This document summarizes the key findings of a study on automation readiness in the North American public refrigerated warehouse industry. The study found that the industry is dominated by a small number of large players and faces challenges from regulations and customer demands for efficiency. While automation attitudes are generally positive, cost justification is a major barrier. Automation has the highest potential to provide benefits, and thus be adopted, for new "greenfield" commodity storage and distribution facilities where it can improve storage density, reduce labor costs, and lower energy usage.

1. SOLUTION PROFILE
PRW NORTH AMERICAN
AUTOMATION READINESS
STUDY
By The International Association of
Refrigerated Warehouse and HK Systems

2. BACKGROUND
This PRW Automation Readiness Study was a joint market research initiative
that was conducted by the International Association of Refrigerated
Warehouses (IARW) and HK Systems. For the past year, research information
was collected through interviews with public refrigerated warehouse (PRW)
providers, vendors and firms that service the public refrigerated warehouse
PRW industry as well as media organizations that cover this industry.
Additionally, input was gathered informally during discussions and
presentations at the World Food Logistics Organization (WFLO) Institute,
IARW-WFLO Annual Convention & Expo, IARW North American Chapter
Meetings, Global Cold Chain Alliance Assembly of Committees, and the
International Association for Cold Storage Construction (IACSC) Conference
& Expo.
STUDY OBJECTIVES
The purpose of the study was to clarify what benefits automation can bring
to the PRW cold storage industry and summarize what the PRW industry
needs to ready itself to adopt such solutions. The objectives of this study were
to identify:
• Specific challenges that the PRW industry is facing today and is
anticipating to face in the future.
• Benefits and appeal of automated solutions in addressing these
challenges.
• Types of solutions that would be of interest and value to the PRW
members.
• Profile of PRW members that could most likely benefit from such
solutions.
• Technology adaptation challenges within the PRW market.
MARKET STUDY APPROACH
A multi-phased process was used to conduct this market research study. Key
phases and their objectives were:
• Market Segment Analysis – Focused on identifying key market
segments within the PRW industry and to develop high level
characteristics of each segment.
• Market Segment Profile – Key objective of identifying leading
companies within each segment along with typical operating profile,
industry trends, and general attitude and acceptance towards
automation solutions.
• Technology Analysis – Evaluated automation options in order to
identify market segments and technology solutions with the highest
probability of providing a positive business value.
• Conclusions & Recommendations - Developed conclusions based on
the findings and identified areas that require further analysis.
PRW North American Automation Readiness Study 2

3. COLD CHAIN RESEARCH SCOPE
Based on the 2009 data from US Department of Agriculture, the U.S. Cold
Chain market is comprised of two key sectors: Private and Public with the
public sector providing 76 percent of the U.S. cold storage capacity.
This research study was focused on North America’s cold storage public
sector. The following PRW category definitions from the 2008 IARW
Benchmark Survey Report were adopted for the purposes of this market
research:
• Commodity: Operations with four or fewer inventory turns per year.
This grouping also includes a few warehouses with slightly more
than four inventory turns, but who have identified their operating
space as being used predominantly (75 percent or more) for
commodity storage or production activities.
• Distribution and Import/Export: Operations with more than four
inventory turns per year.
• Production: Warehouses that support product producing operations
with inventory turns are greater than four times per year.
The most appropriate automated solution is generally a function of the
operating profile of the facilities in each category as well as the type of
facility (new vs. expansion) that it is being deployed in. Furthermore, the
type of the contracts (dedicated vs. multi clients) has a major impact on
how automation may be justified at each facility. This study, therefore, was
focused on understanding the operating characteristics of each category.
PRW North American Automation Readiness Study 3

4. NORTH AMERICAN PRW INDUSTRY PROFILE
This graph represents a high level view of the North American public
refrigerated market and is based on the 2009 IARW membership
information. It shows that there are 264 Public Refrigerated members in
North America, 63 percent of which is controlled by the top 10 members.
Furthermore, the top 33 providers control 80 percent of the available
space in North America. The key take away here is that this is a highly
consolidated market where the top 20 members dominate the market and
other providers tend to be smaller regional players with far fewer facilities.
Looking at a top largest IARW members list, based on number of facilities,
shows that the facility count drops dramatically to an average of 1-4
facilities after the Top 20.
PRW North American Automation Readiness Study 4

