Distribution and Logistics Trends

CSCMP Annual Global Conference September 21, 2009

Sid Brown, CEO NFI Jordan Brown Solare Development Mitch Trellis Solare Development Jay Todisco Ware Malcomb

Slide 1

Seeing Green

Slide 2

Thinking Green

IDEC announced completion of its Greening project at its

US headquarters in Sunnyvale, CA - January 2009

Slide 3

Greening your New Warehouse

Elements in new commercial buildings:

Solar panels geothermal heating/cooling wind turbines high-reflectance roof membranes

Slide 4

Greening your Existing Warehouse

Greening an existing warehouse:
Electric forklifts Plastic pallets

Motion sensor lighting & water

Day lighting Paperless

CVS Caremark uses electric forklifts in its DCs

Motor-driven roller conveyors power down when not in use

Slide 5

LEED certification
1.) Site planning (minimize transportation)
2.) Energy efficiency

3.) Water management

4.) Material use (recycled/post-consumer 5.) Indoor environmental quality. Buildings can incorporate LEED criteria during construction, or be retrofitted

Slide 6

NFI operates the largest LEED certified DC in Southern CA on behalf of Hanesbrands Inc.
Reduced energy usage by 18% via
natural skylighting and daylighting motion sensor lighting roof insulation energy efficient design

In addition - water consumption in the building is 40% lower than a building of similar size due to landscaping design and low-water bathroom fixtures.

Slide 7

Installed new energy-efficient lighting in 5 DCs in Columbus (combined total of 3.5 million sf)
anticipate an annual savings of $775,000
$650,000 reduction in lighting costs
$125,000 reduced maintenance costs due to new lamps longer life

a 50% reduction in lighting energy consumption The installation included new T5 and T8 lamps and T8 ballasts that offer significantly longer life than the older models and motion sensors in low-traffic areas

Slide 8

Then and WOW

Changes in Products and Packaging

Slide 9

Package Reduction Leaders

In 2005, Wal-Mart and their suppliers reduced packaging on almost 300 toys.
Wal-Mart saved: 3,425 tons of corrugated materials 1,358 barrels of oil 5,190 trees 727 shipping containers $3.5 million in transportation costs in 1 year

HP won Wal-Marts 2008 home entertainment design challenge by reducing packaging on HP Pavilion notebooks by 97%. The notebooks are now shipped three to a carton and each is packaged with documentation materials and cord/accessories in a 100% recycled material messenger bag

Slide 10

Green Supply Chain

Reductions in packaging helps companies green their supply chain by using fewer raw materials and reducing fuel usage.

By working together, manufacturers, suppliers, retailers and transportation providers can maximize supply chain efficiencies.

Slide 11

Supply Chain Sustainability Partners

By selling only concentrated detergent, Wal-Mart estimates the following environmental impacts will be achieved in 3 years:
Save over 95 million lbs of plastic resin Preserve more than 400 million gallons of water Conserve over 520,000 gallons of diesel fuel Reduce more than 125 million pounds of cardboard

Subways supply chain redesign saved:

9 million truck miles 1.6 million gallons of diesel fuel Saved more than 17,000 shipments/yr

Accomplished by:
Its salad manufacturer moved a facility closer to its dry redistribution center.

Sysco eliminated shrinkwrapping on pallets

A protein supplier relocated a refrigerated warehouse to a processing center, eliminating intermediate transport mileage.

Slide 12

 SmartWay Program is an Innovative collaboration between the EPA and the freight industry designed to increase the energy efficiency of the freight delivery system in order to reduce greenhouse gases and air pollution. It was started by the EPA in Feb. 2004 and today has over 1,900 members that travel more than 51 billion miles a year.
SmartWay estimates it saves between 3.3 and 6.6 gallons of diesel fuel annually (equivalent of taking 12 million cars off the road)

Smartway Transport Partners include:

General Mills Georgia Pacific Goodyear IBM Target Kimberly Clark Kohls Kraft Lowes Ocean Spray Wal-Mart P&G PepsiCo Staples SC Johnson & Co. Walgreen NFI Many others

Slide 13

Inventory Management
Flex Manufacturing
Allows manufacturers to produce multiple products Serve demand from nearest, rather than specialized factory

Multi-client warehouse space

Balancing empty space with customer satisfaction Offers ability to fill space with multiple clients Non-corresponding peak seasons offset volume swings

Regional Distribution Centers (RDC)

More, smaller warehouses located closer to client May affect inbound transportation (TLLTL) as well as outbound

Slide 14

Regional Distribution Model

BEFORE
A DC in North Carolina ships certain products throughout the country

AFTER
Certain products go directly from supplier to DCs and then distributed to local markets for faster delivery

Slide 15

Regional Distribution - Implications

Implications for inventory mgmt. and transportation Growth in 301 to 1,000 mile pkg. Volume reflects regional distribution with shippers locating closer to customers As carriers go farther in one and two day, shippers can reduce number and location of RDCs to lower distribution cost without change in service levels
Slide 16

Modal Shifts

Shift from air to ocean & rail is evident in volume declines In North America, YTD July 09 airfreight volumes were down 21% while intermodal volumes were

up 17% thru August.

