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Macro/Micro Economics & Logistrics Market Trends Impacting Site Selection Ism apics 2014

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Micro & Macro Economics and Industry Trends Impacting the Site Selection Decision. Presented to ISM/APICS dinner meeting 1/10/2014

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Macro/Micro Economics & Logistrics Market Trends Impacting Site Selection Ism apics 2014

  1. 1. Macro & Micro Economic and Industry Trends Impacting the Site Selection Decision January 9, 2014 PREPARED BY: Tim Feemster Managing Principal Foremost Quality Logistics O: 469-554-9873 C: 214-693-7689 tim@feemsters.com @tsfeemster - twitter © Foremost Quality Logistics Confidential
  2. 2. Agenda • • • • Introductory Questions Macro/Micro Economic Trends Profit Leverage Understanding Trends in Global Logistics – Origin Points – Sea Ports – Intermodal & Inland Ports • What are they • Why are they important – Panama Canal – FTZ • Why do You Care- What is the Supply Chain Network Impact for your DC Network – Cost Drivers for Site Location • Q&A Throughout © Foremost Quality Logistics Confidential 2
  3. 3. Questions • How many of you work for – – – – – – – – Manufacturer 3PL Provider/Corporate Logistician/Transportation Provider Consultant Economic Development or Governmental Agency Industrial Brokers or Developer Student or Professor Press Don’t know? • How many of you live within 150 miles of a Port city? • Who has visited a Port or Intermodal Hub? • What are the major challenges to Global Trade today and in the future? © Foremost Quality Logistics Confidential 3
  4. 4. Very Large Internet Delivery © Foremost Quality Logistics Confidential 4
  5. 5. Teamwork- Team projects like those that come down from the BOSS. Who is LEADING, who is not committed, are you on the same page? © Foremost Quality Logistics Confidential 5
  6. 6. Critical Parts Distribution Going to Arlington GMo plant??? © Foremost Quality Logistics Confidential 6
  7. 7. Ultimate in Green Power Source: Tim Feemster © Foremost Quality Logistics Confidential 7
  8. 8. Gross Domestic Product Better outlook in 2014  Growth is back; we are in year 5 of recovery. 6%  GDP hit new peak in 2011-Q2, recovering economic output lost in recession. 4% 2%  But growth remains disappointing by historic standards. 0%  2013 was restrained by sequestermandated spending cuts, payroll tax increases & partial shutdown.  Better outlook this year as tax effects fade, budget deal is passed, European recession winds down, and housing pushes ahead. -2% -4% '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13- '14- '15F F F Historic PNC Wells Fargo Moody's © Foremost Quality Logistics Confidential Source: BEA, Moody’s, PNC, Wells Fargo, NGKF 8
  9. 9. Payroll Job Change, Annual Job Growth Will Stay Moderate Millions  GDP hit new peak in 2011-Q2 but employment still > 1M jobs shy of prior peak. 3 2  Means that businesses have increased productivity (output per hour). 1 0  Businesses hiring and spending cautiously with an eye toward maintaining healthy balance sheets and filling key positions with the “right” hires. -1 -2 -3  Employment likely to hit new peak by mid-year. -4 -5 -6 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13- '14- '15F F F Historic PNC Wells Fargo Moody's  Unemployment remains high overall but demand for skilled, educated workers also is high – mismatch of supply & demand. Source: BEA, Moody’s, PNC, Wells Fargo, NGKF © Foremost Quality Logistics Confidential 9
  10. 10. 10-Year Treasury Yield Interest Rates Will Rise  Fed tapering and stronger growth will push interest rates higher. 6%  But Fed policy will remain easy for two more years, keeping rates low by historic standards. 5% 4%  10-year yield should be around 4-1/2 to 5% in vigorous recovery cycle. 3%  Low rates benefit real estate & other interest-sensitive assets. 2%  Low rates have re-ignited the housing market, supporting consumer spending & demand for distribution centers. 1% 0% '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13- '14- '15F F F Historic PNC Wells Fargo Moody's Source: Federal Reserve, Moody’s, PNC, Wells Fargo, NGKF © Foremost Quality Logistics Confidential 10
  11. 11. December 2013 Manufacturing ISM Report On Business® © Foremost Quality Logistics Confidential 11
  12. 12. Retail Sales US © Foremost Quality Logistics Confidential 12
