Académique Documents
Professionnel Documents
Culture Documents
2013
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allows shoppers to purchase virtually anything at anytime from anywhere. Some experts estimate that up to 25% of all retail sales in both the US and UK will take place through online channels by 2020. Retailers and mall developers are responding with futuristic store formats and sophisticated delivery systems including highly automated distribution centers. Strong economic growth coupled with rising incomes have made Brazil and China dominant players on the global scene. With European and American brands expanding their presence in these markets and cross-border retail on fire around the world, there is a growing urgency to accommodate changing distribution networks. Major markets around the world are positioning themselves to capitalize on trade opportunities by investing heavily in infrastructure improvements to ports, airports, highways, railways, industrial parks and intermodal hubs. Market leaders include Toronto,Vancouver, Chicago, Miami, Berlin, Moscow, Upper Silesia, Shanghai and Hong Kong, to name a few. Meanwhile, governments are focused on negotiating new trade agreements and easing foreign direct investment regulations. Winning strategies in our Changing World of Trade will demand flexibility and diversity, collaboration, automation, technology -- and a keen balance of scale and scope, most likely through consolidation and vertical integration.
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$2.7 Trillion
9.5%
If global trade continues to grow by an average of 9.5% per year for the next decade, $2.7 trillion in new goods would be added to the global pipeline per year.
Turning Point: 2014
For global trade to sustain high growth rates, the global economy must first recover. It was on the verge of taking off after two years of sluggish expansion following the 2007-2009 recession when the U.S. and European sovereign debt crises suddenly slammed the brakes on growth. With 2013 growth projections in the U.S., euro zone and Asia Pacific still falling short of the recovery pace set in 2010 and materially slower than those seen during the 2002-2007 period, growth remains constrained, although green shoots are emerging in countries and markets around the world. As governments work to resolve their debt issues, consumers and businesses will continue to gain confidence and act on significant pent-up demand. Spending and hiring will gain traction. Reinvigorated demand will feed into the global manufacturing system, driving healthy output in many mature and emerging markets, and stimulate the flow of goods around the globe. The result will be stronger growth in global trade in 2014 and a projected return to that long-term growth trend of roughly 9.5% per year.
E-COMMERCE
CONCLUSION
GLOBAL E-COMMERCE GROWTH PROJECTIONS: COMPOUND ANNUAL GROWTH RATE 2011-2016F 70% 60% 50% 40% 30% 20% 10% 0% 11.0% UK 11.2% US - Total 25.4% US - Mobile 11.4% Japan 22.7% Brazil 24.7% China 57.3% India
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6.0%
4.0%
2.0%
0.6%
1.0%
1.2%
1.6%
1.9%
2.2%
2.6%
3.1%
3.6%
3.6%
4.1%
4.5%
4.8%
0.0%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
5.4%
360buy, 19.6%
SOURCE: iResearch. By GMV. The data is based on the financial results published by enterprises, interviews with experts and iResearch statistical model.
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CONCLUSION
In an e-commerce 2.0 supply chain, all three models may run simultaneously. This allows orders to be processed and fulfilled as best fits the customers needs: at the store or at the closest distribution center. Localized inventory stock-outs will be hidden since products can be shipped from any location or sent to any store for customer pickup. As stated earlier, retail physical and online operations will increasingly be seen as one business rather than separate entities with separate management. The concurrent optimization of multiple channels will require a flexible network of smaller urban locations that fill parcel orders delivered direct to customer homes within a day and large distribution centers that replenish both stores and in-market distribution centers. Multiple in-market distribution centers will be smaller and run fleets of trucks into neighborhoods, perhaps twice a day, for same-day and next-day delivery to households.
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Mega Centers
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GLOBAL TRANSPORTATION
Todays pressure paving way FOR bRIGht FutuRe
Transportation often represents a large component of total supply chain cost and total operating costs. The growing global economy has put ever-greater pressure on scarce resources, and forecasting fuel rates has never been more difficult for the transportation industry. Without a crystal ball, the best anyone can do is weigh the fundamentals of global supply and demand. For example, if demand grows faster than production capacity, then surplus production capacity the worlds buffer against supply shortfalls will fall and prices rise. Conversely, if production capacity grows faster than demand, we would expect some easing in price volatility, though not necessarily price levels. While the transportation industry remains under significant, perhaps unsustainable pressure, the pain today may give way to new prosperity tomorrow. As production and manufacturing become more local to meet growing customer demand for faster delivery, the average distance transported goods move will continue to shorten. Emerging economies, as well, may find that regionalization, or establishing locations in multiple places closer to local markets, may be the way to go to meet escalating demand while controlling costs and remaining competitive.
