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2013 Global Logistics, Trends and Their Impact on Industrial RE

2013 Global Logistics, Trends and Their Impact on Industrial RE. Prepared By: Curtis D. Spencer, President IMS Worldwide, Inc. IMS Worldwide, Inc. 35 Years of Industry Experience Over 300 FTZ Projects Conducted Applications (New Zones, Expansion, ASF, MBMs, Subzones, etc.) Activations

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2013 Global Logistics, Trends and Their Impact on Industrial RE

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  1. 2013 Global Logistics, Trends and Their Impact on Industrial RE Prepared By: Curtis D. Spencer, President IMS Worldwide, Inc.

  2. IMS Worldwide, Inc. • 35 Years of Industry Experience • Over 300 FTZ Projects Conducted • Applications (New Zones, Expansion, ASF, MBMs, Subzones, etc.) • Activations • Manufacturing Authorizations • Strategic Development and/or Marketing Partner to top REITs, Developers and EDC groups • C-TPAT and Supply Chain Security Audits www.imsw.com Foreign-Trade Zone, Logistics and Supply Chain Consulting

  3. IMSW Overview of National FTZ and Strategic Development Projects 1977-2012 www.imsw.com Foreign-Trade Zone, Logistics and Supply Chain Consulting

  4. Agenda • What is Industrial Real Estate in 2013? • How Trade Impacts Real Estate • Logistics and Transportation Trends • Panama Canal • Shifts in E-commerce Fulfillment Centers • Impact on Industrial Real Estate www.imsw.com Foreign-Trade Zone, Logistics and Supply Chain Consulting www.imsw.com

  5. What is Industrial Real Estate in 2013? • Manufacturing Buildings: The “norm” in 1950-1970, then manufacturing shifted to Mexico, then China in 2001. Now we are seeing it come back to North America • Growth of E-Commerce Fulfillment Centers • Continued demand for cross-dock, transload, distribution and warehousing facilities in growth markets • Export Centers for consolidation of containers and goods www.imsw.com Foreign-Trade Zone, Logistics and Supply Chain Consulting

  6. Top Industrial Real Estate US Markets 4th Quarter 2012 Source: CBRE 4th Quarter 2012 www.imsw.com Foreign-Trade Zone, Logistics and Supply Chain Consulting

  7. How Trade Affects Real Estate www.imsw.com Foreign-Trade Zone, Logistics and Supply Chain Consulting

  8. Trade Impacts Real Estate • Shifts in all industry levels can directly impact the size, shape, type, locations, infrastructure and demand levels for real estate • Manufacturing–Shift of building type: From smoke stack to high-tech and from off-shore, to near-shore • “Retail” now involves Industrial buildings! (E-commerce fulfillment centers, traditional Distribution Centers (DCs), etc.) Transportation (new routes, infrastructure, trends) www.imsw.com Foreign-Trade Zone, Logistics and Supply Chain Consulting

  9. SLIDE FROM 2005, SHOWING THE CONNECTION BETWEEN GDP AND TRADE Notice 2x to 3x Trade Volumes to GDP relationship exists “+ or –” Real Exports to US in TEUs

  10. NOW -- THAT TRUTH IS IN QUESTION! www.imsw.com Foreign-Trade Zone, Logistics and Supply Chain Consulting

  11. www.imsw.com Foreign-Trade Zone, Logistics and Supply Chain Consulting

  12. www.imsw.com Foreign-Trade Zone, Logistics and Supply Chain Consulting

  13. 2012 Total TEU Growth YOY vs. 2011 Source: Individual Port Websites *Estimate based on Nov YTD numbers www.imsw.com Foreign-Trade Zone, Logistics and Supply Chain Consulting

  14. Transportation Trends www.imsw.com Foreign-Trade Zone, Logistics and Supply Chain Consulting www.imsw.com Foreign-Trade Zone, Logistics and Supply Chain Consulting

  15. Panama Canal • Canal operating at capacity today • Limited ship-sizes that can operate, 110 feet wide max, going to 185 feet wide! • Impact on USEC and Gulf Ports • Completion date; Dec 2014, start up Q1 2015 • Main “shift” will not be in West Coast, vs. East Coast, Asia-traffic market share, but in 1 ship carrying 12,000 TEUs vs. 3 ships carrying 3500 TEUs each! www.imsw.com Foreign-Trade Zone, Logistics and Supply Chain Consulting