  13. 13. DFW Industrial Market Vacancy Rates- 2013 Q3 © Foremost Quality Logistics Confidential 13
  14. 14. Cass Freight Index- Shipments/Expenditures- 1990=1.0 © Foremost Quality Logistics Confidential 14
  15. 15. The End-to-End International Supply Chain Manufacturer Data Movement Inland Transportation Head office { Ocean Goods terminal Physical Movement Order processing Physical movement Track & trace Vendor warehouse / import center Retail Distribution Center Store Store Source: Tim Feemster, Foremost Quality Logistics © Foremost Quality Logistics Confidential 15
  16. 16. Relative Cost for Goods Movement International Supply Chain Ship $/Box/Ton Rail $$/Box/Ton Truckload $$$/Truck Less than Truckload $$$$/LB Air $$$$$$/LB Parcel $$$$$/LB Source: Tim Feemster, Foremost Quality Logistics © Foremost Quality Logistics Confidential 16
  17. 17. US Foreign Trade- Value in 2012 (millions) Exports Imports 1 2 3 4 5 6 7 8 9 10 China Canada Mexico Japan Germany Korea, South United Kingdom Saudi Arabia France Ireland $424,874 $323,925 $276,408 $144,538 $105,084 $ 57,874 $ 54,497 $ 52,306 $ 41,099 $ 33,198 18.9 14.4 12.3 6.4 4.7 2.6 2.4 2.3 1.8 1.5 Canada Mexico China Japan United Kingdom Germany Brazil Netherlands Singapore Belgium $ 244,199 $ 175,159 $ 103,508 $ 64,599 $ 48,293 $ 43,676 $ 37,252 $ 35,918 $ 27,013 $ 24,838 Total 15.8 11.3 6.7 4.2 3.1 2.8 2.4 2.3 1.7 1.6 Canada China Mexico Japan Germany $ 424,874 $ 388,524 $ 451,568 $ 209,137 $ 148,759 https://usatrade.census.gov/ © Foremost Quality Logistics Confidential 17
  18. 18. Containerized US Imports- Actual & Forecast Volumes in thousands of TEUs, YOY Percentage Change Source: PIERS/JOC Container Shipping Outlook, March 2013 © Foremost Quality Logistics Confidential 18
  19. 19. Intermodal Traffic Totals 2009-2013 Source: Intermodal Association of North America © Foremost Quality Logistics Confidential 19
  20. 20. Top 10 US Container Trading Partners- 2000 vs 2010 Ranked by 2010 containerized value in billions of dollars Country China Japan Germany Korea, South Taiwan Brazil India United Kingdom Italy France 2003 $120.02 $59.86 $23.64 $20.54 $19.83 $10.82 $7.14 $14.60 $13.69 $10.73 2010 $270.33 $63.80 $36.32 $29.25 $23.65 $18.61 $18.11 $17.62 $15.94 $15.79 Percentage Change 125% 7% 54% 42% 19% 72% 154% 21% 16% 47% SOURCE: U.S. Department of Commerce, U.S. Census Bureau, Foreign Trade Division. USA Trade Online. http://www.usatradeonline.gov/ (accessed September 2011). © Foremost Quality Logistics Confidential 20
  21. 21. China to Surpass U.S. as World's Largest Trader • China has held the title of largest exporter and second-largest importer globally since 2009 • 2013 numbers will show the country now has the world's largest trade value. – China's trade in 2013 is expected to have reached $4.14 trillion – U.S., which saw $3.26 trillion in trade from January to October, is not expected to have hit the more than $880 billion necessary in November and December to exceed China's numbers. – China's year-end trade data is expected in the coming days; U.S. numbers are expected next month. Source: China Daily (Beijing) © Foremost Quality Logistics Confidential 21
  22. 22. The Fortune Global 500 by Location, Number of Companies 271 477 477 476 476 Source: McKinsey © Foremost Quality Logistics Confidential 22
  23. 23. Profit Leverage Discussion • CEO talks to his SVP of Sales and his SVP of Operations & Supply Chain in their annual goals and objectives meetings – CEO tells the SVP of Sales- “I want a 5% increase in sales next year – CEO tells the SVP of Operations & Supply Chain- “I want a 5% reduction in overall costs next year • Who do you think has the better chance of making his happen? • If both are successful, who should get the bigger bonus? Source: Foremost Quality Logistics & UNT © Foremost Quality Logistics Confidential 23
  24. 24. Some Slides Removed for Intellectual Property Control © Foremost Quality Logistics Confidential 24
  25. 25. Seven Trends Affecting Site Selection 1. Growing demand in emerging global markets 2. Rising transportation costs 3. Emerging logistics hubs and the expansion of the Panama Canal 4. Downward pressure on rents have ended and a “flight-to-quality” in industrial real estate 5. Opting for more flexibility with 3PLs 6. Omni-Channel supply Chains to support ecommerce, mcommerce, scommerce 7. Move to CNG/LNG fuels for Trucks, Trains, Ships, and Cars Source: Napolitano, Maida (2009), “Site Selection: 5 Trends for the New Economy,” Logistics Management, Vol. 48, No. 9, pp. 42-47. and Foremost Quality Logistics © Foremost Quality Logistics Confidential 25
