Michigan could significantly raise its trade capacity, generate millions of dollars in economic activity, and create thousands of jobs by positioning itself as a global freight hub to the Midwest and the rest of the world.
There’s no question a new bridge is needed between Detroit and Windsor. The Ambassador Bridge, completed in 1929, is nearing its 100-year life expectancy. However, it’s also clear that demand for two bridges — private and public entities are competing to build separate crossings — can’t be argued based on supply, as cross-border vehicle traffic has declined 43 percent since 1999.
However, the bridge debate, while warranted, has overshadowed a much grander and far more lucrative plan to position Detroit and Windsor as a global freight hub to the Midwest and the rest of the world.
“Michigan can create thousands of jobs if it better supported, integrated, and utilized its trucking, rail, sea, and air freight systems,” says John A. James, chairman and CEO of James Group International Inc., a global logistics and supply chain management company based in Detroit. “We have one of the best transportation networks in the world, but we have allowed it to deteriorate because of political ignorance and competing interests.”
Bringing an integrated transportation plan to fruition in the region will require some $5 billion in added infrastructure, a mix of private and public financing, political fortitude, and a buy-in from international shippers, rail companies, and logistics firms.
Although getting everything to fall into place is a huge challenge, the payback is potentially enormous. The nonprofit entity Great Lakes Global Freight Gateway, made up of business, labor, academic, and political leaders, estimates the infrastructure improvements would generate $11 billion in economic activity and add more than 200,000 jobs to the region by the end of the decade.
To get there, experts say, the state needs to recast and better publicize its support and transcend the bridge debate into a sophisticated plan to establish Michigan — and, more specifically, metro Detroit — as an integrated logistics system second to none.
The endeavor includes fixing past mistakes. As it stands now, cargo containers travel by ship from Europe and Asia and arrive in Halifax, Nova Scotia, and Montreal. The cargo containers — those destined for the Midwest and Mexico — are often transferred to railcars before entering the United States via a rail tunnel (opened in 1994) that links Sarnia and Port Huron. From there, the containers pass through Michigan and go directly to Chicago.
As a result, Michigan has missed out on millions of dollars in economic activity because logistics and supply chain management firms in Chicago break down, prepare, and sequence the freight for final delivery. According to the latest data from the U.S. Commerce Department, the bulk of the $21.5 billion in freight that moved via rail between Ontario and Michigan in 2008 came through the Port Huron rail tunnel and headed for Chicago.
To offset Chicago’s advantageous position, various private and public entities are moving forward with major infrastructure upgrades, including:
• A $400 million rail tunnel between Detroit and Windsor that is expected to be operational in 2015. The project, called the Continental Rail Gateway, is backed by a partnership of Canadian Pacific Railway Ltd., Borealis Infrastructure Management Inc. of Canada, and the Windsor Port Authority. “Chicago is landlocked in terms of rail capacity, and more and more goods are being trucked from Chicago to Detroit as a result,” says Marge Byington, executive director of corporate affairs for the Continental Rail Gateway. “Our tunnel offers a great opportunity to bring new business to Detroit and the region. Plus, our tunnel will be neutral, meaning any rail company can use it. In Port Huron, the tunnel is controlled (and only used) by Canadian National Railway.”
With the U.S. Department of Transportation backing plans to move more freight by rail — due to the fact that it’s often the most cost-effective and environmentally friendly method of transportation — the timing for the new rail tunnel couldn’t be better for Detroit.
Like most modern tunnels, the passageway will accommodate rail cars that carry double-stacked shipping containers, along with newer multilevel railcars used by auto manufacturers. Passenger trains linking the Midwest to Toronto and Montreal could pass through either the new tunnel or a smaller, neighboring tunnel that links Detroit and Windsor (the existing tunnel can’t handle rail cars carrying double-stacked containers).
• To complement the new tunnel, the Detroit Intermodal Freight Terminal in southwest Detroit (formerly Junction Yard) is undergoing a $650 million upgrade. The investment is significant in that four railroad companies — Canadian National, Canadian Pacific, CSX, and Norfolk Southern — use it. Rail companies in Chicago, by comparison, are spread out, meaning cargo is shipped from one facility to the other via trucks. This has contributed to heavy traffic volumes in the Windy City.
• New federal ballast rules will make it easier to ship bulk goods such as sugar beets, beans, grain, and corn from Michigan, says John Jamian, executive director of the Detroit Wayne County Port Authority. Imports such as specialized steel used in the automotive industry, along with coal and cement, would also be cheaper.
“What you’re seeing now, due to the need to expand Michigan’s economy and create jobs, is that the various private and public entities are aligned as it relates to boosting imports and exports,” Jamian says. “Those imports won’t take away jobs; they’ll create them. The goal is to make Michigan a global freight hub so every time you touch a good, break it down, package it, and ship it, you’re creating value.”
