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A World Freight Crossroads

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A DHL worker in the control tower at the Cincinnati/Northern Kentucky Airport, where DHL has 40 departures and 40 arrivals daily.

Since the 1980s, Kentucky essentially has made money simply for being where it is on the map – and thanks to hosting major logistics players UPS and DHL.

The two giant freight shipment companies have brought billions of dollars in investment and thousands of jobs to the state’s economy with UPS Worldport located in Louisville and DHL’s American super hub located in Northern Kentucky. Each cites the state’s location as a major factor in their enormous success.

Economic development officials in the Louisville and Northern Kentucky areas say the huge, name brand shipping centers make their jobs easier to do, too. There is a symbiotic relationship since growing the regional business base means more freight revenue for the logistics operations.

“In addition to the $2 billion that UPS has invested in Worldport and the 23,000 employees we employ in the commonwealth, we have attracted 141 companies to move to the region to be close to Worldport to take advantage of the global logistics network,” said Mike Mangeot, public relations manager at UPS Airlines.

Greater Louisville Inc. Vice President for Economic Development Daryl Snyder specializes in logistics-oriented growth.

“UPS is such a wonderful, wonderful company in terms of introducing us to customers they think we need to meet,” Snyder said. “Their job is to sell Worldport. Our job is to sell Louisville. So we work together very symbiotically.”

UPS and DHL alike said the state’s central location – Kentucky is within an hour’s flight of 70 percent of the U.S. population and within a four-hour flight of 90 percent – is a key to their growth in the commonwealth.

“From a network coverage perspective, it really allows us to leverage our air network and our service offerings on our international product to and from the United States,” said DHL’s Travis Cobb, vice president of Americas Hubs.

Kentucky’s hospitality toward business also earns credit for the freight shipping giants’ ability to run and grow such successful operations in the Bluegrass State.

“The biggest impact has been the state government’s willingness to work on tax incentives,” Mangeot said, adding state and Louisville leaders have always understood the economic benefits of having UPS Worldport located at the Louisville International Airport. “The public/private partnership has been a huge win-win over the years.”

Cobb concurs.

“We’ve always had a lot of success over that lengthy period of gaining employment,” he said, “and we’ve always had great support of both local communities in Boone and Kenton counties as well as the state of Kentucky.”

DHL is “a towering influence” in the region, said Karen Finan, senior vice president at Northern Kentucky Tri-County Economic Development Corp. Northern Kentucky has a history as a distribution hub, but Tri-ED is “seeing a steady increase in interest in the Northern Kentucky area because of DHL’s presence here. It is very encouraging.”

Taking Kentucky out to the world

Tri-ED fields inquiries regularly from companies outside the region and outside the nation who say they are considering relocation to Northern Kentucky because of its logistical advantages, particularly DHL’s services.

Additionally, Cobb and Mangeot both said, Louisville International and Cincinnati/Northern Kentucky International airports are great at remaining open even in tough weather, their respective managements are easy to work with and there is room for expanding their respective facilities.

In fact, DHL recently announced plans to invest another $47 million to expand its Americas hub with a new 193,000-s.f. facility. In June 2009, the company invested $105 million, expanding its processing, air network and technology capabilities.

In 2011, the DHL Americas hub traffic grew to represent 40 percent of landing weight revenues at Cincinnati/Northern Kentucky Airport. DHL handles more than 130,000 international shipments daily, Cobb said, and totals approximately 40 arrivals and 40 departures at the airport every day.

At Worldport, UPS handles approximately 1.5 million small packages in a 24-hour period, Mangeot said, and totals about 130 flights total.

All of this traffic has brought new opportunities to the state beyond the DHL and UPS hubs.

“Because we are an all-points international hub, we bring the world to Kentucky every day and we can take Kentucky out to the world,” UPS’ Mangeot said. “I think we have helped in terms of creating new markets for Kentucky businesses and making Kentucky more cosmopolitan. We are kind of the engine of e-commerce.”

There are companies that started out as strictly online businesses relying on Worldport services but now have opened physical storefronts because of their logistical successes, he said.

Snyder agrees e-tailers have enjoyed success, but said biotech and pharmaceutical companies also have been drawn to the area by the UPS Worldport. Once here, he said, they realize major competitive advantages over California and East Coast peers because of the lower costs of living and doing business in Kentucky.

Schools, communities feel the impact

Also, the company is contributing to educating the work force. For employees working the night shift, UPS pays for a college education at University of Louisville or Jefferson Community and Technical College. UPS has had students from more than 100 counties participate in the program, Mangeot said, and more than 2,000 people have received some sort of degree or certificate.

“And Kentucky benefits from UPS’s presence from a community perspective,” Mangeot said. “We annually give about $4 million to regional charities, and our employees volunteer over 200,000 hours.”

Worldport has led to the installation of several major product distribution centers in the Louisville area. Companies like Zappos, Best Buy and many others are located near Interstate 65 to take advantage of quicker shipping times and better customer service. Zappos went from a 50,000-s.f. fulfillment center in Shepherdsville in 2001 to more than 1 million s.f. currently. Best Buy last year augmented its 240,000-s.f. Geek Squad repair center in Shepherdsville with a 600,000 s.f. fulfillment center.

Since 1991, 141 companies have moved to Louisville because of UPS, resulting in an estimated annual payroll increase of $290.2 million.

At Worldport, which has undergone several massive expansions in the last decade, there are 20,117 employees (approximately half are full time) as of mid-May. Throughout Kentucky, UPS employs a total of 23,735 people.

At DHL, approximately 2,000 employees staff the Americas hub and another 280 jobs will be added to the Northern Kentucky operation with the just-begun expansion that is expected to be complete by the first quarter of 2013.

Cobb said DHL is in discussions for spin-off companies that would rely on its shipment services to locate to the airport area.

“We are in discussions for that to happen,” he said. “We are looking at different end-of-runway type solutions that will attract different sectors of the industry. And we are under numerous discussions in terms of different organizations locating their U.S. operations here as a result of our presence.”

Harnessing foreign trade opportunities

DHL Communications Manager Robert Mintz added that the company is working on another interesting partnership.

“We’re working with the (U.S.) Department of Commerce in terms of helping customers export and grow their business to new markets and the international market,” he said. “We want to make it easier for customers to grow their business to other markets.”

The partnership with U.S. Commerce’s International Trade Administration will make it easier for companies to grow, since international shipping currently is quite complex. The aim is to help small and mid-size businesses harness new international sales opportunities in order to expand U.S. exports and jobs.

While growth and progress are happening for UPS and DHL, both companies are constantly battling rapidly rising costs on all fronts, particularly fuel for their fleets.

“Outside of our people costs, fuel is our No. 1 operation cost and is something we have to manage very carefully,” Mangeot said. “When prices spike, we do have to pass that along with fuel surcharges on rates. We also do (long-term) fuel contracts to try to hedge against prices, but it’s just forced us to become smarter and greener about how we run our business.”

UPS has developed computer software that maps package car and flight routes to minimize fuel burn and has high-tech telematics systems on package cars, Mangeot said. UPS has left “no stone unturned” in terms of minimizing fuel burn, both for environmental and economic reasons.

At DHL, Cobb said the company’s strategy to go green also is an element of the overall plan to save money and help reduce the company’s carbon footprint. The key focus currently is modernizing its air fleet with more fuel-efficient machines. DHL is the only carrier that has a completely hybrid vehicle fleet in New York City, Cobb said. It also utilizes alternative energy sources, and is now offering carbon neutral shipping services to its customers.

Abby Laub is a correspondent for The Lane Report. She can be reached at [email protected]