  16. THE PROBLEM! `

  17. THE FIX – up to 12,000 TEUs

  18. EC Ports Will Grow Because: Increasing Eastern Europe/Indian Trade- Via the Suez. “Watch out for Pirates!” Increasing S. American (Brazil, Chile, etc.) GDP Growth Proximity to Major Markets Small increase in Asia-US trade through Panama and Suez routings www.imsw.com Foreign-Trade Zone, Logistics and Supply Chain Consulting

  19. WC Ports Will Grow Because: Increasing Asian China Trade (GDP lowered to 7% Growth Rate for 2013) Increasing SE Asia Trade, non-China GDP Growth Proximity to quicker/cheaper Intermodal Routings that can penetrate to within 250 miles of East Coast. Small decrease in market share of China-based-US trade through Panama and Suez routings. www.imsw.com Foreign-Trade Zone, Logistics and Supply Chain Consulting

  20. Panama Canal Bottom Line BALANCE – In Market Share after 2014 will be the answer. Approx. 52%-48% today, 50%-50% after 2014. IF- Ocean Carriers re-work pricing after Panama Canal Expansion- lowering prices by 30% for all water, compared to LA/LB + Intermodal, AND the RRs do not drop correspondingly—you could see 10%-20% Market Share drop from WC to EC. Likelihood of this happening? 1 in 10. www.imsw.com Foreign-Trade Zone, Logistics and Supply Chain Consulting

  21. Why are Ports, Inland Ports, and Shipping Costs Important to Ind. RE? • The means, method and pathway that goods flow through the country directly impacts the markets that win and those that miss out. • Port and Inland Port markets that retain or absorb a large amount of the containers that are received have larger industrial real estate demand and opportunities. • Still, the most important location decision is based on demographics(where are the people moving from 2015-2030 and “landed cost”. www.imsw.com Foreign-Trade Zone, Logistics and Supply Chain Consulting

  22. Shanghai to North American Ports: Slow Steaming Effects –2000 & 2013Pricing as of April 2013 $1,200 $3,380 36 36 17 35 $3,300 17 $2,226 34 From China, it takes about 2 weeks to bring cargo to the west coast and about 4 weeks to bring it in on the east coast. (2000) Source: ShipmentLink.com (Evergreen) Sailing Schedules

  23. www.imsw.com Foreign-Trade Zone, Logistics and Supply Chain Consulting

  24. The Future Port Model • Select port gateways will serve near-port and inland portdistribution and manufacturing • One, two or more inland ports supported by truck and rail networks, in state and soon, out of states • Increase the connectivity between ports and inland ports for imports and exports • Support traditional distribution services with E-commerce fulfillment services that operate together from the same facility or separate facilities www.imsw.com Foreign-Trade Zone, Logistics and Supply Chain Consulting

  25. z East Coast-West Coast TEUCost Line Equilibrium- Mar. 2013 Cascadia +38% Equilibrium Line Q1 2013 Atlantic Seaboard +12% Great Lakes Horseshoe +10% Southland +35% I-35 Corridor +40% I-85 Corridor +35% Valley of the Sun +81% Southern Florida +52% Gulf Coast Belt +31% Sources: Population, employment, and real estate growth forecasts by Robert Lang and Arthur Nelson of the Metropolitan Institute at Virginia Tech and Phil Hopkins of Global Insight; Business 2.0, November 2005

  26. New Types of Industrial Real Estate: Export Centers & E-Commerce • Export Centers match up empty-import Containers with Export Loads. • Where? At Inland Ports! • E-commerce fulfillment center (like DC’s) are going to be different, larger, more diverse and in different markets. www.imsw.com Foreign-Trade Zone, Logistics and Supply Chain Consulting

  27. www.imsw.com Foreign-Trade Zone, Logistics and Supply Chain Consulting

  28. Many Areas are Significantly Imbalanced …But This Can Be Addressed Source: JOC Piers 1/30/13 www.imsw.com Foreign-Trade Zone, Logistics and Supply Chain Consulting

