This document discusses 3rd party logistics providers (3PLs) and their impact and real estate needs. It notes that 3PLs have experienced strong growth and were very active in 2012. The average size of US 3PL deals in 2012 was over 400,000 square feet. Many major companies use 3PLs to drive flexibility. Challenges in incentivizing 3PLs include the short-term nature of 3PL leases and determining who controls capital investments and employees. Opportunities include incentivizing 3PLs based on their lease period and addressing issues around lease terms and contract employees.
1. 3rd Party Logistics Providers - The value
of their presence in your community
2. Questions for you…
1. How many communities represented here have closed a deal with a 3PL in
2012?
2. What is the average size of 3PL deals done in the U.S. in 2012?
3. Which companies are using 3PLs?
4. What drives demand in 3PLs?
5. What are some challenges in incentivizing 3PLs?
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3. Discussion agenda
• 3PL market and recent activity
• 3PLs today
• Real estate trends, requirements and challenges
• Incentive challenges with 3PLs
• Opportunities to attract 3PLs
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4. 3PL market and impact on economy
• The U.S. 3PL industry continues to experience significant growth and has
experienced a strong rebound from the economic downturn in 2009.
• U.S. 3PL market’s gross revenue for 2011 was $133.8 Billion and was three
times the growth in U.S. gross domestic product (GDP).
• 1996 – 2011 CAGR = 10.3%.
• 3PL demand has been strong all year; 3PLs have been the most active user
segment in 2012 both in the US and Europe.
• 3PLs are benefitting from uncertainty
• An uncertain environment drives need to shift risk
• 3PLs provide flexibility and scalability
2013 Armstrong & Associates, Inc
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5. Recent big box deals – 3PL
Inland Empire, Los Angeles Company Size (s.f.) Industry
Q2’12 Ontrac 403,444 3PL & Logistics
Indianapolis Company Size (s.f.) Industry
Q2’12 Carrier Corp 436,000 3PL & Logistics
Q1’12 Prime Distribution 403,000 3PL &Logistics
Q2’12 Jacobson Companies 334,000 3PL & Logistics
Chicago Size (s.f.) Industry
Q2’12 M Block & Sons 915,643 3PL & Logistics
Philadelphia Size (s.f.) Industry
Q2’12 Ceva Logistics 600,000 3PL & Logistics
St. Louis, Kansas City Size (s.f.) Industry
Q2’12 OHL 412,000 3PL & Logistics
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6. United States focus on…
Dispersion by industry 2012 Dispersion by size 2012
2013 Armstrong & Associates, Inc
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7. Distribution of tenants in the market
3PL & Logistics most matches the overall distribution of tenants in the market
due to the wide variety of industries these firms serve.
Size Consumer Food & 3PL & Manufacturing All
Goods/ Retail Beverage Logistics Industries
100-199KSF 20% 32% 31% 52% 35%
200-299KSF 21% 15% 22% 22% 20%
300-399KSF 12% 17% 16% 5% 14%
400-499KSF 7% 6% 12% 8% 8%
500-749KSF 19% 17% 12% 5% 12%
750-999KSF 5% 2% 3% 5% 3%
>1 MSF 16% 11% 4% 3% 8%
2013 Armstrong & Associates, Inc
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8. 3PL Perception vs. Reality
Traditional View 3PLs Today
•Inexpensive, older buildings •Frequently in market for large, 32’/36’ clear,
cross dock facilities, focused on class A.
•Low tech •Often running mechanized facilities;
• MHE leveraging IT acumen.
• IT
•Most 3PLs are not credit worthy. •Many 3PLs are financially strong-higher
percentage of deals have the 3PL on lease.
•Compete on price. •Still a price sensitive business, but error-free
performance and safety are critical to many
customers.
•Heavy penetration in apparel; •3PL customer mix matches overall user
automotive. Some industries do not use profile.
3PLs.
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9. 3PL Real Estate Trends and Requirements
• Lease length tied to length of contract
• Spec buildings may offer landlord more flexibility on lease length
• Need to react quickly
• Often have to turn around an RFP in a short period of time
• Need to be cognizant of buildings/space immediately
• Need to be able to quantify operating costs
• Lots of dock capacity
• Access to highways
• Frequently the “final mile” logistics is outsourced to 3PLs
• 3PLs remain focused on securing high quality class A product
• The trend in the U.S. is towards 36’ clear heights
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10. 3PL Real Estate Challenges
• Immediate occupancy
• Multi-channel distribution
• Lack of cross-dock facilities in major markets
• 3PLs need quality space and lower prices
• Who controls the lease?
• The 3PL?
• Their customer?
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11. 3PL State and Local Incentive Challenges
• Timing to respond to RFP
• Can the 3PL create competitive leverage by reducing their costs through
incentives?
• Can incentives be pre-negotiated with offer to remain for a fixed period of time?
•Who controls the capital investment?
• The 3PL?
• Their customer?
• Who owns the employees?
• The 3PL? or Their customer?
• Are the employees considered contract employees?
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12. 3PL State and Local Incentive Challenges
• Timing to respond to RFP
• Can the 3PL create competitive leverage by reducing their costs through
incentives?
•Who controls the capital investment?
• The 3PL?
• Their customer?
• Who owns the employees?
• The 3PL? or Their customer?
• Are the employees considered contract employees?
• Short-term leases
•Can incentives be negotiated for shorter periods? Most 3PLs are not signing
leases greater than 5 years.
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13. 3PL State and Local Incentive Opportunities
Need to find a way to incent 3PLs for the period of time they are adding value to the
state/community.
• If the incenting entity utilizes a 10-year ROI calculation, how can that be adjusted
for shorter leases?
• Can incentives be approved with a phased approach to accommodate lease
extensions and renewals?
• If the lease and employees are not held by the same taxing entity; how can
benefits be realized?
• Can incentives be pre-negotiated with offer to remain for a fixed period of time to
assist 3PL with responding to RFP?
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14. Same questions as earlier… for your consideration
1. What is the average size of 3PL deals done in the U.S. in 2012?
2. Which companies are using 3PLs?
3. What drives demand in 3PLs?
4. What are some challenges in incentivizing 3PLs?
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15. In conclusion
3PLs are an industry that bring significant value to the states and communities in which
they locate; however, unlike their customers, the 3PL’s investment and employment
often does not quality for state and local support.
• 3PLs are the fastest growing segment – in terms of occupiers of industrial real
estate.
• 3PLs have gained penetration in a wide variety of industries, and now mirror the
overall market.
• States and communities must find a way to help offset the risk for the 3PLs just as
they do for other industries
• Address timing
• Lease term
• Contract employees
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