How Do You Stack Up Against Your
Competition For Landing Industrial
and Manufacturing Deals?
October 10, 2013
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
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Agenda
• Introductory Questions
• Understanding Trends in Global Logistics
– Origin Points
– Sea Ports
– Intermodal & Inland Ports
• What are they
• Why are they important
• Why do You Care- What is the Supply Chain Network Impact
for a Large Warehouse/Manufacturing Property
– Cost Drivers for Site Location- Users
– What is reverse site selection- EDCs/Owners
• Q&A throughout
© Foremost Quality Logistics Confidential
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Questions
• How many of you make your living in
–
–
–
–
–
–
–
–
Economic Development- City/County/State
Economic Development- Utility
Real Estate Development/Brokerage- Building stuff/Buy/Sell/Lease
Supply Chain Industry- Trucking/Warehousing/Consulting/3PL
Manufacturer- Make stuff
Student or Professor
Press
Don’t Know
• How many of you have lived 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?
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Teamwork- Team projects like those that come down from the State.
Who is LEADING, who is not committed, are you on the same page?
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The End-to-End International Supply Chain
Manufacturer
Data Movement
Inland Transportation
Head office
{
Ocean Goods terminal
Vendor warehouse /
import center
Physical Movement
Retail
Distribution
Center
Order processing
Physical movement
Track & trace
Store
Store
Source: Foremost Quality Logistics
© Foremost Quality Logistics Confidential
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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: Foremost Quality Logistics
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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%
next year
increase in sales
– 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
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Profit leverage of managing costs
EXAMPLE:
• The bottom line impact of a
5% increase to sales is
substantially reduced by
COGS
• Whereas a 5% reduction in
costs goes right to the
bottom line
Source: Foremost Quality Logistics
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Profit leverage example- Baseline P&L
Baseline P&L
$100 Sales
$100 Net
($95) COGS 95%
$ 5
Profit
Source: Foremost Quality Logistics & UNT
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Profit leverage example- Sales up 5%
Baseline P&L
Sales +5% P&L
$100 Sales
Sales Increase
$100
$ 5
$100 Net
($95) COGS 90%
$105
($99.75)
$ 5
Profit
$5.25
Improvement
$ 0.25
Source: Foremost Quality Logistics & UNT
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Profit leverage example- Sales +5% & Cost -5%
Source: Foremost Quality Logistics & UNT
Baseline P&L
Sales +5% P&L
$100 Sales
$100
($95)
$ 5
Cost -5% P&L
Sales Increase
Net
COGS 95%
Cost Decrease
Profit
$100
$ 5
$105
($99.75)
$5.25
$100
$100
($95)
($ 5)
$ 10
Improvement
$ 0.25
$ 5
Cost leverage results in a much larger return- 20 X
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Profit Leverage- How much is a Nickel worth today?
Source: Foremost Quality Logistics & UNT
If the net profit on each sales $ is 5%, then...
Is Equivalent to a
Sales Increase of
Cost Savings of
$5
$50
$500
$5,000
$50,000
$500,000
$5,000,000
The profit of a Cost reduction of
$.05/sq ft on a 1,000,000 sq ft bldg
$100.00
$1,000.00
$10,000.00
$100,000.00
$1,000,000.00
$10,000,000.00
$100,000,000.00
equals
Sales increase of $1,000,000
for the whole company
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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, now ending
and a “flight-to-quality” in real estate
5. Opting for more flexibility with 3PLs
6. Navigating more stringent financial hurdles
7. ecommerce, mcommerce, scommerce
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 Logistics
© Foremost Quality Logistics Confidential
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Port Container Volume Shift- 2006 thru 2012
Source: Foremost Quality Logistics Logistics & American Association of Port Authorities
East
West
Gulf
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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
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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, NGKF, & PPR
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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
©
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Foremost Quality
Quality Logistics
Logistics Confidential
Confidential
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Freight, Freight, and Freight, then Labor and Love
Inbound Trans
100%
5%
14%
% of Supply Chain Costs
90%
29%
80%
70%
5%
Outbound Trans
19%
60%
4%
DC Fixed
14%
12%
16%
9%
8%
5%
3%
5%
5%
72%
74%
Inventory
4%
9%
2%
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
22
Fuel Impact on Warehouse Network
Source: Dr. David Simchi-Levi, MIT
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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
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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
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Critical Trend Components
STRATEGIC





FINANCIAL
Sustainability
Ecommerce
Foreign Trade Zones
Vertical Market Clusters
Real Estate Strategy Own/Lease/Build