2013
New Panamax
18,000 TEUs
2006
Post Panamax Plus
15,500 TEUs
Accommodating the latest generation of large container ships is key to a ports competitiveness in the changing world of global trade. In 1997, shipping lines could handle vessels with a capacity of 8,000 TEUs. In 2006, the biggest container ship doubled in size to nearly 16,000 TEUs too massive to pass through the recently expanded Panama Canal. By 2013, ships were nearly five times as big as the first post-Panamax vessels, with an 18,000 TEU capacity. The new ultra-large container vessels will be too deep for any port in the Americas or to cross the Panama Canal, but will be able to transit the Suez Canal when sailing between Europe and Asia. Maersk Line, the worlds biggest container shipping company, will stop plying through the Panama Canal to move goods from Asia to the U.S. East Coast. It will send vessels through the Suez Canal that can carry as many as 9,000 20-foot boxes at a time, instead of using two 4,500-box-vessels through the Panama Canal.
1997
8,100 TEUs
Post Panamax
1996
7,100 TEUs
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systems have become the backbone of the rail freight industry, due primarily to fuel efficiency (rail is four times more efficient than truck) and investments made by railroad companies to improve network systems. Rail is the only viable alternative to trucking, as barge transport is not feasible and airfreight is too costly for most companies. Trains also move year-round in almost every type of weather and, domestically, offer the lowest-cost-per-mile. To take advantage of holistic systems, companies are investing heavily in intermodal parks that link several modes of transportation and integrate them with seamless connections. Not only has this increased intermodal volume, but it has also led to greater integration across transportation modes, keeping costs low. According to the Association of American Railroads, seven Class I railroads presently serve the United States, with combined revenues of more than $65 billion, and some $13 billion was invested in railroad infrastructure in 2012 to support its continued growth.
SOuRce: National Rail Freight Infrastructure Capacity and Investment Study prepared for the Association of American Railroads by Cambridge Systematics.
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32.5 31.6 23.1 22.9 17.0 16.8 14.7 14.5 13.3 12.3 11.9 10.0 9.8 8.9 8.6 8.1 8.1 7.7 7.6 7.2 7.2 6.1 6.0 5.7 5.5 5.0 10.0 15.0 20.0 25.0 30.0 35.0
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CANADA TARGETS TRANSPORTATION Canadas geographical scale and relatively small, spread-out population has always been a challenge for business. To help expedite transportation, the federal government is focused on integrating transportation modes through increasingly seamless connections. It committed over $47 billion to improve and integrate infrastructure systems within 10 years, and a number of large projects are already underway. These include: T he construction of a road, rail and utility corridor at the Port of Prince Rupert to boost Canadas trade capacity and ability to export goods to Asia-Pacific markets. A number of major infrastructure projects to support the Atlantic Gateway and Trade Corridor, such as an advanced modular fabrication and multimodal transshipment facility being built at Port of Belledune, which will expedite shipping operations on the eastern seaboard. As well, route improvements are being made to the trade corridor connecting Atlantic Canada and the New England region. A fter many years of intense lobbying, a $2.2-billlion bridge between Windsor and Detroit will be built to replace the existing 84-year-old Ambassador Bridge. Construction on the bridge, expected to be completed by 2020, is expected to create 12,000 direct jobs and as many as 31,000 indirect new jobs. Canada will pay Michigans share of the construction, $556 million, recouping the outlay through future toll revenue. The Detroit-Windsor border encompassing the bridge, a tunnel and ferries is the busiest in North America and carries a quarter of all U.S. trade with Canada, which reached $120 billion in 2012.
68
Number of hours the Port of Prince Rupert is closer to Shanghai than Los Angeles. This port is closer to key Asian markets by up to three days, including 36 hours closer to Chinas largest city than Vancouver.
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inefficiency and bureaucracy. Operations in the Port of Suape in Pernambuco cost five times as much as they would in Cartagena, Colombia, and three times as much as similar services in Hamburg, Germany.The time it takes to clear cargo is also very long about 5 days, which is more than the time it takes in China (3), the Ivory Coast (2), Germany (2), Chile (1) and Singapore (1). Only 0.3% of the cargo in Brazil is shipped by air, which is normally reserved for small-volume/ high-value cargo and associated primarily with passenger transport. Brazils substandard transportation infrastructure is by far its biggest hurdle to developing foreign trade, and a strong barrier to economic growth.The cost to ship goods is prohibitively high due to poor or inadequate infrastructure that does not cover the entire nation, and a system that depends heavily on overland transportation by truck. In order to strengthen domestic output and development, a National Transportation Logistics Plan was formed with the Ministry of Transportation to implement long-term multi-modal projects, with specific goals for each mode. By September 2012, about 38.5% of the logistics goals under the plan had been completed.The port system is also earmarked for a complete overhaul, which, among other initiatives, would allow private ports to compete with those owned by the government.The winning bidder will be the party offering the lowest combined rates for the best services, not the company willing to pay more for the right to operate a terminal. Fair competition is expected to result in increased investment, improved port capacity and efficiency and significantly reduced costs. VALUES IN US$ PER TON OF SOYBEAN
3%
SOURCE: MDIC/BR.
