ERROR
Main Error Mesage Here
More detailed message would go here to provide context for the user and how to proceed
ERROR
Main Error Mesage Here
More detailed message would go here to provide context for the user and how to proceed
search
Close Nav

The Supply-Chain Empire

back to top
from the magazine

The Supply-Chain Empire

Once an industrial powerhouse, Pennsylvania’s Lehigh Valley has evolved to become the Northeast’s logistics hub. Winter 2022
Economy, finance, and budgets

Driving east on Pennsylvania’s I-78, bound for the highway’s terminus at lower Manhattan’s Holland Tunnel, you’ll pass miles of vast farmland, spot billboards for God and sheepskin coats, and behold the constant presence of Blue Mountain, an Appalachian ridge. As you advance toward Allentown, trucks soon outnumber cars, and then, as you motor closer to the state’s third-largest city, warehouses dominate a fading landscape of cornfields. This is the Lehigh Valley, a sprawling region that once nourished colonial America, fueled the nation’s industrial rise, and shaped its urban skylines. Today, thanks in part to its serendipitous location and enterprising local leadership, the Valley has become a global hub for the logistics and warehousing industry.

In an age when algorithms feed consumer demands, the Lehigh Valley has become the East Coast’s supply-chain empire for transporting one-click goods on interstate highways. Covering 726 square miles of suburbs and rural townships in Lehigh and Northampton Counties—centered on the cities of Allentown, Bethlehem, and Easton—the Valley adjoins metro New York and Philadelphia and stands within one truck shift of 100 million people. As e-commerce expanded over the past decade—and then accelerated dramatically amid the pandemic—the Valley transformed into prime territory for retailers like Amazon and Walmart but also for third-party logistics: the outsourced assembly and storage of companies’ products in warehouses, often called “fulfillment” centers, and their distribution through freight services.

Warehousing growth has played a crucial role in the region’s booming economy, thanks to its close proximity to New York City’s massive base of online shoppers, the limited supply of land in neighboring New Jersey, and a favorable business climate, compared with other parts of the Northeast. The Lehigh Valley Planning Commission says that the region “is on pace to see a nearly 50 percent increase in total warehouse square footage, just since 2015, and there’s no indication the trend will end anytime soon.” As the commission found, between 2015 and mid-2021, Valley municipalities have approved nearly 29 million square feet of new warehousing, with an additional 13 million pending approval. In 2017, commercial real-estate firm CBRE reported, the Valley ranked second globally, behind Seattle, “for growth in prime industrial and logistics rents.”

All this has meant new jobs and tax revenue for the region’s municipalities, which in 2019 hit a record $43.3 billion GDP, outranking the economies of Wyoming, Vermont, and Alaska. But to many Valley residents, warehouses have reached a saturation point, threatening to overwhelm the already-fading agricultural community and residents’ quality of life. These are enduring tensions. Residents—some with roots here dating back centuries—have long struggled to preserve a rich heritage amid transforming economic realities. Even before warehouses, the Valley had become a setting for outside investment, demographic change, and development. “Every phase of the Lehigh Valley’s economic development created something we have to deal with and then we moved on,” said Bill Wolf, a CBRE executive vice president. The Valley owes its success to the foresight of leaders who have repeatedly adapted to such challenges. During a time of profound economic uncertainty, the Lehigh Valley explodes typical perceptions about the Rust Belt.

It’s impossible to understand American industrial history without the Lehigh Valley. Its capacity to make and transport goods dates to early colonial days, when Moravians—a Czech Protestant sect—established a religious community and called it Bethlehem. It was there, near the Lehigh River, that Moravians founded what is considered America’s first industrial park—buildings that still stand along the Monocacy Creek. For decades, they worked as tradesmen and craftsmen in a communal economy.

