Evaluating the strength and potential of logistics clusters

The location of distribution and logistics facilities can play a major role in how successful your overall supply chain is. One factor to consider when choosing where to locate a facility is whether the area is considered a "logistics cluster," or an area with a notable concentration of modern logistics facilities. The thinking is that when there are more distribution centers and logistics organizations in a given area, there is a greater supply of the skills and assets needed to run a successful logistics operation.

The industrial real estate company Prologis recently released a research paper on this phenomenon titled "The Evolution of Logistics Real Estate Clusters." The paper identifies what makes a successful logistics cluster and how to measure their relative strength.

According to Prologis, three factors influence the importance and potential of logistics clusters:

1. Size and growth of the local consumer population
2. The cluster's position and importance along global trade routes
3. The level of supply chain maturity and the availability of modern logistics facilities

The paper pays particular attention to identifying which logistics clusters are developing largely because of their position along global trade routes, as opposed to simply being close to large population centers. To accomplish this, Prologis developed a proprietary index called the Modern Logistics Concentration (MLC). The MLC is a ratio of modern logistics stock (square footage) divided by the number of households with an annual income greater than US $20,000. The MLC indicates where logistics demand is most likely to be driven by global trade patterns as opposed to the local consumer base. In addition, it indicates the level of supply chain maturity in the area. Examples of areas with a high MLC number include central and eastern Pennsylvania in the United States; Reynosa, Mexico; Marseille, France; and Singapore.

The paper also looks at the relative strength of a logistics cluster compared to others in its region based on Prologis' Modern Logistics Quotient (MLQ). This index is determined by dividing the MLC for a logistics cluster by the median MLC for all logistics clusters in the broader region. An MLQ that is greater than 1.20 signifies a very competitive trade-oriented cluster. For example, Southern California's MLQ shows that it has a higher concentration of logistics services than other areas in the United States. This indicates that the logistics services and facilities in Southern California are serving more than just their local area.

Why are these indices important? According to Prologis, they can indicate which logistics clusters will see significant growth in the future and identify development opportunities for supply chain networks, particularly in emerging markets.

The report is available for download here.