South America is actively working on easing regional trade barriers, along with physical barriers caused by years of mismatched infrastructures. Formed in 2000, the Initiative for the Integration of the Regional Infrastructure of South America (IIRSA), aims to integrate logistics through new transportation infrastructure, as well as energy and telecommunications projects.Trade between Brazil the regions main hub and other regional nations soared by about 73% between 2002 and 2005, underscoring the urgency to make improvements. Although railways are considered an efficient means of transport and constitute an important link to Brazils ports, only 20% of domestic cargo is hauled by rail. While Brazil has the tenth largest railway network in the world, it is still considered a complement to trucking. According to the National Association of Cargo Transport and Logistics, in 2000 about 60.5% of cargo in Brazil was transported over roads and highways, which have been undergoing steady improvement programs for the last 10 years.
Production cost of soybean in Brazil is similar to the US, but Americans spend much less with transportation and are more profitable.
brazil
Price in the port: Shipping from farm to port: Production costs: Net income for the producer: 440 128
(highway)*
U.S.
Price in the port: 440 Shipping from farm 38 (highway and waterway)* to port: Production costs: 197** Net income for the producer: 205
230** 82
*Distance more than 2.000 km, from Sorriso (MT) to Port of Santos (Brazil) and from Iowa to New Orleans (U.S.) **Excluding costs with land
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Furthermore, in order to meet emissions regulations, the EU needs to achieve a 60% cut in transport sector emissions by 2050, compared with 1990 levels.With road transport accounting for 28% of the CO2 emissions, the EU is also working on new legislation to lower limits for carbon emissions from car transport as well as promote fuel efficiency and the use of alternative fuels. Currently, about ten large retailers are utilizing electric vehicles to deliver goods across London, and companies such as DHL and FedEx are increasing the amount of electric vehicle trials in a number of cities across Europe. European Modal Split Latvia Estonia Romania Switzerland Austria Lithuania Sweden Netherlands Germany Bulgaria Belgium Croatia Slovakia Finland Hungary EU-27 Czech Republic Poland France Slovenia FYR of Macedonia Norway Denmark United Kingdom Italy Luxembourg Portugal Turkey Spain Greece Ireland 0% Roads
SOuRce: Eurostat 2012
20% Railways
40%
60%
80%
100%
Inland water-ways
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momentum and meet the consumption needs of a rising middle class. Plans to connect the Indonesian islands of Sumatra and Java at a cost of nearly $11 billion were finalized last year. The Indonesian Airport Authority is swiftly expanding the capacity of major airports in the country to aid trade and logistics industry and simultaneously improve the connectivity between the islands. Indonesia Port Corporation also announced it would invest $2.5 billion in starting the development of Kalibaru port. PT Pelabuhan Indonesia is coordinating with China Merchant Holdings to construct a new container and iron-ore shipment facility in the island of Batam with a nearly $2-billion investment.
In Vietnam, despite an average annual growth rate of 18% in trade volume over the last 15 years, the logistics sector is still in its nascent stages. The government has started to focus on reducing transport costs, increasing access to ports and developing port infrastructure. In the short term, it is encouraging Public-Private Partnership (PPP) models and reducing trade barriers.
took the lead with the launch of several new high-speed railway corridors, as well as announcing plans to expedite the development of a comprehensive transportation system to boost the economy. It has plans to build a large-scale network of railways and expressways, and develop distribution centers, ports and regional hubs and provide easier access to all towns and rural regions in the country by 2015.
China, the most populous and the largest economy in the region,
India has already witnessed the shifting of manufacturing activity from large metropolitan areas to smaller cities with the development of an interstate highway system in the last decade. It announced plans to improve the transportation network and develop logistics and manufacturing hubs as a part of its five-year commitment (20122017) to invest $1 trillion in infrastructure. The Delhi-Mumbai Industrial Corridor (DMIC) that is currently under development with an investment totaling to US$ 90 billion is adding several high-capacity transportation links (roads, rail, port and air connectivity) and logistics facilities to boost industrial/manufacturing activity and growth.
A similar corridor between Mumbai and Bengaluru has been proposed recently. Further initiatives to boost the intra-city connectivity include development, expansion and modernization of airports in several tier II and III cities, development of private ports and improving road and rail connectivity across the country.