In the early nineteenth century, the discovery of anthracite coal in the mountains northwest of the Valley—once known as “Saint Anthony’s Wilderness”—sparked entrepreneurial efforts that forever altered the region’s developmental course. First, nearby Mauch Chunk’s Lehigh Coal & Navigation Company (LC&N)—one of America’s earliest vertically integrated companies, established by innovative Philadelphians in the 1820s—discovered how to burn anthracite properly and built a canal system, which transported coal from mountainous outposts like Hazleton and then through the Valley and onward to Philadelphia. Then, in the 1850s, a Mauch Chunk–based entrepreneur named Asa Packer “sunk his entire personal fortune into building” what became the Lehigh Valley Railroad, as Burton Folsom writes in Urban Capitalists. By the Civil War era, the 161-mile rail network, which included a line from Mauch Chunk to Easton, “carried more than twice the coal and freight of its competitor, the LC&N.”

Bisected by the Lehigh River, the Valley became a center for the transport of anthracite coal in the nineteenth century. (THE READING ROOM/ALAMY STOCK PHOTO)

Throughout the nineteenth century, outsiders continued to invest in the Valley. The presence of iron-ore deposits around Allentown—combined with its proximity to the coal region—led to the world’s first anthracite iron furnace, in nearby Catasauqua. But local leaders, especially Allentown’s German Lutherans, wanted to preserve their agricultural setting. When David Thomas, who built the iron furnace, proposed a local railroad, “Allentown politicians objected,” fearing that it “would damage the farms of the Lehigh Valley,” recounts Folsom. Instead, regional Protestant leaders invested in churches and colleges, such as Allentown’s Muhlenberg, Bethlehem’s Moravian, and Easton’s Lafayette. Overall, the cultural mood reflected the region’s predominant group: the Pennsylvania Dutch, described by one historian as “the most conservative people in America.”

Ironically, it was the Moravians—the region’s most insular group—who assured the Valley’s long-term industrial development. In the mid-1840s, Bethlehem’s Moravian leaders made the fateful decision to permit non-Moravian land purchases. This led to development on farmland south of the old Moravian commune.

Over time, South Bethlehem, just across the Lehigh River, became an industrial empire. By the Civil War, Asa Packer and fellow members of Mauch Chunk’s elite had decamped for South Bethlehem, which became the railroad’s headquarters. During this period, Packer established Lehigh University, an engineering school, and an iron company began rolling iron rails for the railroad. By the early twentieth century, that iron company was known as Bethlehem Steel, its massive mills drawing European immigrants to the city’s South Side. Before World War II, Bethlehem Steel came to define the Lehigh Valley, where riverside mills produced the beams that constructed revered architectural landmarks in Manhattan and throughout America; during the war, the firm, employing more than 30,000, armed the nation’s military and produced its steel ships.

After the war, though, Valley leaders “started wondering what would happen if Bethlehem Steel somehow went away,” reported the Morning Call, a local newspaper. Following a series of steelworker strikes—including one lasting 116 days in 1959—local business leaders embarked on an economic-development initiative to establish the region’s first modern industrial park. The establishment of Lehigh Valley Industrial Park (LVIP), a private, nonprofit economic- development organization, helped pave the way for the region’s economic future. Today, LVIP counts seven industrial parks, which have attracted more than 500 companies—with 24,000 jobs—and $1.2 billion in private investment since 1959. “Imagine if LVIP hadn’t gotten things started,” one land developer told the Morning Call. “We would have been a two- or three-horse town, and if those horses died or left town, imagine where would we be.”

Instead, the Valley embraced regional coordination, foresight—and entrepreneurship. As sociologist Sean Safford writes in Why the Garden Club Couldn’t Save Youngstown, the Valley’s “economic resilience owes much to the fact that the social structure of its civic interactions connected key constituencies who needed to cooperate in the face of the region’s crisis” of deindustrialization. In the 1970s, for example, the Lehigh County Authority built a wastewater pretreatment plant near Route 100 in Upper Macungie. The plant turned that area into an economic hub for beverage companies, from Schaefer Brewery to Kraft Foods, which could treat its industrial wastewater at the facility.

Then, in 1983, Pennsylvania governor Dick Thornburgh created Ben Franklin Technology Partners, a state-funded economic-development program that invests in startups and emerging manufacturers. The program’s incubator opened in Bethlehem Steel’s former research facilities, which stand on the mountain above Lehigh University’s main campus. Over the years, Ben Franklin has vetted its prospective clients to connect them with private investors. As a 2018 Pennsylvania Economy League report notes, between 2012 and 2016, Ben Franklin “helped to create 11,407 high-paying jobs, generated $386 million in tax receipts for the state, and boosted the commonwealth’s overall economy by $4.1 billion.” Among Ben Franklin’s success stories are OraSure Technologies, a manufacturer of medical diagnostic kits, which last year announced a multimillion-dollar expansion.