TL shift to intermodal facilitated by rail service improvements Per EPA, for every ton-mile, a truck emits 3 times more nitrogen oxides and particulates (vs. locomotive)

Union Pacific moves one ton 830 miles on one gallon of diesel fuel.

UPS partnered with the USPS for postal carriers to pick up returns from residences, saving fuel and
reducing cost

Slide 17

Truck Modifications

Global beverage distributor worked w/ NFI & uses aerodynamic truck modifications & lightweight trailers Side skirts and cab extenders improve truck aerodynamics, reduce drag & improve fuel efficiency

Super-single tires replace traditional two-tire arrangements in tractor trailers - for less rolling resistance Nitrogen tire inflation maintains proper tire pressure

Slide 18

Rapidly Changing Transportation Environment

Auxiliary Power Units 1st gen to 2nd gen (diesel to battery) No Idling laws limiting idling times Voluntary reduction in speed of trucks from 65 to 61/62.

On-site fueling located at DCs and manufacturing centers.

Loads and trucks are lighting up less shipments need to go down highway less fuel consumed Larger trailer pools drivers pick-up preloaded trailers less units traveling more efficiency

Time to reduce horsepower on trucks too many trucks on Americas highways today have more HP than actually needed

Slide 19

Distribution Shifts

Intermodal length of haul declining (TL to intermodal shift)

Improved East Coast intermodal facilities will reduce transit times, allow double stacking with further shift from TL to intermodal
Containers routed through the Panama Canal and Suez Canal will improve prospects for East Coast intermodal & reduce West Coast port of entry.

Slide 20

A different kind of green bottom line impact

Per OOIDA, idling at dock and empty miles cost $5.7 billion annually
Government incentives States offer rebates/deductions The Recovery Act Per recent EPA finding, Green House Gases contribute to air pollution opening door for more govt regulation

Potential implications: Higher fuel efficiency standards for autos Require OEMs to produce hybrid/electric Mandate use of clean energy (e.g. wind)
2010 Emission Standards for Diesel Engines ($6 $8,000)

Slide 21

Distribution and Logistics Trends

CSCMP Annual Global Conference September 21, 2009

Sid Brown, CEO NFI

Slide 22

Benefits to Green
An opportunity to take back control of daily operating costs
Lower energy bills Lower maintenance costs Lower carrying costs (green mortgages, property tax subsidies, insurance savings)

Increases sustainability credibility Government support and benefits; Now is the time Do the right thing
Oct-09 23

Building Envelope
75% of green building

Often the easiest fixes

Seal the doors and windows

Add insulation Change employee behavior

Oct-09 24

Energy Efficiency
Smart meters

Keeping the doors and windows sealed

Timers on lights

Change employee behavior

Oct-09

25

Renewable Energy
Industry/Market Overview 7 Major Types of Renewable Energy Success Growth Federal Incentives 30% ITC Accelerated Depreciation State Incentives Varies State to State Risks Political Financial Operational Technological

Oct-09

26

Renewable Energy
Wind
Tremendous MW generation, especially at large sizes; tremendously expensive Shrunken down, does it work on the roof?

Solar
Tough to do but ultimately an excellent long term investment Currently state dependent but very fluid situation Will incentives change?

Onsite Micro-Generation
Burning natural gas in an onsite generation plant and using the created heat to warm facility is a good solution today

More realistic solution for urban settings

Oct-09

27

The Future
Going forward, you MUST take into consideration sustainability
New construction should be green Current portfolio should be systematically overhauled to maximize its efficiency

To do otherwise would be foolhardy and short sighted

The rest of the world is catching up to us, we must use our resources more efficiently

Oct-09

28

Resources

Singapore Water Usage

http://www.time.com/time/magazine/article/0,9171,1921608,00.html

Green Buildings have higher property value

http://www.reuters.com/article/pressRelease/idUS70584+14-Sep2009+BW20090914

Commercial Buildings going green

http://www.boston.com/realestate/news/blogs/renow/2009/09/since_the_discu.html

Oct-09

29

LEED & Sustainable Design

Discussion Points
Sustainable vs. LEED LEED Overview Certification Green Development

Sustainable vs. LEED

Sustainability drives LEED building cannot be LEED rated without also being sustainable. Sustainable = Green

Buildings can be sustainable without being LEED rated More later Market Forces Value of LEED Certification vs. Marketing

LEED Overview
Who is the USGBC? USGBC Creators of LEED Non-profit Organization 70 Regional Chapters Developers, Architects, GCs, Manufacturers

Currently 20,000+ members of USGBC

LEED Overview
LEED = Leadership in Energy and Environmental Design
Rating systems to determine feasibility of various sustainable techniques as they relate to individual project types.

The LEED Green Building Rating System

Encourages and accelerates global adoption of sustainable green building and development practices through universally accepted tools and performance criteria. LEED has become an accepted national and international benchmark system for sustainable design and promotes a whole building approach.