$4 billion in inland transportation and port infrastructure to strengthen supply chains between intermediate and terminal markets in the island archipelago and increase trade with neighboring countries such as Indonesia, Malaysia and Vietnam. Hong Kong and Singapore are investing heavily in high value-added logistics to reinforce their position as regional logistic hubs.
rail system connecting Kuala Lumpur with Singapore to improve connectivity, enhance business linkages and cross-border trade. These two countries are also exploring rapid transit links between Singapore and the Malaysian city of Johor Bahru, and a possible third cross-border road link. These links could accelerate commercial development in the Malaysian state of Iskandar. Temasek Holdings Pte. Ltd., Singapores state investment company, has already unveiled a joint venture with Malaysias Khazanah Nasional Bhd. on two retail and residential projects. Port expansion plans in Australia have been hit by a slowdown in trade and exports. However, the billion-dollar upgrade and modernization of the east coast interstate railway network presents an upside growth factor for the rail freight sector.
Indonesia also unveiled plans last year to invest nearly $110 billion in overhauling its transport system, improve the inter-island connectivity and upgrade the logistics system to sustain growth
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INtRA AsIAN AIR CARGO 7 6 5 Tonnes (in millions) 4 3 2 1 4.5 4.6 5.5 5.7 6.2 5.9 5.3 6.1 4.0 6.0 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 6.0
14
South Korea started construction of an international seaport at Saemangeum last year with a $200-million investment to facilitate trade and manufacturing growth in automobiles, industrial materials and reusable energy sectors. Taiwan relaxed its trade barriers again in 2012 by opening up its market to Chinese investors, allowing them to invest heavily in several business categories in manufacturing, public infrastructure and service sectors. Nearly all Asian economies are keen on removing regulatory barriers to attract foreign investments and facilitate trade flows to keep the economic growth intact.
Growth in ASEAN and other emerging markets is partly benefiting from a shift of some industrial and manufacturing facilities, particularly shoes, clothes and electronic equipment, away from China and, hence, the need for improved infrastructure. These markets present numerous high-yield investment opportunities, and with export growth in the double digits, they are highly attractive. Infrastructure investments are being made on a large scale to create a competitive landscape and drive sustainable growth.
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CONCLUSION
and markets. One of the biggest challenges facing industrial space users across the Americas is the shortage of quality space, as technological advances have rendered many facilities obsolete. Land constraints and functional obsolescence is spurring more redevelopment and retrofitting of existing facilities, and the top markets will command a premium for these types of projects. From a real estate perspective, Mexico is well positioned to benefit in this changing landscape, as the country offers low-wage labor and direct access to the U.S. market. Mexico City, states bordering the U.S., and the central states or Bajio region are all experiencing significant growth. In Canada, a revived U.S. housing sector has rejuvenated the lumber industry in British Columbia, a pick-up in U.S. vehicle purchases has benefited the auto sector in southern Ontario and many other industries and business are positioning for growth based on clear signs of U.S. recovery. Additionally, an increase in trade between the U.S. and South America is driving growth, particularly in the Brazilian logistics market.
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CONCLUSION
Several secondary markets such as Kansas City and Winnipeg have also experienced improved market fundamentals thanks to large investments in intermodal capacity to accommodate freight movement via several modes of transportation. After many years of planning and stalled progress due to the recession, the BNSF Railways Intermodal facility in the south Kansas City area will be operational this year. The 440-acre site, which will be capable of handling more than 500,000 container units a year, has triggered significant growth in the industrial real estate market. As well, Winnipegs CentrePort Canada, a new 20,000-acre inland port and trade area, seeks to leverage the citys geographic location on north-south and east-west trade routes by acting as a multimodal hub (road, rail, air) for international transportation, manufacturing, distribution and warehousing activities. As a result, several privately owned industrial parks are being developed at the location. SELECTED PORT TO HUB TO MARKET CONNECTIONS
Seattle
Chicago
Oakland
Other markets widely recognized as full-fledged inland ports are Houston, St. Louis, Memphis, Inland Empire, Charlotte, Prince George, Edmonton, Regina, Calgary (under development), Montreal and Quebec City. The rise of inland ports has been largely driven by retailers such as Walmart and Home Depot, which were among the first and largest users of such ports. At CenterPoint Intermodal Center in Joliet, IL, the largest master-planned inland port in North America, Walmart occupies 3.4 million square feet and is the largest tenant. CIC-Joliet, on more than 6,500 acres just 30 miles southwest of downtown Chicago, is strategically positioned at the epicenter of the regions immense transportation infrastructure. Home Depot is another CIC-Joliet tenant, with a 1.6-millon-square-foot build-to-suit. In addition to existing inland ports, a number of new locations are under development such as the 4,000-acre Florida Inland Port in St. Lucie, which is being engineered specifically in preparation for the Panama Canal expansion, and the 580-acre Port Arizona in Casa Grande, which will become the first inland port to serve the top two ports in the U.S. the ports of Los Angeles and Long Beach.