“E-commerce and the decline of old-fashioned retail solidified the Valley’s new position as a warehousing hub.”

After Bethlehem Steel closed its flagship plant in 1995, the Valley’s leaders again adapted. That year, the Lehigh Valley Partnership—a regional business group created in 1985 to promote economic growth—played the pivotal role in forming the Lehigh Valley Economic Development Corporation (LVEDC), a private nonprofit that merged business retention and attraction efforts among the Valley’s three cities and 62 municipalities.

The Valley’s embrace of regional coordination—including LVIP and LVEDC—proved economically crucial. This was particularly evident in 2001, when, just months before it filed for bankruptcy, Bethlehem Steel contacted LVIP about acquiring the company’s massive site— accounting for nearly 20 percent of the city of Bethlehem’s land. The subsequent development of LVIP VII, the South Side industrial park, a public-private partnership, “quietly and single-handedly saved the city from the brink of financial ruin,” reported the Morning Call.

LVIP VII was a massive undertaking that spurred private investment through tax incentives, a county economic-development grant, and, collectively, $15 million in state grants, and loans (fully repaid by LVIP in 2017) for the brownfield, which required massive infrastructure and environmental-remediation work. According to LehighValleyLive, a tax abatement “has spurred $193 million of investment and brings in $9.4 million in annual tax revenue for the city.” Overall, state and local economic-development efforts in Bethlehem’s LVIP VII led to $530 million in private investment. Today, LVIP VII counts 32 employers—including QVC and United States Cold Storage—and more than 4,200 employees on 1,000 acres. Nearby, an arts-and-culture district called SteelStacks, along with a casino, operates alongside Bethlehem Steel’s former blast furnaces—part of the nation’s largest revitalized brownfield.

By the mid-2000s, the Valley stood in a secure economic position. Even Allentown, though struggling, remained a sizable employment base for regional universities’ graduates, who could work at Fortune 500 companies such as Air Products and PPL Corporation. The Valley’s major health-care providers—Lehigh Valley Health Network and Saint Luke’s—began a dramatic expansion. The rise of e-commerce, accelerating the decline of old-fashioned retail, solidified the Valley’s new position as a warehousing hub.

By the time the Great Recession hit, the demand for next-day delivery had made the Valley an ideal location to distribute goods throughout the East Coast. In 2007, says CBRE’s Wolf, the Valley already boasted an inventory of 35 million square feet of warehousing and industrial space. The growing third-party logistics sector benefited the Valley’s economy, fueling construction work, job creation, increased property values, and municipal tax revenues. As LVEDC president and CEO Don Cunningham told the Morning Call, “The growth of this sector really bridged the gap during the recession.”

When Hurricane Sandy devastated New York City in 2012, paralyzing the metro region’s supply chains, the Valley again distinguished itself as the logistical setting to distribute goods to the eastern seaboard’s consumers. Even more multimillion-square-foot warehouses sprouted throughout the region, including the Route 33 corridor, becoming ubiquitous sites in otherwise rural and suburban settings. By the time of the Covid-19 crisis, Amazon had opened three fulfillment centers, UPS had constructed a massive facility, and FedEx had completed a ground hub, its largest.

As of late 2020, LVEDC reports, the region ranked among the nation’s “top 5 markets for industrial space under construction as a percentage of total industrial space.” By the second quarter of 2021, as CBRE found, the I-78/I-81 corridor had “the highest quarter on record” for occupancy gains in industrial space. Just this April, a New York real-estate group set a local record when it sold a warehouse—leased to a third-party logistics provider for Apple—for $201.5 million. “Industrial real estate in the Lehigh Valley is becoming like the new Bitcoin,” Cunningham remarked.

