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

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

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

2

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?

3

Very Large Internet Delivery


4

Teamwork- Team projects like those that come down from the BOSS.
Who is LEADING, who is not committed, are you on the same page?


5

Critical Parts Distribution Going to Arlington GMo plant???


6

Ultimate in Green Power

Source: Tim Feemster


7

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


Source: BEA, Moody’s, PNC, Wells Fargo, NGKF

8

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


9

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


10

December 2013 Manufacturing ISM Report On Business®


11

Retail Sales US


12

DFW Industrial Market Vacancy Rates- 2013 Q3


13

Cass Freight Index- Shipments/Expenditures- 1990=1.0


14

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


15

Relative Cost for Goods Movement

International Supply Chain

Ship
$/Box/Ton

Rail
$$/Box/Ton

Truckload
$$$/Truck

Less than
Truckload
$$$$/LB

Air
$$$$$$/LB

Parcel
$$$$$/LB



16

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/

17

Containerized US Imports- Actual & Forecast
Volumes in thousands of TEUs, YOY Percentage Change

Source: PIERS/JOC Container Shipping Outlook, March 2013


18

Intermodal Traffic Totals 2009-2013
Source: Intermodal Association of North America


19

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).


20

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)


21

The Fortune Global 500 by Location, Number of Companies

271
477

477

476

476

Source: McKinsey


22

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


23

Some Slides Removed for Intellectual Property Control


24

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


25

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.


26

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

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


National
Retailer

Food &
Beverage

28

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


29

Port Container Volume Shift- 2006 thru 2012
Source: Foremost Quality Logistics Logistics & American Association of Port Authorities

East

West

Gulf


30

Population Clusters Projected for 2050 by RPA

Source: Regional Plan Association


31

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


32

Major Port Population/Sales Reach-1 day by truck



33

Trends: Thinking Cap or NASCAR Hans Device Prototype


34

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


 Rising Fuel Costs
 Driver Hours of Service
 Labor Demographics,
Aging Workforce, etc.
 Energy Costs
 Trucking Capacity
 Intermodal Access- Int. & Dom.

35

Fuel Impact on Warehouse Network

Source: Dr. David Simchi-Levi, MIT


36

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

Source: BNSF
37

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


38

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.


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

39

Let’s Work Together on This


40

BNSF Intermodal Routes


41

UP Intermodal Routes


42

Norfolk Southern Intermodal Routes


43

CSX Intermodal Routes


44

CSX Intermodal Conversion

One CSX Intermodal train equals 280 trucks off of the road.

Source: CSX & FQL Logistics

45

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”


46

Inland Port ?


47

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


Source: US Census, FQL, NGKF, & PPR

48

Top Five Markets in the US



49

Start With Supply Chain Strategy to Get Leverage

Source: Gartner / AMR Research


50

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



51

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



52

We Track ALL Shipments & Yes, We Know EXACTLY Where Yours Is!


53

Some Slides Removed for Intellectual Property Control


54

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.

55

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