5. GENERAL TRENDS AND AUTOMATION ATTITUDE
A select group of PRW executives participated in an anonymous survey as
part of this study. Their insights were extremely valuable in understanding
the business potentials for automation and the adaptation challenges and
attitudes that are representative of this market.
General Observations and Trends
• Biggest concerns include:
– Labor regulations (i.e. Card Check)
– Health care costs
– EPA regulations (e.g. Outsourced inspections)
– Food Safety Regulations
– Cap & Trade
• Labor costs and labor availability have been relatively stable and
not an issue to date. However, new regulatory factors may impact
that.
• Customers continue to encourage the PRW providers to apply
technology in order to become more efficient and reduce costs.
• Some customers are also looking at taking their business in-house.
• Overcapacity will continue to impact new construction in North
America.
Automation Attitude
• Almost all PRW members have made heavy investment in their IT
systems/infrastructure
• On average, less than 40% of business is done on contracts
• Many dedicated facilities have 5-10 year contracts, however, typical
contract terms are 3 years and shorter
• ROI justification is the number one hurdle for facilities with short
term contracts
• Time to market (from contract to operational facility) is a barrier to
construction of large scale automated systems
• Automation is not perceived to be flexible enough to address
shifting business needs (spikes in volume, pallet/layer/case mix,
changing load sizes, etc.)
• Less likely to automate existing facilities; will rather invest in a new
facility
• European PRWs more advanced due to high labor costs
PRW North American Automation Readiness Study 5

6. Receptiveness to Building an Automated Facility
Cost justifying automated solutions appears to be a major criteria in
adopting such technologies in the PRW market. In general, PRW members
appear to be conservative in their investment views and look to invest
in automated solutions that have short term payback. The following are
samples of responses from interviews with PRWs.
• “When justified by need and cost efficiency”
• “We recently analyzed this and still can’t justify it”
• “Would love to do it; don’t think we can justify it yet”
• “Very impressed & interested, more at pallet level”
• “Would not have any problem; need dedicated customer we can
depend on”
• “Actively exploring automation solutions”
• “Very receptive”
AUTOMATION BUSINESS CASE
The interview results clearly pointed out that cost justification is one of the
most critical aspects of adopting automated solutions in the PRW market.
The profit & expense aspects of the PRW operations were analyzed in order
to determine how automation could increase profits or decrease costs in a
typical PRW operation. The graphs above are based on the data from the
2008 IARW Productivity & Benchmarking Survey Report.
The left graph outlines the key components of revenue for an average PRW
operation. Storage & handling charges appear to be the main sources of
revenue. The graph on the right outlines the key expense components for an
average PRW operation. Labor and utility expenses followed by equipment
costs appear to be the main sources of expense.
The key take away here is that an automation solution must be able to
improve storage capacity/density; reduce labor costs and reduce energy
costs in order to provide a viable value proposition.
PRW North American Automation Readiness Study 6

7. AUTOMATION BUSINESS CASE AND RANKING
An analysis of the PRW market was performed in order to identify categories
that have the highest potential for a justifiable automated solution.
In general, commodity storage facilities are more “storage centric” and
require less labor than a distribution facility. The top portion of the following
diagram represents the relative ranking of storage & labor content of
commodity, pallet distribution and case distribution operations.
The bottom portion of this figure ranks the potential improvements in
storage density, labor savings and energy savings that an automated system
can offer for each segment, both in an existing facility and in a newly
constructed greenfield facility.
The resulting ranking (1-4) represents the probability of automation having
a positive business impact in each segment. Greenfield facilities (in both
commodity storage and distribution) appear to have the highest potential
leading the ranking as #1 and #2. Automation potential in an existing
distribution and commodity facility are ranked as #3 and #4 respectively.
PRW North American Automation Readiness Study 7

8. GREENFIELD COMMODITY & DISTRIBUTION MARKET
ANALYSIS
This section provides the summary results of the analysis for automation
potentials in North American’s new construction/greenfield market segment
both for distribution and commodity categories.
PRW Capacity Growth Trends
The IARW 2008 Global Cold Storage Capacity Report suggests that the
space offered by the PRW industry in North America has been steadily
increasing while the corresponding number of facilities has been on a
decline.
This analysis provides a number of insights:
1) The number of PRW facilities in North America appear to be flat
to declining.
2) Most of the volumetric growth in North America’s PRW industry
is through expansions and renovations of existing facilities as
opposed to new constructions.
3) There appears to be enough capacity in most markets.
Greenfield Facility
There does not appear to be a good source of data for the number of new
PRW constructions in North America. The 2008 IARW Productivity and
Benchmarking Survey Report was used to approximate this figure.
Based on this report, 23 percent of the North American PRW space was
constructed in the past 10 years. Extrapolating this across approximately
800 PRW facilities in North America, it is estimated that 18 new Public
Refrigerated Warehouse facilities were built each year over the past 10
years. This estimate, combined with the fact that the number of PRW
facilities appear to have reached a plateau, was used to forecast 5-10 new
facilities per year over the next 10 years in North America.
PRW North American Automation Readiness Study 8