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CONCLUSION
Such supply chain shifts are redefining warehouse/distribution buildings. Direct-to-consumer sales require retailers to consolidate online and store-based fulfillment operations under one roof, which is spiking the demand for high-tech, big-box facilities. Todays most advanced distribution facilities offer clearances of about 35 feet, energy-efficient lighting and green building materials. E-commerce providers are harnessing radio frequency identification systems (RFID) that allow machines to store and retrieve goods in the warehouse on the basis of the label number assigned on the package. To support its rapidly growing global distribution network, Amazon.com acquired Kiva Systems, Inc. for $775 million in 2012, a material handling company known for its advanced warehouse fulfillment systems. The acquisition is just part of its continued investment in cutting-edge facilities and operations that support a booming business expected to reach $100 billion in sales by 2015.
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CONCLUSION
In Canada, as well, e-commerce is behind the growing demand for bigger, more efficient warehouses in strategic locations.Third-party logistic companies are also being used to manage shipping in markets that dont justify a full-sized distribution facility. Bigger in Canada generally falls within the 500,000 to 800,000-square-foot range, with some exceptions.Target recently completed a 1.3-million square foot distribution facility in Milton (part of the Greater Toronto Area) one of three such facilities the giant retailer will use to service its new Canadian locations. Adequate trailer parking is critical in order to create a large enough staging area for the efficient movement of trailers in and out of facilities. Clear height has reached 35 feet in some cases to allow for additional racking and maximize pallet capacity. Greater vertical capacity creates a reduced footprint, which translates into major savings in gross occupancy costs for larger companies over the term of the lease. Developers are also becoming more strategic. For example, the zoning of land parcels can be upgraded to sell off units at higher prices for other commercial use, allowing developers to lower the cost base of the remaining land where a distribution facility will be constructed. This results in a more competitive rental structure for the tenant.
World-class specifications
Today, multi-tenant warehouses built by international developers such as Prologis and CPA offer world-class specifications.
In Mexico, class A first-generation industrial inventory grew from virtually zero in 1994 (just after the signing of North America Free Trade Agreement) to over 300 million square feet in 2012, and industrial parks are often industry specific, with companies representing automotive, aerospace or electronics. Industrial markets were once dominated by single tenants in owner-occupied buildings. Today, multi-tenant warehouses built by international developers such as Prologis and CPA offer world-class specifications.
18
E-COMMERCE
CONCLUSION
Development activity has been modest in recent years, focused mainly on facilities in the 300,000- to 700,000-square-foot range to satisfy big-box distribution needs. Acquisition and consolidation activity continues to drive occupancy decisions as companies seek greater efficiencies and location advantages. Despite the slow recovery after the recession, the GTAs industrial real estate vacancy rate is only 6.2% a testament to prudent development strategies and an overall healthy market poised for growth.
E-COMMERCE
CONCLUSION
SOuRce: U.S. and Mexico hourly wages per Bureau of Labor Statistics. China annual wages per Chinese National Statistics Bureau
Machine Operator
Manager
*Cities chosen based on Top 10 for Industrial Investment, Winning Cities, published by C&W in 2012 SOuRce: Economic Research Institute (ERI) 4Q 2012 data.
20
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CONCLUSION
EUROPE
DemAND DRIveRs
With the prolonged euro zone uncertainty taking a toll on business confidence, market activity within the European logistics sector has been mixed. Many occupiers have been adopting a wait-and-see attitude before making any strategic real estate decisions, which has led to a slowing in demand. However, locations such as Moscow, Warsaw and Berlin have recently seen encouraging levels of activity as logistics operators take advantage of positive economic growth in parts of Central and Eastern Europe (CEE), combined with the improving transportation networks. The Polish and Russian economies in particular have performed well in contrast to the majority of Europe since around 2011, with demand for well-located, high-quality space remaining strong in both Warsaw and Moscow. The picture across others parts of Central and Eastern Europe is less certain, with countries such as Bulgaria and Romania witnessing much more subdued occupier demand. This pattern is similar across Southern Europe: Spain and Portugal have been particularly affected by the euro zone debt crisis, and overall logistics activity in the region has been slow. In the rest of Western Europe, tenant interest has been more stable with the focus on modern space in the best locations, although transactions take longer to conclude due to the cautious outlook of many occupiers.
Not surprisingly, large-scale retailers have become the main drivers of logistics redevelopment and expansion. These operators need to move vast volumes of goods at a fast rate, which has resulted in the growth of progressively larger distribution centers built to the highest specifications and located in the most suitable locations. As a spin-off to this growing trend, we are also seeing the emergence of smaller units located closer to the consumer, away from the principal distribution hubs in a variant to the traditional hub-and-spoke model. Beyond retailers, 3PL operators have seen a significant expansion in the amount of outsourced contracts in the logistics sector, becoming an increasingly important occupier group in Europe. The rise of 3PL companies is largely attributed to the need to provide distribution and warehousing services to smaller companies. Many of these include manufacturers and retailers whose current strategy or scale makes outsourcing such services the most cost effective or suitable route. It is estimated by the BCSC that approximately 25% of leased logistics space for retailers was purely for e-commerce-related activities. Furthermore, the click-and-collect option, where customers can order on the internet and collect their purchases from designated locations such as an existing store, are emerging in many areas, notably France and the UK.