35

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LEED Overview
Certification Levels: Certification Categories: NC EB New Construction and Major Renovation Existing Buildings

Platinum
Gold Silver

CS to

CORE AND SHELL (most applicable industrial)

Certified

CI Commercial Interiors (TI can be certified by itself) Multiple buildings or campus Schools Retail, Healthcare (pilot programs)

LEED Overview
What does it look like?

Sample LEED-NC checklist

Prerequisites for LEED CS

Code* Category

SS-1
EA-1 EA-2 EA-3 MR-1 IQ-1 IQ-2

Construction Activity Pollution Prevention (BMP practices in place)

Fundamental Commissioning (Must prove building operates as designed) Minimum Energy Performance (Meet ASHRAE minimum efficiency) Fundamental Refrigerant Management (No CFCs to be used) Storage and Collection of Recyclables (Designated area onsite) Minimum IAQ Performance (Meet ASHRAE minimum ventilation) Environmental Tobacco Smoke Control (Smoke areas designated

* ALL prerequisites must be obtained in order to obtain any certification Corporate Express

Common Credits for Industrial Buildings

Code SS-4.3 SS-4.4 SS-6.1 SS-6.2 SS-7.2 Code WE-1 WE-3 Category Alternative Transportation (Preferred parking for efficient vehicles) 3 points Alternative Transportation (Parking provide per agency min.) 2 points Storm water Design (Detain storm water to reduce run-off) 1 point Storm water Design (Filter storm water via bio-swale or fossil filters) 1 point Heat Island Effect, Roof (White roof covering) 1 point Category Water Use Reduction (Water efficient landscaping) 2 points Water Use Reduction (Water efficient toilet fixtures) 2 points

Code
EA-1

Category
Optimize Energy Performance (Exceed code min. for energy

Common Credits for Industrial Buildings

Code MR-2 MR-4 MR-5 Code EQ-3.1 EQ-4.1 Category Construction Waste Management (Divert 50% to recycle center) 1 point Recycled Content (10% of materials used to construct building) 1 point Regional Materials (10% extracted and manufactured within 500 miles) 1 point Category Construction IAQ Management (Protect materials during construction) 1 point Low-Emitting Materials (Interior sealants and adhesives) 1 point

EQ-4.2
EQ-4.3 EQ-4.4 Code

Low-Emitting Materials (Interior paints and coatings) 1 point

Low-Emitting Materials (Flooring systems) 1 point Low-Emitting Materials (Interior composite wood products) 1 point Category

Common Credits for Industrial Buildings

Total Points using only typical credits
23 Minimum Points total for LEED-CS certification 40

Deficit

17

Some typical low-impact strategies include (9 additional credits):

Light Pollution Reduction (SS-8), Water Use Reduction 40% (WE-3), Green Power (EA-6), Construction Waste Management Divert 75% (MR-2), Recycled Content 20% (MR-4), Regional Materials 20% (MR-5), Certified Wood

Certification

What does it cost?

Step One Registration Submit application + $450 fee Step Two Precertification = Unique process for Core & Shell projects Submit Checklists/Credit Templates/Narratives + $2,500 fee Preliminary Review Process (for design intent only) Step Three Certification (effective through 12.31.09) Design Review, Construction Review or combination Design Review Fee = $12,500 $.025 / sf up to

Petsmart

Certification
ADVANTAGES?
Marketing Potential No need for creative language

Inclusion on official, national database (USGBC) Placards are highly visible and can be placed on building

Verification of Proposed Sustainable Solutions

Building Commissioning Process

Justification of costs for sale/lease

Certification
What is the industry doing?
Creating LEED checklists Exploring pricing alternatives Implementing basic strategies or LEED

Marketing as sustainable or green ready

Emphasis on the following issues things tenants can see/feel/smell:

Indoor Environmental Quality Low VOCs Energy Efficiency (Energy Star ratings) White Roofs very popular on warehouses Green Roofs mostly office buildings (for viewing) High-Efficiency Lighting quick payback

Costs
Hard Costs (office
and Industrial)

Typical additional Construction Cost is 1%-3% to meet LEED Certified Majority of cost is upgraded mechanical systems, insulation, etc.

Green products have become commonplace and near comparable in price.

Soft Costs

Applicator fees wide ranges ($10-100k; sometimes more)

Commissioning fees $50-100k typical, but competition drives cost down

Energy Modeling varies widely depending on familiarity ($10-50k +)

Architectural/Engineering varies depending on complexity and size

Application fees relatively minimal in comparison

Sears - ProLogis

780,862 SF industrial distribution center on 45 acre site LEED NC Silver Certification | 36 points New Construction Category
20% recycled content 20% of materials manufactured |extracted | processed regionally indoor air quality management system low-emitting paints | sealants | adhesives preferred parking for fuel efficient vehicles & carpools water efficient landscaping cool roof system 4.3 acre water basin for storm water control