Fishkill Office. Much of the success of the network is in gaining volume discounts on large-scale purchases. For example, the group has achieved a 50 percent discount off the price of pre-employment physicals,
thereby helping to establish a pre-screened, pre-trained labor pool of warehouse workers and drivers.
Other areas where discounts are being pursued are reference checks for over-the-road drivers,
telephone tariffs, recycling and waste management, and employee auto insurance. The cluster has developed other benefits beyond shared purchasing. Two firms agreed to share transportation when it was discovered that one was deadheading (i.e., not carrying a load) north
while the other was deadheading south. Certain cluster members are working with the Hudson Valley DISTRIBUTION 10 Technology Development Center to adapt the diagnostic tool Quickview for use with Distribution
firms. SUNY New Paltz plans to offer a series of courses aimed at the Distribution industry, and is
soliciting the Cluster’s input in implementing a four year degree program in Distribution. It is interesting to note that none of these economies stem from direct buyer-supplier relationships within the cluster. Rather, it is use of common resources that connects the Distribution
cluster. The lack of buyer-supplier relationships within Distribution has been verified by ESD analysis
of input-output tables. Orange/Ulster BOCES reports that the established presence of the Distribution cluster has made attraction easier - the critical mass of Distribution firms raises attention of the area to real estate
executives and site selection consultants. DISTRIBUTION 11 Empire State Development Division of Policy and Research Charles A. Gargano Chairman 30 South Pearl St. Albany, New York, 12245 DISTRIBUTION 12 518-292-5300