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In Shanghai, which is one of the key logistics and warehousing markets in the region, demand has once again exceeded supply. Despite annual rental and capital-value growth of about 10% to12% over the last two to three years, and a slowdown in exports, tenant interest remains strong. Australian cities such as Perth and Brisbane, which depend on mining, have benefited from Chinas demand for iron and steel. However, with slowing Chinese demand, the economy and industrial markets have felt the impact. Leasing activity remains moderate in Melbourne and Sydney.
ASIA PACIFIC
DEMAND DRIVERS
Despite continued global economic challenges and the related manufacturing slowdown in China and other major Asian economies, industrial, warehousing and logistics market activity has remained generally steady and is gaining momentum. Moderate demand from large-scale industrial players and traditional manufacturers was offset by the growing demand from retailers and logistics and warehouse service providers. In 2012, for example, U.S.-based retailer Walmart entered the growing Chinese online retail industry through the purchase of a majority stake in Yihaodian, a Shanghai-based e-retailer, and Sumitomo Corporation of Japan launched operations in China and Indonesia. Transportation and logistics service provider MNX moved to South Korea to capture growing opportunities in the life sciences sector and Australian freight firm Toll Group started augmenting warehousing facilities in the second half of 2012. Strong domestic consumption throughout the region has fueled the growth of 3PLs and warehousing demand in regional hubs such as Singapore, Hong Kong, Manila and Shanghai. Even though demand for industrial and warehouse space in Hong Kong has remained relatively stable, supply has become extremely limited due to industrial revitalization and redevelopment. While leasing activity from 3PL companies has been largely driven by retailers, including e-commerce businesses, nontraditional occupiers such as data centers and self-storage operators are also active. Demand from contract logistics companies and manufacturers remains robust in countries such as Indonesia, Cambodia and Vietnam. However, market activity has slowed in Thailand and Malaysia due to rising capital values and operational costs.
Rapid growth in online trading and mobile technologies has spurred e-commerce sales all across Asian countries. With companies increasing their online presence across the region either to test local markets or complement existing stores, same-day order fulfillment has made it necessary to locate distribution centers close to consumers. This has redefined the way logistics and local strategies are applied to gain maximum advantage in tier I and tier II markets in China and India. With internet penetration still far below that of advanced economies (above 70% in Japan and Korea), there is a wider opportunity for growth in e-commerce and logistics in most Asian markets. The shift to inland manufacturing bases and increasing investments in transport infrastructure, along with more efficient supply chain strategies and sophisticated logistic networks, are likely to push the warehouse/big box space demand significantly upwards in key regional hubs such as Chongqing, Chengdu and Wuhan in China. In India, primary hubs such as New Delhi, Mumbai, Chennai and Nagpur dominate the market, while emerging regional hubs such as Ludhiana, Ahmedabad and Kanpur continue to grow at a rapid rate.
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2010
50.6% 14.1% 14.2% 7.3% 3.5% 1.4% 8.8%
2011
44.4% 21.8% 12.7% 7.0% 3.9% 1.7% 8.6%
* Includes travel, event tickets and digital downloads ** Excludes Hong Kong SOuRce: eMarketer, July 2012
According to the WTO, intra-Asia trade is expected to grow at an annual rate of 10%, which is significantly higher than the 6% forecast for Asias trade with the rest of the world.
Continued growth in China and India has not only strengthened the existing trade networks, but also opened up new opportunities to reshape existing routes. According to the WTO, intra-Asia trade is expected to grow at an annual rate of 10%, which is significantly higher than the 6% forecast for Asias trade with the rest of the world. Sustained growth in intra-regional trade will continue to reshape the regional trade landscape, opening new opportunities for business expansion and relocation across various markets, which bodes well for logistics and 3PL companies.
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rapid growth in foreign investments in Southeast Asian markets such as Vietnam, Philippines and Indonesia. At around 8%, ASEANs share in global FDI inflows was almost equal to Chinas in 2012. Large-scale availability of low-cost opportunities, an abundance of natural resources, infrastructure growth and efforts to promote industrial sector and manufacturing growth could radically alter supply chains and trade networks in these markets over the next few years.