  26. 26. The Retail Sales Shift- US Estimates • Within 5 years, the percentage of sales closed at physical stores vs. alternative sales channels (e-commerce, m-commerce and scommerce) will drop from 91% (today) to 76% (Deloitte Study) • By 2025 it has been estimated that e-commerce will represent 30% of all Retail Sales and account from 2.7 trillion in total sales (Source: Dematic) Source: Forrester, Inc. © Foremost Quality Logistics Confidential 26
  27. 27. Percent of Logistics Cost Logistics Cost Breakdown- 2012 70.00% 62.8% 60.00% 50.00% 40.00% 30.00% 22.9% 20.00% 5.9% 10.00% 14.4% 3.9% 3.8% 0.8% Administration Other 0.00% Transportation Inventory Source: CSCMP & Tim Feemster, Foremost Quality Logistics Warehouse Labor est Warehouse Non Labor est Cost Category © Foremost QualityForemostConfidential © Logistics Quality Logistics Confidential 27
  28. 28. Freight, Freight, and Freight, then Labor and Love Inbound Trans 100% 5% Outbound Trans 14% 12% % of Supply Chain Costs 29% 8% 5% 70% 5% 19% 60% 4% Inventory 3% 5% 4% 9% 2% 16% 9% 14% 90% 80% DC Fixed 5% 72% 74% 50% 85% 4% 2% 6% 88% 77% 23% 63% 54% 60% 19% DC Variable 21% 50% 65% 40% 72% 62% 30% 41% 20% 42% 34% 24% 10% 12% 0% High Tech Source: CHAINalytics Regional Retailer Consumer Fulfillment Light CPG Manufacturing Manufacturer © Foremost Quality Logistics Confidential National Retailer Food & Beverage 28
  29. 29. NA Port Volumes- 2012 Final, AAPA 2011vs. 2012 1.7% -0.3% 0.5% 1.7% West Coast 0.7% 8.2% 0.1% East /Gulf Coast 9.8% 3.0% Canada 9.6% 5.1% 2.6% 0.3% 7.3% Source: Foremost Quality Logistics & American Association of Port Authorities 37.6% Down Vs. 2011 Up Vs. 20101 © Foremost Quality Logistics Confidential 29
  30. 30. Port Container Volume Shift- 2006 thru 2012 Source: Foremost Quality Logistics Logistics & American Association of Port Authorities East West Gulf © Foremost Quality Logistics Confidential 30
  31. 31. Population Clusters Projected for 2050 by RPA Source: Regional Plan Association © Foremost Quality Logistics Confidential 31
  32. 32. Potential New Options – Post Panamax Prince Rupert Greatest Competition for Market Share Seattle Nova Scotia New York Oakland Norfolk LA/LB Charleston Savannah Jacksonville Mobile Source: Foremost Quality Logistics Logistics Lazaro Cardenas © Foremost Quality Logistics Confidential 32
  33. 33. Major Port Population/Sales Reach-1 day by truck Source: Tim Feemster, Foremost Quality Logistics © Foremost Quality Logistics Confidential 33
  34. 34. Trends: Thinking Cap or NASCAR Hans Device Prototype © Foremost Quality Logistics Confidential 34
  35. 35. Critical Trend Components STRATEGIC      FINANCIAL Sustainability Ecommerce Foreign Trade Zones Vertical Market Clusters Real Estate Strategy Own/Lease/Build Site Selection Criteria Transportation & Drayage Labor & Healthcare Costs Incentives Deal Structure Lease Renewals Lease Accounting Rules NPV Total Cost Analysis OPERATIONAL INTANGIBLES             Brand Reputation Unionization Paid Benefits Quality of Life Business Climate Source: Foremost Quality Logistics © Foremost Quality Logistics Confidential  Rising Fuel Costs  Driver Hours of Service  Labor Demographics, Aging Workforce, etc.  Energy Costs  Trucking Capacity  Intermodal Access- Int. & Dom. 35
  36. 36. Fuel Impact on Warehouse Network Source: Dr. David Simchi-Levi, MIT © Foremost Quality Logistics Confidential 36
  37. 37. Intermodal Zones of Savings Two Distribution Centers Under Consideration (100,000 sq ft): Site A – Within 5 miles of the hub Site A Hub Site B Site B – 20 miles from the hub Annual inbound intermodal shipments: 2,000 x Difference in drayage costs per unit (A-B): $90 Annual inbound savings when located closer to BNSF Intermodal hub: $180,000 $1.80/sq ft on 100,000 ft © Foremost Quality Logistics Confidential Source: BNSF 37
  38. 38. America’s Natural Gas Highway of LNG Fueling Stations Dan Gilmore of Supply Chain Digest notes that Sales of Natural Gas Trucks in the USA will Rise from 1% of Sales in 2013 to 5% in 2014 Source: ©2013 Copyright Clean Energy Fuels, Founded by T Boone Pickens © Foremost Quality Logistics Confidential 38
