While attending the SIOR World Conference this past Spring, I came across a very interesting education course entitled 2013 Global Logistics and Trends, presented by Curtis D. Spencer, president of IMS Worldwide, Inc.

Some of the current industrial real es­tate trends that Mr. Spencer noted included the return of some manufacturing back to North America, the growth of e-commerce fulfillment centers and export centers, and a continued demand for warehouse/distri­bution/transload/cross-dock facilities in the growth markets.

A critical part of the equation for every business is where to locate opera­tions. This important decision is typically based on the demographics of each region, and where the ports and inland ports are located. The highest demand for industrial real estate are the port and inland port loca­tions in the most highly-populated areas, and where the largest number of contain­ers are moved to and through the area. According to Mr. Spencer, the largest U.S. industrial markets by square footage include: Los Angeles, Chicago, New York/ New Jersey, Florida, Atlanta, Dallas/Fort Worth and Houston.

One of the most important issues that a company’s supply chain must deal with is their “landed cost.” Landed cost is de­fined as the total cost of a product once it has arrived at the buyer’s door. The list of components required to determine landed costs include: original cost of the item, all brokerage and logistics fees, complete ship­ping costs (including real estate), customs duties, tariffs, taxes, insurance, currency conversion, crating costs and handling fees. Not all of these components are present in every shipment, but all must be considered part of the landed cost.

The best way to get freight from one place to another isn’t necessarily a straight line. For less-than-truckload (LTL) ship­ments, the most cost-effective way is to first send freight to large, regional facilities. There, the loads are removed from one truck, and then sorted and placed onto other trucks for delivery—similar to the hub-and-spoke system used by airlines.

Mr. Spencer also provided an update on the Panama Canal expansion, which he says is operating at capacity today. Completion of an expansion is scheduled for December of 2014, with start-up anticipated in the first quarter of 2015. This expansion will have the most impact on the east coast and gulf ports.

He predicted that the east coast ports will grow due to their proximity to major markets, increasing eastern Europe/Indian trade via the Suez Canal and GDP growth. He went on to say that the west coast ports will continue to grow because of proximity to quicker and cheaper intermodal routings that can penetrate to within 250 miles of the east coast. This includes an increase south­east Asia (non-China) trade, a small de­crease of China-based U.S. trade through the Panama and Suez routes, and GDP growth.

E-commerce is a rapidly-growing and an important industry sector. Part of his pre­sentation illustrated that projected online U.S. retail sales, as a portion of total U.S. retail sales, will grow from 8 percent in 2013 to 16 percent in 2018, and to 26 percent in 2023. And by 2025, he says that “it has been estimated that e-commerce will represent 30 percent of all retail sales and account for $2.7 trillion in total sales.”

There are three types of e-commerce: electronic commerce (transactions originat­ing on desktop computers, laptops, etc.); mobile commerce (transactions originating from phones, tablets, e-readers); and social commerce (i.e. sales derived from social networks like Facebook, Groupon, Twitter).

Mr. Spencer talked about the Key Crite­ria for site selection by e-commerce users, which includes:

• Proximity to major markets
• Inexpensive land
• Avoidance of Nexus tax
• UPS and FedEx truck hubs nearby
• Local incentives (tax breaks and FTZ)
• Reasonable proximity and access to in­terstates
• Ample seasonal/surge labor pool

His conclusions were as follows:

1. The recession is over, but growth is slow
2. Supply chains create the need for ad­ditional space
3. Continued consolidation to large “big box” DCs
4. New e-commerce phenomenon will create more demand for industrial property
5. ULI reports that industrial real estate is the #1 or #2 asset class poised for growth over the next ten (10) years
6. Incentives (FTZ, tax abatement, large truck court) will continue to distinguish “big box” distribution centers

One of Mr. Spencer’s U.S. maps showed areas of growth from 2010-2030 (post re­cession). The largest “growth” areas are predicted to be the I-35 corridor with 40 percent growth (Kansas City to Dallas), the Gulf Coast belt with 31 percent growth (Houston to New Orleans), and the I-85 corridor with 35 percent growth (Atlanta to Charlotte).

By comparison, the Great Lakes “Horse­shoe” region showed 10+ percent growth, but is labeled “sustains”, so I asked Spencer the following questions about his prognosis for the metro-Chicago area, as well as what the area’s challenges going forward.

1. Although Chicago is considered a “megapolitan” area on your map, it does not appear in the areas of future growth. How do you anticipate that industrial real estate in the metro-Chicago area will fare over the long-term, i.e. years 2030?

Chicago real estate is at the epicenter of the transfer of freight from all coasts, including Canada and the east and west coast. It is also the 3rd largest metro area in the USA. Therefore, its rate of growth may not be as fast a percentage rate increase, as say the Phoenix area. But its scale is so much larger, that a 1.5 percent growth rate in the Chicago MSA equals a much larger increase in DC locations required, than a 3 percent increase in Phoenix, with a much smaller footprint. Chicago should maintain its standing as it does today, but it could fare a slightly less growth rate percentage than the rest of the country (in the south and southwest) due to the population growth in these other areas. Not a bad outlook for Chicago industrial real estate at all.

2. Will the confluence of rail lines, as well as the growth of the intermodal facili­ties in the Chicago-area, keep this market as strong as the west and east coast markets?

Everywhere you have “inland port, rail terminals” for containers being off-loaded, you have a huge built-in growth in ware­house/distribution centers. Also, since Chi­cago is so centrally located, there are many factors that make a choice for the metro-Chicago area a good one for e-commerce and large-box distribution centers. As stated above, Chicago should fare well over the next few years.

3. What are the biggest challenges that the state of Illinois faces for winning new business to the area, or positioning itself to maintain the distribution and manufactur­ing businesses that are already here?

Taxes, taxes, and taxes. Illinois offers no or low incentives, and has a business cli­mate (not a right to work state) that penal­izes businesses. Illinois lawmakers, as well as the Governor, must reverse the trends of the past few years. Its neighboring states are making wholesale changes and winning new business. Encouraging vs. discouraging new business formation and growth are key to a resurgence for Illinois.

Some additional “global logistics” in­formation that you might find interesting are several of the “logistics trends” that were recently published and released by Access Magazine, and are shaping global commerce:

Trans-Pacific Partnership (TPP)
This huge trade negotiation involves the U.S., Canada, Mexico, Australia and Singa­pore, and could potentially be extended to include South Korea, China and all of the Asia-Pacific region. These negotiations will set the rules for international trade and in­vestment among participating nations.

The FTA Tariff Tool
For the first time ever, tariff and trade data for the U.S. have been combined into an online resource. You can use it to see how specific products will be treated under U.S. and FTA partner tariffs and check to see when certain products will be duty free.

China’s Future Megacity
China plans on merging nine cities in its Guangdong province to create what will be the world’s largest city. The “Turn the Pearl River Delta Into One” initiative involves 150 major infrastructure projects to join manu­facturing hotbeds such as Guangzhou and Shenzhen by 2018.

International Services Agreement
This year, members of the European Union plan to meet with the U.S., Japan and 18 other nations to negotiate a new interna­tional services agreement. The negotiation will remove barriers to services such as telecoms, insurance, software and finance, which are vital components for manufactur­ing goods.

The Study of the Year
A study from Dartmouth’s Tuck School of Business quantifies the positive impact U.S.-based multinationals have on the do­mestic economy. “American Companies and Global Supply Networks” a book by Matthew Slaughter, suggests that companies expanding overseas invest more, not less, in domestic hiring and research and develop­ment.