Nearly 15% of Indias population is now considered middle class and it is growing by about 13% each year. By 2015, more than one-fifth of Indias population will fall under this category. In Indonesia, the middle class has grown by more than 50% over the last decade. Nearly 40% of the population (about 500 million people) was termed middle class in China as of 2010 and the number is expected to grow by more than 50% (about 300 million) by 2020. Nearly half of the population could well be considered middle class in China by 2015. In Philippines, nearly 25 million people joined these ranks in the last two decades. This explosive growth has had a noticeable impact on domestic demand, consumer markets and supply chains in the last few years. Sales of consumer durables and affordable goods have increased substantially, driving tremendous growth in manufacturing and service sectors. Intra-regional trade has already surpassed exports to western economies and is still growing at a healthy rate of 10% per year. As companies continue to relocate within the region to reduce costs or move closer to emerging domestic consumer markets, Asias economic landscape will continue to evolve and play a leading role in transforming global trade.
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With average rents, abundant land supply and improving infrastructure, Hanoi in Vietnam and Manila in the Philippines present attractive options to large-scale manufacturers looking to relocate from other countries due to rising labor and operational costs. Anticipated supply growth in these markets is supported by speculative demand from international logistics and warehousing companies, as well as from pharma, auto, aerospace and electronics manufacturers from Mainland China, Korea, Taiwan, Japan and Malaysia. With sustained economic growth, these emerging new hubs also present numerous opportunities for companies to expand their scale and penetration in the region.
SEZs have helped improve the quality of infrastructure and generate large-scale employment opportunities in several tier I and tier II cities. However, due to recent economic strains and limited land availability, several sector-specific SEZ proposals were withdrawn and expansion plans put on hold in 2012. Meanwhile, demand for FTWZs has remained steady, due to the strong desire to be near major hubs such as New Delhi, Mumbai, Pune and Chennai. Proposed changes in foreign investment policies made last year augur well for the continued success of FTWZs.
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SUPPLY CHAIN Challenges push new strategies in adapting to the new demand economy
Dramatic shifts in demographics and in consumer expectations are impacting the supply chain from end to end, from raw material sourcing to the consumers front door. The movement of goods transportation connects these points. Transportation is being seriously challenged by issues such as driver shortages, volatile fuel costs and the growing customer demand for faster, cheaper, better good and services. Efficiency in transportation evolves at a glacial pace compared to the connected supply chain elements. To compete, companies will embrace fast-evolving technologies and continue sourcing low-cost raw materials and labour markets. The diversification of sources near sourcing or right sourcing to minimize the risks of supply chain disruption will become increasingly important. The effects on real estate include changing location strategies where buildings are located and increasing investments in reducing operating expenses. Of course, government regulations, openness to trade and political stability will continue to play a major role in location decision processes. As in the past, winning supply chain and real estate strategies will likely incorporate concepts from the largest companies and largest occupiers of space, where feasible; however, the pace of competitive change is now so great that a user of any size or scope would benefit from pursuing the following approaches.
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TECHNOLOGY In addition, with the growth in internet access and the market forces this creates, technological advances will increasingly drive business change. Leading logistics companies will embrace technology and develop new ways of using property. Urban Outfitters recently opened a 426,000-square-foot fulfilment center in Reno, NV, equipped with a $25-million materials handling system that includes three miles of conveyor belts, 11 miles of walkable pick face and more than 50 miles of electrical cabling. The system is capable of dispatching 4,300 parcels and sorting 9,000 individual items per hour. A package can be picked and packaged for shipping in as little as 18 minutes, and with expedited shipping, an item can be on a truck within two hours of a customer placing an online order. As more distribution centers are added to a supply chain network to provide faster service to smaller areas, each center will need to carry more inventory to avoid stock-outs. Space demands also continue to change. For example, an international shipping company may seek locations that can best take advantage of opposite commute patterns. Instead of sorting and dispatching five vans in the morning, it may use an expedited shuttle to move shipments to meet-points within the city since it can get that vehicle out faster and earlier in the morning. OUTSOURCING A major source of supply chain flexibility is outsourcing. Third-party logistics companies, 3PLs, contribute capacity and expertise without significant fixed costs investments. While efficiencies may be gained from collaboration fostered by 3PLs, the structure of a 3PL relationship as it relates to real estate should be examined at the outset. In Mexico, 3PLs are growing, but like anywhere, a company needs to strongly consider controlling its own real estate. A large multi-national consumer products company took back control from the 3PL it was using in Mexico and realized significant savings. In Europe, companies want transparency related to 3PL use, and there is a mix of ownership arrangements. In India, where 3PLs are still growing and becoming more organized, some own the real estate and some do not. COLLABORATION Logistics operators will continue to seek new ways to lower costs, turning to innovative strategies such as collaboration. For example, retailers may work with suppliers in order to share vehicles, thus reducing the number of vehicles running empty. Collaboration has also taken the form of sharing space within the warehouse itself although this may require both a change in warehouse design as well as a larger footprint should factors such as shared yards become more commonplace. Regardless, it is clear that cost reduction and technology will continue to drive location decisions and design parameters of new warehouses for the foreseeable future.
