The Great Lakes Gateway Project: Detroit—The Manu City

The Great Lakes Gateway Project: Detroit—The Manu City

Jesse D. Sutton

29 March 2012

WSU – ECO 5800–001

 

Introduction

The Great Lakes Global Freight Gateway (GLGFG) Project is an initiative that seeks to transform the Southeastern Michigan and Southwestern Ontario region into a multimodal transshipment hub. This hub will be where goods are moved through the Port of Halifax, loaded on the new Maersk Triple-E container ships, and shipped to worldwide markets. The Port of Halifax is now the only deep-water port that can accommodate these post-panamax container ships. These Triple-E ships can move up to 18,000 containers and, due to the economies of scale, reduce the shipping cost per container; thereby reducing cost to manufactures (GLFGr4, pg. 4). Detroit is currently the best-situated city for repositioning its main economic engine to transcontinental shipping. The location on an international border and the system of rail lines and roadways in the region, are the assets that make this opportunity possible. That is the broad view of the project, but many people want to know a more narrow scope of the project. They want to know the local impact of the project. This essay will address the local angle by illustrating how the decline of the automobile industry has placed this region in a position for revival as a transshipment hub. Also, this essay will illustrate how economic activity from The Great Lakes Global Freight Gateway Project can regenerate local real estate markets.

Development

Shipping goods through Detroit to the Port of Halifax provides the opportunity to use vacated industrial centers by repurposing these facilities for transshipment and manufacturing. Detroit as a transshipment hub provides a distribution system for goods to move to worldwide markets. Many manufacturers have failed due to a lack of an adequate distribution system (UEA12, pg. 65). Distribution and manufacturing goes hand-and-hand. This is the strength of Detroit’s industrial centers. The automobile industry has benefited from these strengths but also contributed to the decline in Midwest manufacturing due to outsourcing. This is one reason Detroit—“The Motor City” has been on a steady decline for more than 50 years, and part of this decline is because of the failure to realize that this is not the “Motor” city. The automobile industry had benefited from the “Motor City” moniker for nearly 100 years. The Great Lakes Global Freight Gateway Project provides an opportunity to convert the assets and resources for the economic benefit of the manufacturing Midwest. The same conversion happened during World War II when “The Motor City” converted to the “Arsenal of Defense” (UEA10, pg. 48). It is now time to convert from Detroit—“The Motor City” to Detroit—“The Manu City.”

Long before Detroit was known for automobile manufacturing, this region was the railroad manufacturing capital of the world (UEA11, pg. 56). The workers that migrated, lived and worked in Detroit more than 150 years ago had skills that they were able to transfer into the automobile industry. As the automobile industry grew, Detroit became known as “The Motor City” however, it was and still is… a manufacturing city. By the 1950s, the automobile industry had emerged from the war economy with a 90% share of the worldwide automotive market (UEA10, pg. 48). General Motors was a dominant force in that market. A group of GM stockholders attempted to create a consolidated voting block by combining their shares. These moves within the company were to leverage generational advantages and transfer wealth and employment opportunities to a few well-connected stockholders (OGM, 0:50/1:10). Unfortunately, this hoarded wealth became worthless because of the GM bankruptcy of 2008 (UEA21, pg. 87).  This is an example of how the automobile industry allowed itself to be cannibalized by its leadership and investors. The Great Lakes Global Freight Gateway Projects seeks to create a mutual benefit from this history of pitfalls by collaborating with private and public stakeholders and bringing manufacturing and transshipment jobs back to the Midwest region.

Rent and transportation cost are the lowest when the real estate being used is at the optimal locations for railhead and expressway access (TC, 0:00/3:45). Detroit’s industrial centers are already at these optimal locations. Containerized goods need to be moved quickly through the shipping process to gain the cost saving advantages of being produced near a multimodal-shipping hub. Detroit—“The Manu City” offers industrial centers that are suitable for manufacturing and transshipment; with access to interstate highways and main line rail service to the Port of Halifax. Detroit’s multimodal industrial centers were once used to move auto parts around the world. This allowed the automobile industry to grow. Conversely, many businesses died due to a lack of a distribution system and the ability to produce goods on economies of scale  (UEA12, pg. 65). The worldwide distribution from the Midwest to markets abroad and the economies of scale of shipping through the Port of Halifax, will allow other manufacturing businesses to grow while keep rent and transportation cost low.

