2014 Global Logistics Trends and Their Impact on

2014 Global Logistics, Trends, and Their Impact on Industrial RE Prepared By: Curtis D. Spencer, President IMS Worldwide, Inc.

Agenda § § § How Trade Impacts Real Estate Manufacturing Trends Logistics and Transportation Trends Panama Canal Update Shifts in E-commerce Fulfillment Centers Impact on Industrial Real Estate www. imsw. com Foreign Trade Zone, Logistics and Supply Chain Consulting

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

SLIDE FROM 2010, SHOWING THE CONNECTION BETWEEN GDP AND TRADE Notice 2 x to 3 x Trade Volumes to GDP relationship exists “+ or –” Real Exports to U. S. in TEUs

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2013 Total TEU Growth YTD 2013 YTD TEU Volume % Growth over Same Period 2012 TEU Volume LA/LB (Dec) 14, 599, 155 3. 26% 14, 123, 376 NY/NJ (Oct) 4, 611, 969 -0. 9% 5, 529, 211 Savannah (Nov) 2, 798, 699 -5. 7% 2, 966, 221 Oakland (Dec) 2, 346, 528 0. 1% 2, 344, 424 Houston (Nov) 1, 799, 669 2. 1% 1, 922, 479 Hampton Roads (Dec) 2, 223, 532 5. 3% 2, 105, 887 Seattle (Nov) 1, 470, 890 -16. 5% 1, 869, 492 Tacoma (Nov) 1, 717, 303 16. 6% 1, 711, 133 Charleston (Nov) 1, 477, 264 6. 2% 1, 514, 585 Port of Entry Source: Individual Port Websites www. imsw. com Foreign Trade Zone, Logistics and Supply Chain Consulting

Panama Canal § Canal operating at capacity today § Limited ship-sizes that can operate, 110 feet wide max, going to 185 ft wide! § $1. 7 Billion cost override and vendor dispute § G 6 and G 3 Carriers have already rerouted all they will to Suez – New P 3 alliance will shift more freight to Suez § Completion date moving back into mid-late 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

Brand New Panama Canal Locks

Panama Canal Bottom Line § BALANCE – In Asia Import Market Share after 2014 will be the answer. Approx. 52%-48% today, 50%-50% after 2014. § Could be a non-event as many Carriers have already re -positioned routes through the Suez, to utilize larger ships for East Coast and Europe. § Could be some re-routing of pricing and trans-shipping with Panama as Hub, vs. Miami today. § COSTS ARE WHAT MOVES SHIPPERS! § PS The China-Nicaragua canal may be smoke and mirrors!? www. imsw. com Foreign Trade Zone, Logistics and Supply Chain Consulting

Shanghai to North American Ports: Slow Steaming Effects – 2000 & 2014 36 17 35 17 34 Shipment. Link. com (Evergreen) From China, it takes about 2 Source: weeks to bring cargo to the. Sailing west. Schedules coast and about 4 weeks to bring it in on the east coast. (2000) 36

Shanghai to North American Ports: Slow Steaming Effects – 2000 & 2014 Pricing as of January 10, 2014 $1, 200 $3, 217 $800 36 17 17 $1, 866 35 $3, 125 34 Shipment. Link. com Sailing Schedules From China, it takes about 2 Source: weeks to bring cargo(Evergreen) to the west coast and about 4 weeks to bring it in on the east coast. (2000) 36

Manufacturing Grows in the USA § New US-Domestic manufacturing that is made competitive by new resources § Natural Gas-new technologies unlocking new sources of product which provides lower cost feed stocks for plastics-PE and PP specifically but PVC as well, now US is competitive with the worlds producer § New production capacity announced in North America, 9 billion ponds of new production through 2018, some will be on line as early as 2015 § Not all about “re-shoring” but about new industry and manufacturing www. imsw. com Foreign Trade Zone, Logistics and Supply Chain Consulting

U. S. Competitive Position § From 2005 to 2012, US went from being the one of the highest cost producers of ethylene (a plastics building block) to one of the lowest cost globally § $7 billion in new investments in production of thermoplastics resin capacity, these investments will add 25% capacity in production § 40% of US’s increasing production will have to be exported, historically 20% was exported § Shipping these volumes will require new export gateways, new ports and new export lanes and NEW REAL ESTATE!! www. imsw. com Foreign Trade Zone, Logistics and Supply Chain Consulting

Mexico Exports to US have Outperformed Asia Since 2009 www. imsw. com Foreign Trade Zone, Logistics and Supply Chain Consulting

