The shared economic impact of new distribution centers

0

summary

Distribution Centers (DC), also known as Fulfillment Centers, are becoming an increasingly important part of retail and the wider economy due to the rise of online commerce. Some critics argue that distribution centers (the term used for convenience in this report) put a strain on the economies in which companies build them.

Economic research conducted by the US Chamber of Commerce provides an analysis of new distribution centers that takes into account the full extent of a center’s impact on the local economy. This research used a model of 30 Metropolitan Statistical Areas (MSAs) representing the geography and population distribution of the US economy. The analysis refutes the inaccurate arguments of the critics. On average, a new DC with 3,000 employees resulted in a total of 5,111 new jobs in an MSA, including the 3,000 in the new DC, and sustained those new jobs over a 20-year period. Importantly, for every job created directly from a new DC, an additional 0.7 jobs are created in the MSA.

These economic engines bring the following benefits annually at the MSA level:

  • Create more than 5,100 jobs.

  • Expand the labor force by more than 3,500 workforce.

  • Increase personal income by 500 million dollars.

  • Salaries and wages are increasing $360 millionresulting in an increase in average annual salaries and wages 1.8% per year over the lifetime of a DC.

Critics of DCs argue to perpetuate the status quo and overlook how powerful an investment in a new DC can be for local workers in the warehousing industry, workers in other industries in the area, and the broader economic benefits to the community.

introduction

Distribution centers (DCs) are an increasingly integral part of the US economy. As retail evolves from traditional brick-and-mortar stores to more sales through e-commerce channels, the importance of these technologically advanced commerce engines will continue to grow. A distribution center connects the local economy directly to an immense global trade flow.

Shoppers have moved to online shopping since the dawn of the internet; However, the COVID-19 pandemic accelerated the postponement. Trends like buy-at-home pick-up in-store have driven this shift. At the beginning of 2020, about 12% of retail sales were made online. By mid-2020, this proportion had risen to over 16%. It is now around 13%, below the COVID-19 peak but above the pre-COVID-19 trend. To meet the demands of customers shifting to online shopping, retailers and other businesses are relying on DCs more than before the pandemic.

DCs are not traditional department stores. These high-tech distribution centers require the companies that open them to invest hundreds of millions of dollars. This includes investments in the buildings as well as the advanced technological, security and logistical equipment used in DCs to carry out their complex processes. Warehouses require similar investments for the buildings but not for the other infrastructure. For example, some distribution centers have nearly 20 miles of conveyor belts to move items through the center. These conveyor systems alone require sufficient physical infrastructure and advanced robotics and software technology to move items from one area to the right areas safely and quickly. Department stores do not use these opportunities to the same extent.

Understanding the operational differences between distribution centers and traditional warehouses is key to understanding their economic impact. This analysis captures the significant economic impact of DCs using a model that takes into account the capital investment required to open a facility and the specialists to operate it.

Traditional warehouses accept bulk goods, store them for an extended period of time, and ship them again at some point in the future. In contrast, distribution centers, with the large investments required to operate them, accept various bulk goods from a variety of suppliers, store those products so that orders can be filled quickly, and then repackage the products to fill the orders of countless customers. This includes accurately labeling orders, packing orders for shipment from the center, and loading trucks that transport the orders on the next leg of their journey or at their final destination.

The investment required to run and maintain a data center with all these advanced features is immense. The mix of labor required to operate a distribution center is also different from that of a warehouse. A full analysis of the economic impact of DCs must consider these crucial facts.

The added value of distribution centers is greater than that of department stores. Comparing the two is assuming that the economic impact of a car is the same as that of a horse and carriage since both are vehicles of transport. The sheer volume of products and number of different items moved through distribution centers make them incomparable to warehouses. Add to that the way DCs instantly match customers’ orders with multiple vendors in one place and the comparison becomes even more difficult.

The growing importance and large investments that DC represent on behalf of the retailers and businesses that open and operate them indicate that they have significant positive economic benefits in the areas and regions in which they operate. However, critics claim that they do the opposite, arguing that DCs do the following:

  • Lower wages for warehouse workers.

  • Loss of jobs in warehousing or the places where the centers open.

  • Harm warehouse workers by creating temporary, unreliable jobs.

These arguments raise an interesting question about the actual impact DCs have on the communities in which companies open them. As their importance continues to grow, communities receiving DCs should have an idea of ​​what to expect once the centers are operational. A deeper understanding will help communities create economic development strategies when it comes to DCs and the resulting economic impact on the area.

The US Chamber of Commerce conducted an economic analysis to calculate this effect and end the debate on unfounded criticisms that opponents often level against DCs. The results debunk the critics’ arguments by showing that DCs have a strong positive impact on the local economy and workforce where companies invest in them.

Fulfillment Center Report 2022

Learn more about the full report click here.

About the authors

Curtis Dubai

Curtis Dubai

Chief Economist, US Chamber of Commerce

Curtis Dubay is Chief Economist for the Department of Economic Policy at the US Chamber of Commerce. He directs the Chamber’s research into the United States and the global economy.

Continue reading

Share.

Comments are closed.