None of the Valley’s real-estate demand or economic growth, though, would be possible without favorable business conditions—especially compared with other northeastern states, such as New Jersey—or the economic-development efforts of groups like LVEDC, a marketing force and conduit for business investment. Take the example of D. Gillette Industrial Services (DGI), a military equipment manufacturer that announced its acquisition of a Valley distribution center in August. The company’s job-creating relocation is partly financed by a ten-year, low-interest state loan secured through LVEDC. Praising the work of the Valley’s economic-development entities, DGI’s president told LehighValleyLive, “I live in New Jersey, and I considered moving my business there, but between . . . LVEDC . . . the county, the governor’s team, and Ben Franklin Technology Partners, they all made my decision very easy to stay in Pennsylvania and grow my business here.” In Allentown, a special taxing district has generated more than $1 billion in new and planned downtown development since its creation by the state in 2009. The only district of its kind in Pennsylvania, Allentown’s Neighborhood Improvement Zone has encouraged development in the city’s downtown and riverfront through its tax incentive.

Though the warehousing frenzy has created more than 30,000 jobs in distribution and logistics—more than 11 percent of the region’s residents work in the sector—local residents question the economic benefits. Elected officials, moreover, are assessing the economic costs in formerly rural townships, such as Lower Macungie. “If a warehouse employs 100 people but eats up 100 acres of farmland, the Valley economy only nets one job per acre of precious land lost,” says Ron Beitler, a former Lower Macungie commissioner who was elected Lehigh County commissioner in November. In Beitler’s view, “taxpayers remain on the hook for agreements made by prior [commissioner] boards to build new infrastructure to support these warehouses.” But as Lower Macungie farmer Mark Lichtenwalner wrote in the Morning Call, “farm profits can no longer pay for land.” For decades, farmland has disappeared in many parts of the Valley, but there is a cost to this lost open space. Warehousing development doesn’t necessarily pay for taxpayer-funded municipal services—tax abatements, for example, can possibly delay necessary revenue for qualifying Valley municipalities. “When development expands, so does the need and cost for more services,” such as building new infrastructure.

In recent years, though, the warehousing sector has created a bounty of jobs for unskilled workers. As Cunningham told the New York Times, “to be able to make $16 an hour with a high school diploma—there aren’t a lot of places in the U.S. where you can do that.” This past holiday season, amid the global supply-chain crisis, warehouses needed more workers; one logistics company added more than 4,700 seasonal jobs. And during an acute labor shortage, reflective of national trends, many warehouses now offer higher wages, signing bonuses, and other benefits.

The chief objection concerns warehousing overdevelopment. Though Lehigh and Northampton Counties have successfully preserved 42,000 acres of farmland, residents worry about how warehousing disrupts their communities’ quality of life and imperils the region’s agricultural heritage. Warehouses stand across from residential neighborhoods, for example, while trucks clog traffic on two-lane country roads. And, in many instances, developers are constructing industrial properties “on spec,” an economic-development approach to entice tenants. This warehousing, moreover, occurs on “greenfields,” such as farmland. “I guess warehousing will stop when we don’t have any more land to develop,” said planning commission chairman Greg Zebrowski. In recent years, voters in several Valley municipalities have approved an open-space tax to check development. Last November, Republican and Democratic candidates who criticized overdevelopment won down-ballot elections.

In most cases, though, the persistent warehousing development remains beyond the control of residents, or even of local elected officials. According to Pennsylvania’s Municipalities Planning Code, localities must permit all land usage, including industrial development, within their boundaries. In 2019, for example, Allen Township had to approve a large warehousing complex because the municipality’s zoning map permitted it. “The barn door is open. We can’t stop you,” a township supervisor told the warehouse developer, who replied: “Warehouses go where the land is zoned for.”

This year, regional pushback against warehousing development has intensified. Bethlehem-area residents have expressed dismay over proposed warehouses around Dutch Springs, once a limestone quarry that serviced the region’s cement industry but today among America’s largest freshwater scuba-diving facilities. Such examples of warehousing development, or “scavenging for land,” are leading to calls for the state legislature to update zoning laws. As Zebrowski put it, the Dutch Springs proposal “should not even be moving forward, but we do not have the legal authority to do that, and our state legislators need to bring the code up to the century we’re living in.” He added: “We’re not living in the nineteenth century anymore.” In fact, in Lower Macungie, warehousing has maxed out. “We’ve removed warehouses from all areas of the zoning code we were legally allowed to do so,” wrote Beitler, then–township commissioner, in the Morning Call. He criticized past township decisions, when “warehouses were built . . . on prime farmland, more than five miles from interchanges and all requiring new infrastructure.” He concluded: “We’re finished with them.”