9. Greenfield PRW Automation Outlook
The following conclusions were made as related to the North America’s PRW
potentials of automated solutions in greenfield commodity and distribution
operations.
• Market saturation, current economic conditions, and historical
trends suggest that there will be a relatively small new greenfield
construction activity in this market.
• Short term ROI continues to be the key criteria in justifying large
scale capital investments.
• PRW providers are less likely to invest in large scale automated
solutions without the security of a long term contract (no ROI
without guaranteed revenue stream).
• PRW providers that have obtained a long term contract will not have
the luxury of time to construct a high-rise type solution.
• Manufacturers and processors trend of taking the warehousing
function in-house will ultimately force the PRW providers to take a
long term and proactive look at automation investments.
PRW North American Automation Readiness Study 9

10. EXISTING DISTRIBUTION FACILITIES MARKET ANALYSIS
This section provides the summary results of the analysis for automation
potentials in the existing distribution facilities in North America.
Automation Business Case Ranking
A closer look at Automation Business case within existing facilities suggests
that commodity operators will be least likely to adopt automation within
their existing facilities. These operations typically have a dense storage
structure and require little labor due to low inventory turns. As such,
automation will offer little to no value for these operators. The analysis of
automation value proposition in existing facilities was therefore focused on
the distribution category.
Existing Facility - Addressable Market Size
The data from the 2008 IARW Productivity & Benchmarking Survey
Report was used in order to estimate the number of existing distribution
facilitates in North America . This report suggests that 1.3 Billion Cubic
Feet, or 52 percent, of the industries total 2.5B cubic space is allocated
to the distribution category. Extrapolating this results to the number of
facilities, it is estimated that about 416 PRW facilities in North America are
in the distribution category. Of the potential 416 facilities, 15-30 percent
are estimated to have a justifiable ROI for some level of automation that
can be implemented in an existing facility (categorized as “Automate The
Conventional” for the purposes of this report).
PRW North American Automation Readiness Study 10

11. Estimated Target Market
Viable Technology Profiles
The following factors must be considered when selecting “automate the
conventional” technologies:
• Majority of distribution facilities ship some level of mixed SKU
pallets (10-50 percent Volume) and therefore the automated
solution must incorporate integrated case picking options
• Automated solutions must fit within facilities with a typical clear
height of 30-40’; Newer constructions favouring 45’ (38-39’ Max
Product Height)
• Automated technologies should be compatible with typical existing
storage media including:
– Double deep and single selective racking
– VNA racks
– Triple deep pushback & drive-in racks
– Multi-deep moles (4-7 deep)
Examples of Viable Technologies
Unit Load Automated Storage and Retrieval System (AS/RS) and
Automated Guided Vehicles (AGV) are some of the automated
technologies that deal with handling full pallets of product that the
PRW industry is most familiar with today. Tote/case handling AS/
RS systems are also becoming more prevalent for automated case
and each picking applications. Historically, these solutions have been
implemented in greenfield or new construction environments. As these
technologies have evolved, however, there are many variations of
them that are available for implementation in an existing facility.
The following photos depict examples of solutions that can
be implemented in both new and existing facilities.
PRW North American Automation Readiness Study 11

12. Examples of Viable Technologies (continued)
There are literally dozens, if not hundreds, of proven “point-solution”
technologies that offer varying degrees of benefits available in the market
today. The key in selecting a technology is to identify your specific business
and operating requirements and use them as the basis for evaluating the
technical and financial viability of each option.
PRW North American Automation Readiness Study 12

13. Existing PRW Automation Outlook
The following conclusions were made as related to the potentials of
automated solutions in existing distribution facilities:
1. There appears to be a sizeable market for automated solutions that can
be retrofitted into existing facilities
2. There is an educational/awareness gap in respect to the availability of
such solutions
3. Many of these solutions can be implemented with minimal impact to
current operations and provide the operational flexibility that is of prime
importance to the PRW community
4. Variable length leasing alternatives should be considered as an option for
financing such technologies
For more information regarding HK Systems,
its products and/or services, visit our website at
www.hksystems.com or call Jeff Hedges at
1.800.HKSYSTEMS
PRW North American Automation Readiness Study 13