The transportation upgrades — a first-of-its-kind report released in early December showed cargo handled at Port of Detroit marine terminals and related industries generated $6.4 billion in annual economic activity — are designed to generate added revenue in the state.
That’s music to the ears of Scott Williamson, president of Rugged Liner Inc. in Owosso, near Lansing. Less than two years ago, the company didn’t know the first thing about exporting. Now it sells aftermarket pickup truck bed liners and bed covers in 37 foreign countries.
The export business is so good, Rugged Liner opened a 200,000-square-foot plant in early 2011 to keep up with demand. “We found a brand-new global customer base that has unlimited potential,” Williamson says.
Fueling the demand is a concerted push by public leaders to boost exports. In his 2010 State of the Union address, President Obama said the U.S. should strive to double its exports by 2015 — which would generate an estimated 2 million jobs. He later signed an executive order that created the National Export Initiative, a program designed to remove trade barriers and help small businesses enter export markets.
Michigan economic development officials might say the president’s initiative was too small. They’ve come up with a plan to nearly double Michigan’s exports in four years — 15 percent in the first year, and 20 percent for each of the subsequent years.
The focus on exports makes sense, given the economic challenges and the fact that 96 percent of the world’s consumers live outside the U.S. (and hold two-thirds of the world’s purchasing power).
Richard Corson, director of the U.S. Department of Commerce’s Export Assistance Center in Pontiac, says private companies and public entities are “reacting and adjusting to the difficult economic environment, and looking for new opportunities in other countries that maybe they hadn’t thought about when the economic situation was better.”
One of those companies, NuStep Inc. in Ann Arbor, took the plunge and has opened new markets overseas for its high-end cross-trainer exercise machines. In 2009, Dick Sarns, NuStep’s CEO, hired Elena Stegemann to lead the firm into the export business.
It worked. NuStep now exports its machines to 25 countries. “This is all business we didn’t have before,” Stegemann says. “What’s nice about international business is when we get orders from different countries, it’s typically not one or two machines. They end up buying from us in containers.”
Stegemann says the Export Assistance Center and its affiliated East Michigan District Export Council in Pontiac, an organization of volunteers who have a particular expertise in exporting, proved to be beneficial as NuStep began researching foreign markets.
Meanwhile, funding assistance is available to export-minded companies with fewer than 500 employees through an incentive program offered by Michigan Economic Development Corp., a quasi-public economic agency. Partners include the U.S. Department of Commerce, the Small Business Administration, the Michigan Department of Agriculture and Rural Development, and the Michigan Small Business Technology and Development Center, among others.
Funding comes from a $1.5 million grant from the federal government’s State Trade Export Promotion (STEP) program, along with a $1 million matching grant from Michigan. The federal government set aside $12 million in STEP funds for the nation’s top 10 exporting states; Michigan ranked seventh nationally in exports at the end of 2010.
Deanna Richeson, MEDC’s export project director, says the consortium’s aggressive export plan, launched in October, will provide direct reimbursements to qualified companies with less than 500 employees for export-related activities, ranging from free or low-cost export training and technical counseling to participation fees for international trade missions. The program’s goal is to increase Michigan’s export sales, increase the number of companies that export, and introduce current exporters to new foreign markets and buyers.
Still, selling goods and services in foreign markets poses challenges — including legal and currency risks, which impact margins. “To the extent we can work with bank partners and other agencies to defray some of these costs, we think we will make more export projects economical,” Richeson says. “That’s what we’re in the business of doing.”
Terry Kalley, who chairs the East Michigan District Export Council and is director of Nova Shipping in West Bloomfield, says that roughly 50 percent of the recent economic growth in the U.S. resulted from exports. “You have a situation where the rest of the world is growing a lot quicker than we are,” Kalley says.
Michigan exported $44.8 billion in goods and services in 2010, up $12.1 billion from 2009. While there’s plenty of reason for future optimism, Alan Deardorff, the John W. Sweetland Professor of International Economics at the University of Michigan in Ann Arbor, remains cautious. The recent increase in exports, he notes, is a function of timing and the current value of the dollar.
President Obama made his bold “double-our-exports” statement at a time when exports were at a “remarkable low,” along with the overall economy. “They were bound to grow quite a bit,” Deardorff says.
There’s reason for pessimism on the state level, too. Ten years ago, Michigan was the nation’s fourth-largest exporter, both in terms of dollars and in the percentage of the size of the economy. But in early 2005, the state began to slide to the lower end of the top 10 exporting states. It showed “something was going on. … We were in a recession; the rest of the country wasn’t,” Deardorff says. “What has hurt our ability in recent years is our labor market, which is more unionized than other states — (and that) means our labor costs are higher.”