As Cunningham views it, the Valley’s “whole logistics, fulfillment, and e-commerce sector . . . certainly creates some challenges in land use and truck traffic,” but he also noted the dominant presence of regional manufacturing. “As the Lehigh Valley has grown as a good region to move products and deliver products and transport them, it’s also been growing as a region to grow products,” he told me. In fact, as LVEDC found this summer, the “majority of both the current projects and future prospects being tracked are from manufacturing companies.” Manufacturing accounts for 16.5 percent of the Valley’s economy—a higher rate than the national share of 12 percent.

This manufacturing growth includes life sciences. Pharmaceutical manufacturer U.S. Specialty Formulations, for instance, is expanding in Allentown as it pursues Covid vaccine innovations. OraSure, which received FDA authorization for a Covid rapid self-test, is also expanding. Both companies started at Ben Franklin, the incubator on Lehigh University’s campus.

The Valley’s manufacturing heritage still makes its presence felt. Last year, Mack Trucks, which first moved to Allentown in 1901, finished an $84 million renovation of its Macungie cab and assembly plant. Air Products has nearly completed its $400 million headquarters. In Upper Macungie, the Route 100 corridor—thanks to the wastewater pretreatment plant—remains a destination for beverage-making manufacturers, including Ocean Spray. And in Hanover Township, refrigerated pet-food maker Freshpet spent $100 million expanding its manufacturing facility. Valley employers still struggle to find workers, but that regional trend preceded the pandemic.

A Walmart fulfillment center in Bethlehem, Pennsylvania (MICHAEL NAGLE/BLOOMBERG/GETTY IMAGES)

For now, the age of warehousing continues in the Lehigh Valley, though scarce space is motivating development projects in the nearby coal region. Still, Valley leaders must plan ahead for the dawn of proposed high-cube warehouses, vertical facilities—some reaching 180 feet tall—that would be highly automated. And, as this past year showed, e-commerce has become only more ingrained in the economy. As CBRE found, due to rising online shopping demands, “suppliers are shifting to larger logistics footprints to accommodate faster order fulfillments and greater inventories to offset supply-chain disruptions.”

This storied region’s latest industrial epoch is also transforming its demographics. Allentown, for example, is now a majority-Hispanic city. Many New York–based workers—facing the realities of remote work and the city’s widespread challenges—are relocating to Valley cities and suburbs. “The Lehigh Valley is becoming waterfront property, so to speak,” says a local professor. Communities like Bethlehem now grapple with a limited supply of housing amid rising demand.

The Valley continues to plan ahead. In Allentown, a massive public-private partnership will develop the city’s Riverside Drive corridor, a three-mile brownfield site that includes an abandoned rail bed. One project includes the redevelopment of a vacant warehouse into “Riverfront Lofts,” which will include apartments and a wholesale distribution center. The developer, Manhattan Building Co. (MBC), plans to relocate from its Jersey City headquarters to the new building.

The waterfront project in Allentown, where downtown-revitalization efforts started a decade before, will unfold alongside the body of water that gave birth to the region. The Lehigh River flowed through this valley long before Moravians made crafts, trains and canal boats transported coal, workers drove to steel mills, and warehouses deployed truck drivers throughout the East Coast. The Lehigh Valley, which long ago fueled America’s industrial revolution, will remain part of the nation’s economic future.

Top Photo: Covering 726 square miles of suburbs and rural townships, the Lehigh Valley stands within one truck shift of 100 million people. (MEDIANEWS GROUP/READING EAGLE/GETTY IMAGES)

Up Next
eye on the news

Twilight of the Blue-Collar Democrat

In New Jersey and Pennsylvania, last week’s election marked the end of a crucial party constituency.
Charles F. McElwee November 11, 2021
Politics and law
Economy, finance, and budgets
Saved!
Close