Warehousing, the Boom-bust Cycle, & Foreign Trade Zones

Here is a copy of the letter I sent to City Council members today. It references my Monday speech at the public hearing (see below) but also discusses a new area of concern.

Dear Aldermen & Mayor,

Last Monday at the City Council public hearing, I urged you not to “put all our tax eggs into one industrial basket.” This is because I grew up in steel mill country in Northwest Indiana. Steel paid for everything there. Schools, everything. When I compare the tiny amount that my parents paid in property tax with my own bloated tax bill–even adjusting for inflation–I could cry. But the blessing was mixed, because when the steel industry did poorly we all suffered. In fact, this is how I ended up in DeKalb: in the mid-80s the mills became unable to compete with Japan producers (& their protectionist policies) and we suffered major job losses. Families scattered, looking for work, mine included. My sister went to Houston. My husband and I landed here in DeKalb. Most days I believe we ended up with the better deal (except when I am shoveling snow). But the point is, we paid very dearly for relying so heavily on one industry. Only Las Vegas can get away with that!

Also on Monday I asked, “Why another warehouse?” The simple answer is that this industry is booming. Companies that used to develop land for all kinds of uses are now concentrating on logistics enterprises. More and more companies are springing up that specialize in developing and serving the warehouse industry. Retailers are developing and/or expanding their own warehouse and distribution enterprises. A circular dance between the availability of cheap goods from Southeast Asia, free-trade agreements, and U.S. Dept. of Commerce [DOC] globalization-response policies has spurred growth of a lucrative logistics industry. So the search is on for cheap farmland as close to major roadways as possible, and the Midwest is very popular not just because it’s central but also because generally it has much more open space left than either Coast.

One of the U.S. policies allows public entities such as cities or counties–or public-type corporations such as the DCEDC [DeKalb County Economic Development Corp.]–to apply to the DOC Foreign Trade Zones Board for designation as a Foreign Trade Zone (FTZ). Companies can then apply to become members of a particular FTZ. FTZs have been around since the 1930s, but enjoy renewed popularity in certain industries now. What such a zone does is to allow companies to defer, reduce or eliminate Customs duties that are normally imposed on imported products. Companies in FTZs can store the goods indefinitely in order to wait for quota expiration, manage cash flow, or find a foreign market for them in which case they pay nothing in duties. They can also move products from zone to zone without penalty.

The Rockefeller Group utilizes FTZs, as evidenced by their project called Exit 8A-New Jersey located along the New Jersey Turnpike in Cranbury. Rockefeller’s website sings the praises of FTZs and their map shows them sprawled in a big FTZ bulls-eye. The nearby South Brunswick area, with 5-million-square-feets’ worth of new warehouse proposals this year alone, is almost saturated. Very soon, Rockefeller and partner IDI Services Group will be able to throw all their energies into a new, similar project at Exit 7A.

Meanwhile, the North Brunswick newspaper Sentinel has published both front-page articles and commentary relating South Brunswick’s woes resulting from warehouse-mania: traffic troubles, drainage problems, trucks going the wrong way, loss of farmland and rural feel. We voiced those concerns on Monday, so without going into detail I’ll just observe that the predictions of the DeKalb warehouse opposition match what’s come to pass in a previously rural area of New Jersey.

What hasn’t been calculated yet is how many more warehouses we can say “yes” to before we become unduly vulnerable revenue-wise in a boom-bust cycle. Some of the factors in that equation include:

• What happens if we have a trade dispute with China, diesel fuel gets to $6 a gallon, or they raise the tolls again?
• Is DeKalb part of the Rockford-area FTZ and, if so, how many local logistics centers are part of that? If we are not part of Rockford FTZ, does DCEDC intend to apply for a zone in DeKalb and, if so, how important would that be to existing and future operations?
• If FTZ turns out to be quite important to this industry, what happens if the rules are modified or eliminated (FTZ being considered a temporary measure by the DOC)?

If we don’t analyze these factors now and act accordingly by reaching consensus on a warehouse limit, the story could become even more tragic than the one about noise, traffic, pollution and flooding; DeKalb’s view could conceivably encompass a vast asphalt desert littered with massive concrete skeletons. Trust me; I’ve been there.

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