Logistics Impact on Industrial Development and Investment. Prepared By: Curtis D. Spencer, President IMS Worldwide, Inc.

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1 Logistics Impact on Industrial Development and Investment Prepared By: Curtis D. Spencer, President IMS Worldwide, Inc.

2 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, FedEx, UPS, Yusen, NFI, Nippon Express, etc. We work with the largest REITs in the USA: Prologis, Duke, Majestic, Clarion, USAA, Div Capital/IIT, etc.

3 IMSW s FTZ Users total = 295

4 IMSW Overview of National FTZ and Strategic Development Projects

5 Today s Agenda How Logistics Impacts Industrial Real Estate What are the top five demand drivers Imports and Exports Inland Ports Distribution demands population trends E Commerce, new retail growth trends Re shoring and manufacturing

6 Trade Impacts Real Estate Shifts in all industries impacts the size, shape, type, locations, infrastructure and demand for industrial real estate Shifts in global sourcing create new patterns of goods movements, off shore and now near shore Retail now involves industrial buildings which are used for E commerce fulfillment centers (FC) and traditional distribution centers (DC), and some for both (blended logistics)

7 Imports and Exports

8 Global Shipping Trade Routes

9 LA/LB Port Complex

10 Near LA/LB Port Industrial RE Development

11 NY/NJ Port Complex

12 Near NY/NJ Port Industrial RE Development

13 Container Ship Evolution CONTAINER SHIP SIZES AND PORT REQUIREMENTS

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15 2014: West Coast East Coast Ports USWC port shutdown and congestion impacted the entire U.S. port system during 2014 all the way to the first quarter of By the end of May, the throughput of USWC ports will be back to normal. USWC ports reported a dismal 10 35% decline in TEU volumes during January and February of 2015 (compared to 2014 volumes). However, March numbers are reflecting the shift back to the USWC ports: Port of LA reported a 17.27% TEU growth in March vs. March 2014 Port of LB reported a 32% TEU growth in March vs. March 2014 Port of Oakland reported a 8.1% growth in March vs. March 2014 April Numbers for West Coast are flattening out again.

16 2014: West Coast East Coast Ports Pricing during the Labor unrest increased by over 100% for East Coast All Water Routes: But in just 60 days, the pricing has adjusted back to reflect more typical carrier rates: USEC January 2015 $4,498 May 2015 $2,750 USWC January 2015 $2,058 May 2015 $1,650

17 Shanghai to North American Ports: Slow Steaming Effects 2000 & 2015 Pricing as of January 5, 2015 $1,200 $800 $4,498 $2, $4, From China, it takes about 2 weeks Source: ShipmentLink.com to bring cargo (Evergreen) to the west Sailing Schedules coast and about 4 weeks to bring it in on the east coast. (2000)

18 Shanghai to North American Ports: Slow Steaming Effects 2000 & 2015 Pricing as of May 22, 2015 $1,200 $3,140 $800 $1, $3, From China, it takes about 2 weeks Source: ShipmentLink.com to bring cargo (Evergreen) to the west Sailing Schedules coast and about 4 weeks to bring it in on the east coast. (2000)

19 Large Ships Impact on US Ports Bigger Ships mean less vessel port calls per rotation Less vessel calls mean less Ports visited by the Major Carriers Ports must have 3 essential components to handle large ships: Water Depth Terminal Equipment Matching Ship Off-Site Rail and Road enhancements. EC Winners: NYNJ, Charleston, Savannah EC Losers: Jacksonville EC Neutral: Miami WC Winners: LA/LB, Canadian Ports, Oakland (exports) WC Losers: Portland WC Neutral: Seattle/Tacoma --with new joint agreement!

20 Panama Canal Update

21 THE PROBLEM! `

22 THE FIX up to 12,000 TEUs

23 Brand New Panama Canal Locks

24 Panama Canal Update: April 2015 Key Milestone with Installation of Final Gate The Panama Canal Authority (ACP) announced in April a key milestone: The installation of the sixteenth and final gate for the new locks on the Pacific side of the Canal (April 13 th ) ACP reports that the Expansion is 85% complete The installation process began at 12:00 PM (Panama Time) on the south end of the Canal s Pacific locks, which connect directly to the ocean. The final gate is one of the heaviest and weighs 4,232 tons, or roughly 8.5 million pounds. It measures 57.6 meters wide by 10 meters long and 33 meters high. The installation of all eight gates on the Atlantic side of the Panama Canal was completed earlier this year on April 1.