Site
Selection
Criteria
OPERATIONAL
INTANGIBLES





Transportation & Drayage
Labor & Healthcare Costs
Incentives
Deal Structure
Lease Renewals
Lease Accounting Rules
NPV Total Cost Analysis
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.
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Start With Supply Chain Strategy to Get Leverage
Source: Gartner / AMR Research
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Top 15 Company Employment Comparison
NW OH Region- 16,827
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
SE MI Region- 209,423
Sauder-2,267
GM/Power Train – 1,950
Toledo- S Wrangler Plant-1,400
Chrysler Holdings- 1,200
Owens Corning HQ- 1,150
First Solar- 1,100
Toledo Molding & Dye- 1097
Norplas-1,075
Libbey- 1,000
Chrysler Holdings Machining- 920
Owens Illinois HQ- 885
Dana Holdings HQ- 800
Materion Brush- 700
Int. Automotive Components 683
NSG Pilkington – 600
NE IN Region- 29,723
Ford Motor Co.- 39,134
University of Michigan- 28,525
General Motors Corp.- 25,813
Chrysler, LLC- 25,773
U.S. Government- 19,033
Henry Ford Health System- 18,402
Trinity Health- 13,828
Detroit Medical Center- 13,499
Beaumont Hospitals- 12,767
St. John Providence Health
System- 12,649
Parkview Health Systems- 5,395
Lutheran Health Network- 4,667
General Motor- 3,880
Steel Dynamics Inc- 2,254
Lincoln Financial Group- 1,970
BFGoodrich- 1,580
Nucor- 1,550
ITT Exelis- 1,165
BAE Sys Platform Solutions-1,150
Frontier- 1,150
Fleetwood- 1,105
Peyton's Northern (Kroger)-1,017
Vera Bradley- 955
Raytheon Systems Co- 950
Therma-Tru Corp.- 935
Source: Tim Feemster Foremost Quality Logistics
© Foremost Quality Logistics Confidential
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Top 7 Company Employment Comparison- Transportation
NW OH Region- 4,865
SE MI Region- 2,661
NE IN Region- 3,959
1.
UPS – 1,597
Con-way Inc.- 638
Peyton's Northern (Kroger)- 1,017
2.
USPS – 948
Rush Trucking Corp.- 534
Norfolk Southern Corp- 784
3.
Walgreen’s DC– 800
Global Automotive Alliance- 500
Sweetwater Sound- 510
4.
FedEx Ground – 760
Load One Trans & Logistics- 347
Sirva- 500
5.
CSX – 600
United Road Services Inc- 300
Wal-Mart DC- 450
6.
Norfolk Southern – 500
Evans Distribution Systems- 200
Family Dollar Stores- 353
7.
BX Solutions – 200
James Group International- 142
UPS- 345
Source: Tim Feemster Foremost Quality Logistics
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UPS & FedEx Ground Delivery Map- Toledo
Source: FedEx & UPS Ground Maps
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FedEx & UPS Ground Delivery Map- Ft. Wayne
Source: FedEx & UPS Ground Maps
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FedEx Ground Delivery Map- Detroit
Source: FedEx & UPS Ground Maps
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FedEx Ground Delivery Map- Columbus
Source: FedEx & UPS Ground Maps
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FedEx Ground Delivery Map- Indianapolis
Source: FedEx & UPS Ground Maps
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FedEx Ground Delivery Map- Louisville
Source: FedEx & UPS Ground Maps
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FedEx Ground Delivery Map- Gary, IN
Source: FedEx & UPS Ground Maps
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Economic Impact of the Great Lakes – St. Lawrence Seaway System
Source: Martin Associates
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Other Comparisons
Category
NW OH Region
SE MI Region
NE IN Region
Unionized workers
16.9%
17.4%
12.1%
Unionized workers
w/o public & teachers
8.5%
12.7%
11.4%
Highway connections
Excellent
Excellent
Good
Intermodal rail access
Very Good- CSX & NS
Fair
Good- NS
Excellent
Very Good
Fair
Industrial assets
Good
Very Good
Fair
Airport /international access
Good
Excellent
Fair
Unemployment
8.2%
10.2%
7.0%
Excellent
??
??
Seaport access
Access to public financing
Source: Tim Feemster Foremost Quality Logistics
© Foremost Quality Logistics Confidential
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Top 10 Site Selection Criteria- Warehouse/Distribution
1.
2.
3.
4.
Transportation costs – both inbound and outbound
Logistics infrastructure – highways, intermodal, rail, FTZ
Labor costs & availability
Supply Chain interruption risk
5. Business climate- is there love
6. Rent /lease terms/ownership
7. Taxes & incentives
8. Utility rates
9. CAM charges
10. Access to public transportation- BRAC commute distance up
to 40 mi (80+% of workers in study) Source: Tim Feemster Foremost Quality Logistics
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Top 10 Site Selection Criteria- Manufacturing
1.
2.
3.
4.
5.
Labor costs & availability
Transportation costs – both inbound and outbound
Supply Chain interruption risk
Logistics infrastructure – highways, intermodal, rail, FTZ
Utility rates
6. Business climate- is there love
7. Taxes & incentives
8. Rent /lease terms/ownership
9. CAM charges
10. Access to public transportation- BRAC commute distance up
to 40 mi (80+% of workers in study) Source: Tim Feemster Foremost Quality Logistics
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What does the Future Hold?
•
•
•
•
•
•
•
•
•
Mobile social, and e commerce will explode
Transportation & port infrastructures will be more gridlocked
Fuel prices will remain volatile & but on average increasing
Customers will expect faster and more predictable lead times
Global trade activity will grow, but so will its costs, risks, and
complexities
There will be more sources of financial and operational risk
Sustainability initiatives will have greater influence on supply chain
networks, facility construction, and transportation choices
Ageing populations will create labor constraints in Logistics
The rules for lease accounting may change the Rent vs. Buy vs. 3PL
decision in some companies
Source: Tim Feemster Foremost Quality Logistics
© Foremost Quality Logistics Confidential
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Soon, I am going to be up to my neck in ALLIGATORS - Questions?
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