The weak dollar is currently offsetting the imbalance, but wages are going to remain a problem in Michigan, he adds.
And when the dollar has gone up, the state has been really hurt. In the first half of the 1980s, the dollar rose dramatically — 50 percent, on average, versus other currencies, which devastated manufacturing in the Midwest and Michigan.
Doug Mack, CEO of Diamond Moba Americas in Farmington Hills, which manufactures machines that help process eggs and egg products, sees Michigan in a different light. While acknowledging that wages are relatively high here, he adds Michigan has a strong foundation for innovation.
That’s due, in part, to the auto industry, which Mack believes led to a concentration of technical talent and a supply chain that makes Michigan extremely attractive. “Global markets value our brains as much or more than our goods,” Mack says.
To make his point, he cites the success of selling sophisticated pumps to a client in Columbia, South America. Diamond Moba made the sale not because it was the only company that could provide the hardware, but because it also was able to sell the process engineering knowledge that went along with the pumps.
Meanwhile, Stegemann says NuStep’s proximity to Detroit was a plus. “We are a manufacturer, and we’re relying on that wonderful manufacturing expertise in the Detroit area, that fantastic know-how,” she says.
In the same vein, Yannick Greiner, Rugged Liner’s international sales director, says that “Made in the USA” plays well abroad these days. “American products around the world — but especially in specific markets like the Middle East — are viewed as high-quality, high-reliability (products),” he says. “They have this cachet. That’s a big advantage.”
When Rugged Liner produces a bed liner or bed cover for the Middle East, it makes sure the “Made in the USA” label is obvious to all.
Jeannie Bolt, marketing director at Sebright Products Inc., based in Hopkins, south of Grand Rapids, tells a different story of the state’s technical prowess. The company sold a steady stream of extruders — machines that de-water the waste stream that comes from pulp and paper plants — in China.
Sales lagged for a while until Sebright learned that a company in China had been trying to duplicate its machines, essentially ignoring the (U.S.) patents in an effort to save money. The only problem: A duplicate, Chinese-made machine exploded.
“It’s a very technical process and not easy to duplicate, so they ended up coming back to us and haven’t tried to duplicate it since,” Bolt says. The company’s overall export business accounts for 10 percent of its annual sales, and China remains Sebright’s largest export market.
Michigan also excels at exporting services, Corson says, including expertise from law, accounting, architectural, and engineering firms as well as myriad consulting and educational institutions.
Then there’s the state’s agricultural industry. Michigan is second in the nation in agricultural diversity, producing more than 200 commodities and exporting a third of its overall annual yield, according to the Michigan Department of Agriculture and Rural Development. Agriculture products generate $1.6 billion in annual exports, which supports more than 12,000 jobs.
Still, Greiner — who travels to trade shows around the world to market and sell bed liners — says the United States has been slow to realize the value of exporting for reasons both cultural and political.
“Our education system doesn’t educate our kids to function globally,” he says. “European countries have to export to survive.”
He also believes the government should do more to help exporters. “We are not playing on a level playing field. We’re trying to score the goal uphill. Other countries have more trade agreements and government subsidies.”
Opening new markets will naturally lead to export growth. Leon C. Richardson, president of Chemico Mays, a chemical management service provider in Southfield, is looking to double the company’s exports in the next two years. The firm, which recently received a broker’s license to export to Mexico, produces chemical products, nonhazardous paint booth maintenance materials, and cleaning solutions. It also exports its products to China, Spain, Great Britain, Germany, France, and northern Africa.
“You really need to understand the regulatory restrictions or impediments in the different regions you’re trying to work in,” Richardson says. “It can be much more difficult to ship goods abroad than around the United States. You really have to do your homework and work with your chamber and export agencies to streamline the process.”
To capitalize on increased trade opportunities, companies such as Diamond Moba, which has been exporting for more than 50 years, have gotten pretty sophisticated. Diamond Moba, for instance, doesn’t just respond to orders overseas — in some cases, it actually creates demand.
Russia grows a lot of grain, a commodity for which market prices ebb and flow. But protein in the form of eggs and egg products has a higher value added and a more consistent, higher price than grain.
As a result, Diamond Moba encouraged Russian farmers to build chicken coops, then buy and use the company’s products to process the eggs into powder and sell it in countries like Dubai and Qatar, where there are no eggs. “We can create and configure markets in other places in the world,” Mack says.
No matter how a company approaches foreign markets, or how sophisticated the operation, Greiner says businesses should make the effort. He also is encouraged that the state is improving its transportation network. “I see myself as a cheerleader for exports,” he says. “I know how much it can bring to Michigan. Some companies think it’s too complicated. I would say, ‘Just jump in the water. Do it.’ ” db