  29. Export Center www.imsw.com Foreign-Trade Zone, Logistics and Supply Chain Consulting

  30. Retail Trends www.imsw.com Foreign-Trade Zone, Logistics and Supply Chain Consulting

  31. E-Commerce Fulfillment

  32. Types of E-Commerce • E-Commerce = Electronic Commerce (Computer, Laptop, Desktop) • M-Commerce = Mobile Commerce (Phone, tablets, readers etc.) • S-Commerce = Social Commerce (Derived from Social Networks such as Facebook, Twitter, Groupon, etc. www.imsw.com Foreign-Trade Zone, Logistics and Supply Chain Consulting

  33. Projected Impact of E-Commerce • By 2025 it has been estimated that Ecommerce will represent 30% of all Retail Sales and account from 2.7 trillion in total sales (Source: Dematic) • Within 5 years, the percentage of sales closed at physical stores vs. alternative sales channels (E-Commerce, M-Commerce and S-Commerce) will drop from 91% (today) to 76% (Deloitte Study) www.imsw.com Foreign-Trade Zone, Logistics and Supply Chain Consulting

  34. E-Commerce Impact on Industrial • One-third of all demand for big-box space in the US in 2012 was tied to multi-channel retail or E-Commerce (Area Development Magazine, 2013) • The E-Commerce generation of industrial is up to 5 times more labor intensive than traditional retail/distribution: more parking, mezzanine build-outs and increased automation are some of the features difficult to retrofit to older buildings, but many can be converted. (Area Development Magazine, 2013) www.imsw.com Foreign-Trade Zone, Logistics and Supply Chain Consulting

  35. E-Commerce Key Criteria for Site Selectors • Avoidance of Nexus Tax (may get mitigated, but not yet….) • Proximity to major markets • Inexpensive land • UPS and FedEx Truck Hubs nearby • Ample seasonal/surge labor pool • Reasonable proximity/access to interstates • Local incentives: Tax breaks—FTZ!! www.imsw.com Foreign-Trade Zone, Logistics and Supply Chain Consulting

  36. Bottom Line for Industrial RE? Stay in the Markets where the PEOPLE ARE! Invest where they PEOPLE ARE GOING TO BE! 10 and 20 year Demographics are changing. Northeast did not sustain the “hit” that everyone predicted, because of the Recession. Florida and PHX actually stayed the same from 2008-2010. PHX and HOU fastest growing metros last 12 months. Look for where the demographic trends are likely to emerge in 10 year segments and plan accordingly. www.imsw.com Foreign-Trade Zone, Logistics and Supply Chain Consulting

  37. z Megapolitan Outlook 2010-2030 (Post-Recession) Cascadia +38% SUSTAINS Atlantic Seaboard +12% SUSTAINS Great Lakes Horseshoe +10% SUSTAINS DECLINES Norcal +35% Southland +35% SUSTAINS I-35 Corridor +40% GROWS I-85 Corridor +35% GROWS Valley of the Sun +81% SLOWER RATE OF GROWTH Southern Florida +52% SUSTAINS Gulf Coast Belt +31% GROWS Sources: Population, employment, and real estate growth forecasts by Robert Lang and Arthur Nelson of the Metropolitan Institute at Virginia Tech and Phil Hopkins of Global Insight; Business 2.0, November 2005

  38. Top Domestic Migration States (2001-2010) Source: Census and American Community Survey www.imsw.com Foreign-Trade Zone, Logistics and Supply Chain Consulting

  39. Conclusion: What Does This All Mean to Me? • Recession is over, but growth is slow. • Supply Chains create need for more space. (E-Commerce and export centers) • We are seeing this now in continued consolidation to large “Big Box” DC’s. • New E-Commerce phenomenon will create more demand for Industrial Space. • Incentives (like FTZ, large truck courts etc.) will continue to distinguish Big Boxes. • Never forget…We add 4 Million new mouths to feed each year in the USA! www.imsw.com Foreign-Trade Zone, Logistics and Supply Chain Consulting

  40. QUESTIONS? Prepared By: Curtis D. Spencer, President IMS Worldwide, Inc.

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