In China, distribution centers near the bigger cities are starting to implement automation to handle high daily shipment requirements that can no longer be managed manually. Hospitals, for example, typically order goods in the morning to mid-afternoon and expect to receive them the next day. Hospital suppliers are then forced to process more than 50% of their orders in a few short hours every day to ensure they are ready for shipment before the parcel carriers early evening deadline. This peak labor requirement in the afternoon can be difficult to predict and manage without automation.
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FINAL THOUGHTS
Changing logistics priorities will challenge corporate supply chain and real estate executives to develop solutions that manage current demands and plan for the uncertainties and surprises of the future.An eye toward expansion, automation and collaboration will keep the landscape very competitive. Occupiers and investors will be challenged to remain poised to act on opportunities presented by an evolving landscape and at the same time keep pace with innovation in order to meet changing customer expectations.
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RESEARCH SERVICES
Cushman & Wakefield is known as a global industry knowledge leader. Through the delivery of timely, accurate, high-quality research reports on the leading trends, markets around the world, forecasts and business issues, we aim to assist our clients in making property decisions that meet their objectives and enhance their competitive position. Cushman & Wakefield also provides customized studies to meet the specific information needs of owners, occupiers and investors. Published by Cushman & Wakefield Research
CONTRIBUTORS
AMERICAS
MARIA T. SIcOLA Executive Managing Director, Research Americas +1 415 773 3542 maria.sicola@cushwake.com TINA ARAmbuLO Managing Director, U.S. Industrial Research United States +1 310 525 1918 tina.arambulo@cushwake.com
EUROPE
BARRIe DAvID Senior Research Consultant European Research Group +44 20 7152 5937 barrie.david@eur.cushwake.com ERIN CAN Research Analyst European Research Group +44 20 7152 5206 erin.can@eur.cushwake.com
ASIA PACIFIC
Sigrid Zialcita Managing Director, Research Asia Pacific +65 6232 0875 sigrid.zialcita@ap.cushwake.com Nagaraj Kapil Kanala Senior Manager, Research Asia Pacific +91 40 4040 5531 kapil.kanala@ap.cushwake.com
ADDITIONAL CONTRIBUTORS
Elizabeth King Forstneger Director Business Consulting United States +1 312 470 3836 elizabeth.forstneger@cushwake.com StuARt BARRON National Research Director Canada +1 416 359 2652 stuart.barron@cushwake.com Tom Bonkenburg St. Onge Company +31 0 61 254 06 66 tbonkenburg@stonge.com JOse LuIs RubI Manager, Research Mexico +52 55 8525 8058 joseluis.rubi@cushwake.com ANDReA ARAtA Senior Analyst, Research United States +1 510 891-5830 andrea.arata@cushwake.com JOhN MORRIs Industrial Services Lead Americas +1 847 518 3218 john.morris@cushwake.com
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Ken McCarthy Chief Economist United States +1 212 698 2502 ken.mccarthy@cushwake.com
E-COMMERCE
CONCLUSION
Clients are provided with comprehensive supply chain solutions that integrate real estate, supply chain management, and strategic business advice. Our ability to effortlessly integrate with a clients real estate department distinguishes us from all other companies in the field. Our industrial transaction professionals ascertain existing needs and anticipate future real estate needs to create the solutions that clients demand. All phases of negotiation are conducted with full knowledge of local, regional, and national data, trends, and statistics as supplied through our global operations. Our ability to incorporate key elements such as negotiating government incentive programs, identifying construction cost reductions through value engineering, and creating exit strategy opportunities when needed, allows our clients to recognize the full potential of their real estate assets.
EUROPE
SteveN WAtt Head of Pan-European Industrial & Logistics +33 5 59 63 44 38 steven.watt@eur.cushwake.com
ASIA PACIFIC
Peter Zhang Manager, Global Consulting Asia Pacific +86 212320 0873 peter.zhang@ap.cushwake.com
Cushman & Wakefield is the worlds largest privately-held commercial real estate services firm. The company advises and represents clients on all aspects of property occupancy and investment, and has established a preeminent position in the worlds major markets, as evidenced by its frequent involvement in many of the most significant property leases, sales and assignments. Founded in 1917, it has 253 offices in 60 countries and nearly 15,000 employees. It offers a complete range of services for all property types, including leasing, sales and acquisitions, equity, debt and structured finance, corporate finance and investment banking, corporate services, property management, facilities management, project management, consulting and appraisal. The firm has more than $3.7 billion in assets under management globally. A recognized leader in local and global real estate research, the firm publishes its market information and studies online at www.cushmanwakefield.com/knowledge This report has been prepared solely for information purposes. It does not purport to be a complete description of the markets or developments contained in this material. The information on which this report is based has been obtained from sources we believe to be reliable, but we have not independently verified such information and we do not guarantee that the information is accurate or complete. Published by Corporate Communications. 2013 Cushman & Wakefield, Inc. All rights reserved.
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