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

Mexico vs. China Wage Rate Since 2003, wages in Mexico have risen only 25 percent compared to 218 percent in China. 2011 -2013 U. S. Dollar WSJ SOURCE: International Labour Organization, U. S. Bureau of Labor Statistics www. imsw. com Foreign Trade Zone, Logistics and Supply Chain Consulting 19

New Types of Industrial Real Estate: Export Centers & E-Commerce § Export Centers match up empty-import Containers with Export Loads. § Where? At Inland Ports! (US Rail. Intermodal Terminals near large population centers) § 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

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

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

E-Commerce Fulfillment

2013 E-Commerce Review • Online spending grew 22% over 2012, for the five days following Thanksgiving to Cyber Monday • Some retailers saw revenue on Thanksgiving Day increase 132% over 2012 • Black Friday saw 74% in revenue per store • Total online transactions up 46% over 2012 holiday season • Cyber Monday consumers spent $2. 29 billion, the biggest sales day in E-commerce history www. imsw. com Foreign Trade Zone, Logistics and Supply Chain Consulting

Originally Projected Online U. S. Retail Sales as a Portion of Total US Retail Sales 2009 -2025 In Billions of 4 000 3 500 3 000 2 500 6% 7% 2009 2010 7% 7% 8% 8% 2011 2012 2013 2014 10% 12% 14% 16% 18% 20% 22% 2015 2016 2017 2018 2019 2020 2021 26% 28% 30% 24% 2022 2023 2024 2025 2 000 1 500 1 000 500 0 Total US Retail Store Sales www. imsw. com Foreign Trade Zone, Logistics and Supply Chain Consulting Total US Online Sales

In Billions Projected Online U. S. Retail Sales as a Portion of Total US Retail Sales Updated 20122025 25% 2024 2023 23% 22% 2022 20% 2021 18% 2020 16% 2019 14% 2018 12% 2017 11% 2016 10% 2015 9% 8% 2014 8% 7% 2013 2012 7% 2011 7% 6% 2010 2009 0 www. imsw. com 1 000 Total US Retail Store Sales Total US Online Sales Foreign Trade Zone, Logistics and Supply Chain Consulting 2 000 3 000 4 000

Growth in E-Commerce Platforms More Mobile Devices! www. imsw. com Foreign Trade Zone, Logistics and Supply Chain Consulting

The Accelerated Growth of the Global Internet Population and E-Commerce Outside the U. S. will Drive U. S. Retailers to Engage in Cross-Border Internet Trade www. imsw. com Foreign Trade Zone, Logistics and Supply Chain Consulting

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 Fed. Ex 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

Typical Multi/Omni Channel Network www. imsw. com Foreign Trade Zone, Logistics and Supply Chain Consulting

Carters. com 1 Million Sq. Ft. FTZ Building § Size: § Parking: 1, 061, 237 SF 1, 000 auto spaces 400 trailer spaces § Highway Access: I-85 exposure Cross-Dock 32” Clear Height 1, 000 Auto spots! 175’ Truck courts

Amazon TN Site

U. S. Locations

What Does All of this Mean to the Logistics or RE Industry § Supply chains will continue to be complex § New manufacturing in North America is real! Get in front of it in your locale. § Globalization in all industries likely to continue, but with a US component now… § Growth in E-Commerce will lead the retail and logistics industries to re-define “DCNETWORKS” www. imsw. com Foreign Trade Zone, Logistics and Supply Chain Consulting

Bottom Line for Industrial RE § Key Markets will be based on Population Growth! § Invest where PEOPLE ARE GOING TO BE! § 10 and 20 year Demographics are changing. § E-Com hubs are emerging: PHX, Columbus, Atlanta, Dallas, So. Cal, Louisville, PA. § 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

About IMS Worldwide Inc. • IMSW has completed over 295 FTZ Projects during 45 years. We have conducted 36 Logistics/Drayage studies for Industrial RE firms, RRs and land-owners. • We work with Large Gateway Zones (Houston, LA, Miami, Dallas, Chicago, PHX, El Paso and NJ) • We work with Fortune 1000 companies: Target, The Limited, Dell, Home Depot, Abbott Labs, TJX, Dicks Sporting Goods, CEVA, Fed. Ex, UPS, Yusen, NFI, Nippon Express, etc. • We work with the largest REITs in the USA: Prologis, Duke, Majestic, Clarion, USAA, IIT, etc.