  39. 39. FTZ Example 3,000 receipts inbound per yr. MPF $1,455,000 Pre Foreign-Trade Zone Shipments into Site In a single year an FTZ importer can save $ 1,429,780 MPF Fees One entry filed at End of week. MPF $485 or $25,220 per yr. Source: Tim Feemster, Foremost Quality Logistics Assumptions: 1. 3,000 international containers a year into the facility per year 2 Container value $150,000 3 1 BOL per container; $150,000 value per BOL Shipments into commerce with weekly entry. Post Foreign-Trade Zone © Foremost Quality Logistics Confidential 39
  40. 40. Let’s Work Together on This © Foremost Quality Logistics Confidential 40
  41. 41. BNSF Intermodal Routes © Foremost Quality Logistics Confidential 41
  42. 42. UP Intermodal Routes © Foremost Quality Logistics Confidential 42
  43. 43. Norfolk Southern Intermodal Routes © Foremost Quality Logistics Confidential 43
  44. 44. CSX Intermodal Routes © Foremost Quality Logistics Confidential 44
  45. 45. CSX Intermodal Conversion One CSX Intermodal train equals 280 trucks off of the road. © Foremost Quality Logistics Confidential Source: CSX & FQL Logistics 45
  46. 46. Why do We Care about Inland Ports As Economic/Real Estate Development, Distribution, and Real Estate professionals, understanding the Global Supply Chain is “fun” but we need to know Where does the container come to rest – Local destinationat or near the Port – Non-local destinationvia rail or truck to the inland Port This is where vertical happens- at the end of the “land bridge” Source: Tim Feemster, Foremost Quality Logistics © Foremost Quality Logistics Confidential 46
  47. 47. Inland Port ? © Foremost Quality Logistics Confidential 47
  48. 48. US Population- W 23%; E 77%; Top DC Markets 23% 77% Kansas City 2009 Population Population Percent Pacific 58,684,030 19% Mountain 12,884,051 4% East Texas/Great Plains 43,539,381 14% 77% Great Lakes/Ohio Valley 56,080,995 18% Mid-Atlantic/Northeast 64,287,713 21% West Southeast 71,530,380 23% 23% US 307,006,550 © Foremost Quality Logistics Confidential Source: US Census, FQL, NGKF, & PPR 48
  49. 49. Top Five Markets in the US Source: Tim Feemster, Foremost Quality Logistics © Foremost Quality Logistics Confidential 49
  50. 50. Start With Supply Chain Strategy to Get Leverage Source: Gartner / AMR Research © Foremost Quality Logistics Confidential 50
  51. 51. Location Screening for Industrial/Manufacturing Let the data lead us. Identify locations by looking at everything at the start instead of artificially starting with a set of predefined “preferred” or “best-in-class” areas. First Pass: Fatal Flaws Screen out locations with fatal flaws e.g. Locations with insufficient connectivity or high logistics cost. Quantitative Analysis And Desktop Research Identify All Site Selection Criteria Second Pass: Major Flaws Rule out Locations with major flaws e.g. Locations with key attributes but inadequate infrastructure like no intermodal, international airport or seaport access. Third Pass: Manageable Flaws Consider Locations that meet all critical criteria but have manageable issues – flaws that can be remedied or mitigated through negotiations with government officials Preferred and back-up Locations (1-2) Site Due Diligence, Qualitative Data Gathering, and Cost Modeling Short List of Preferred Locations and Sites Source: Tim Feemster, Foremost Quality Logistics © Foremost Quality Logistics Confidential 51
  52. 52. What about Site Selection & Using a Professional • Site selection is both an art and a science, best handled by professionals • Almost all companies are risk averse • Most company employees have never moved a site in their existing company or even their entire career • I have done over 100 start-ups in my career, most site selectors have not done that many • Many site selection companies have specialties- incentives, taxes, data centers, etc. but don’t team with others • You may know more about a subject than the site selection company. Use this to your advantage? • Incentives rarely make a bad location a good one, be careful • We are site eliminators, not selectors Source: Tim Feemster, Foremost Quality Logistics © Foremost Quality Logistics Confidential 52
  53. 53. We Track ALL Shipments & Yes, We Know EXACTLY Where Yours Is! © Foremost Quality Logistics Confidential 53
  54. 54. Some Slides Removed for Intellectual Property Control © Foremost Quality Logistics Confidential 54
  55. 55. Soon, I am going to be up to my neck in ALLIGATORS - Questions? You are welcome to utilize material from this presentation but please retain the source acknowledgements. © Foremost Quality Logistics Confidential 55

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