Low rent and low transportation cost are a concern for the 200,000 employees that will be needed to work in these new jobs. This job growth will create a demand for affordable housing (Mc10B, pg. 184). The demand can be met by selling, renting and by real estate development. The good news is that real estate development can be done cheaper in this post mortgage bubble economy. Detroit has lost population to job opportunities elsewhere. The decline in population has left more than 30,000 vacant houses available in the housing market (RPS, pg. 19). These vacant houses have contributed to declining home values (Mc9C, pg. 168). The financial crisis of 2008 has also contributed to a decline in home values. Mortgages that were written for groups of people who could not afford the loans are now in default (UEA8, pg. 38). Deregulation of the banking industry provided for questionable financial instruments to be created (LEC, pg. 3). These financial instruments were bundled with mortgages and traded on the New York Stock Exchange. In 2006, housing prices decreased and many people found that their mortgages were more that the house was worth (Mc9E, pg. 175). Many of these houses went into default or were foreclosed upon. Although many homeowners were financially devastated during this financial crisis, the result is a housing market with affordable home values. This is one reason stakeholders in The Great Lakes Global Freight Gateway Project should feel a sense of urgency to act now. Real estate developers have already made purchases in Midtown and Downtown Detroit. These developers have decided that the risk is worth the investment (Mc13D, pg. 250–253). These development projects are not far from the industrial areas where the job growth is projected. For that reason rent may be higher than in the neighborhoods (Mc10F, pg. 191–192). However, real estate development could take a several years due to the complexity of the various stages in the development process (Mc13B, pg. 245–248).

There are arrays of housing programs to keep home prices affordable (Mc11C, pg. 219). Various economic reasons may not make it feasible for everyone to become a homeowner so rental units need to be available and affordable. Approximately 34% to 45% of all housing are rental units (Mc10E, pg. 188). Rent control policy keeps landlords from inflating rent to unaffordable levels (Mc11F, pg. 228). This mix of freehold and non-freehold housing options are what makes Detroit the right place at the right time for The Great Lakes Global Freight Gateway Project (RET1, 5:25).

As The Great Lakes Global Freight Gateway Project reaches capacity, expansion of commercial real estate as well as expansion of affordable housing will be necessary to accommodate the arrival of new workers to the region. It may even be necessary for residential land to be rezoned for commercial use. The transshipment industry has room for a tremendous amount of growth and the real estate redevelopment process can mature along with it.

Summary / Conclusion

Detroit—“The Motor City,” has been on a decline for more than four decades. Past being prologue, what have we learned? We have learned that Detroit grows as part of a solid manufacturing industry. This has been the case from the early days of the railroad industry and has continued through to today. We have learned that the infrastructure is available to support Detroit as a manufacturing and transshipment hub. We also know that Detroit has a workforce that can support the transshipment industry and when called to do so, Detroit can switch gears and produce the goods that the world needs. The Great Lakes Global Freight Gateway is the Project that can take advantage of the assets that are available to produce sustainable jobs and produce billions of dollars of economic activity in the region. We know that this economic activity will contribute to real estate development and improve housing markets. The decline of this region did not happen overnight and it will not be fixed overnight. However, The Great Lakes Global Freight Gateway is the right project at the right time to revitalize Detroit—“The Manu City.”

 

References

McDonald, J. F., & McMillen, D. P. (2011). Urban Economics and Real Estate: Theory and Policy. (2nd ed., p. 168, 175, 184, 188, 191–192, 219, 228, 245–248, 250–253). Danvers, MA: John Wiley & Sons.

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Sase, J. F. (Producer). (2010). Real Estate Agent test Cram 1. [Web Video]. Retrieved from http://www.youtube.com/user/urbanecondetroit

Sase, J. F. (Producer). (2011). OGM: Legends of Detroit—Old General Motors. [Web Video]. Retrieved from http://www.youtube.com/user/urbanecondetroit

Sase, J. F. (Producer). (2011). TC: Rent+Transportation=Total Cost. [Web Video]. Retrieved from http://www.youtube.com/user/urbanecondetroit

Detroit Office of Foreclosure Prevention and Response, Data Driven Detroit (D3), Community Legal Resources, University of Michigan — Edward Ginsberg Center and Living Cities, eds. Detroit Residential Parcel Survey. Detroit, MI: 2009. (p. 19). Print.

Sase, J. F., and Gerard Senick. Another Mortgage Tsunami? “Let Them Eat Cake” (Part Two). 2010. Print.

Sase, J. F., and Gerard Senick. “Legal News Expert Witness column.” The Great Lakes Freight Gateway: $11 Billion in New Economic Activity and 150,000 New Jobs. November 2011. Print.