25 CURRENT VIEW OF NEW LOCKS APRIL 2015

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28 Panama Canal Bottom Line BALANCE In Asia Import Market Share after 2014 will be the answer. Approx. 52% 48% today, 50% 50% after 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! Houston will GAIN big on the Bulk Ship Price Cuts = $1 to $1.50 per ton lower costs bulk liquids and bulk steel

29 SUEZ CANAL WILL TAKE ANY SIZE VESSEL TODAY

30 Inland Ports

31 Prince Rupert Intermodal Routes to Major Inland Ports Vancouver Seattle/ Tacoma Chicago Cent. PA Oakland Kansas City Memphis Columbus Norfolk NY/NJ Los Angeles / Long Beach Dallas/ FW Atlanta Savannah / Charleston Jacksonville Houston Lazaro Cardenas Mexico City

32 DFW Inland Port, AllianceTexas (BNSF)

33 AllianceTexas

34 Virginia Inland Port (NS) 39 major companies have located near the Virginia Inland Port Investment of nearly $748 Million Over 8 Million sq. ft. of buildings Employment of over 8,000 people

35 Winterhaven, Florida Inland Port (CSX)

36 Role of an Intermodal Terminal As much as one third of all new distribution facilities are located near an intermodal rail terminal (JLL 2014) Since 2000, million of new industrial space has been constructed within five miles of a rail terminal (JLL)

37 U.S. Intermodal Volume Growth

38 DC Locations = Population Centers

39 Knowing Where the Containers are Coming into the Ports Won t Help Us.. Until we know where they are going to STOP! The real value prop in all of this logistics business, is in knowing where the goods will get off the global conveyor belt and put into a BUILDING at a port or inland port

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42 E Commerce: Driving New Industrial!

43 E Commerce Impact on Industrial 60 tenants are currently seeking big box warehouses of one million square feet or more nationwide JLL, January 8, 2015 The E Commerce generation of industrial is up to 5 times more labor intensive than traditional retail/distribution: more parking, mezzanine build outs and increased automation are some of the features difficult to retrofit to older buildings, but many can be converted. (Area Development Magazine, 2013) Alibaba in 2013, their T mall shopping network reached $240 billion that is triple the size of ebay and twice the size of Amazon Alipay the online payment system handled more than three times the amount of mobile payments processed by PayPal. (WSJ, May 15, 2014)

44 Growth of New Commerce Commerce Conducted Outside the Storefront Today: 7 9% of total retail sales (Deloitte Research) Growth in E Com Sales (yoy) 17 21% 24% of total retail sales within 5 years Changes in logistics Changes in site requirements Changes in warehouse configuration Changes in hours of operation Changes in staff requirements Changes in transportation network requirements

45 E Commerce, Industry in Transition click to knock cycle time is click to pick + pick to ship + ship to door cycle time. Technology and order management Inventory locations getting local Logistics impacts all the above and also impacts site selection requirements What Matters is the Retailer s Delivery Promise

46 Choose your Logistics Solution

47 U.S. Locations

48 Lehigh Valley, PA Atlanta, GA Haslet, TX Phoenix, AZ

49 Ship From Stores

50 Re Shoring & US Manufacturing

51 Mexico vs. China Wage Rate Since 2003, wages in Mexico have risen only 25 percent compared to 218 percent in China WSJ U.S. Dollar SOURCE: International Labour Organization, U.S. Bureau of Labor Statistics 51

52 Shipping Cost Comparisons

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54 Shale, Resin and Plastics 191 new or expansions in petrochemical processing Cumulative capital investments totaling $117.0 billion in the United States, By 2020, the cumulative impact will boost real GDP by 2.0% to 3.3% Creating from 2.7 million to as high as 3.6 million new jobs. 62% of this investment is foreign direct investment 22 Billion pounds of PP/PE new production coming by million barrels/day on US RR (20% of total pumped) Source: American Chemistry Council

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57 How Much Resin? 22 Billion Lbs/Yr MORE Than we produce today. 30% will be Exported- SO- Just for Exports. That is 107,300 more Resin Rail-Cars That is 23,800 more SIT storage spaces in Greater Harris County That is 400,000 more container loads/year Packaged in 40 Million More Feet of Warehouses.

58 Thank You! QUESTIONS?