First Principles

Today I was thinking about first principals and what first principals exist in my business as an industrial real estate resource and representative. A first principal is basically a concept which cannot be divided further. In other words, it is a foundational concept and leads to other concepts which are based upon something that cannot be further deduced.

I think one first principal for my business is the notion of service to individuals not organizations. When I represent XYZ Company, I am really representing and furthering the interests of the individual stakeholders at XYZ Company. This way of thinking helps me focus on building a personal relationship with the client where I understand their particular ideas, needs, and wants-not just the company’s objectives.

While it is great to have a reference board of the companies I represent, I really should have one that has just names of the people I work with at those companies. To me, they are a first principal for my business.

Calculating Dock Position Requirements

One of the most important facility requirements for any logistics operation is the amount of dock high positions an industrial building provides. Often overlooked, dock high positions can have a significant impact on whether an operation is able to meet its key performance indicator objectives and contribute to the overall success of a company.

Determining the minimum number of dock positions needed for a facility involves an understanding of the internal and external factors which affect the amount of dock high positions required. The internal factors can include the amount of trucks serviced by the docks over a period of time (average and peak), the time to load and unload each trailer per dock, staging and cross-docking requirements, work hours over a period of time, employee breaks, drop trailer requirements, trash / bailing requirements, shifts, and shipping preferences. External factors can include time of truck arrivals and departures, the reliability of carriers, whether carriers will back haul drop trailers, types of trailers used by carriers, and truck driver capabilities. A comprehensive understanding of these and any other internal and external factors will result in more precise understandings of an operation’s dock high requirements.

In general, the minimum number of dock high positions are calculated based upon a formula involving their use, the amount of time they can be used, and a safety factor. Below are three examples of manual calculations using some of the internal and external factors above.

  1. Number of Truck Positions Needed = ((Number of Trucks per Year x Hours it takes to Load / Unload a Truck) / Work Hours per Year) x Safety Factor [1]
    1. Inputs
      1. 7,000 trucks per year
      2. 2.5 hours for loading / unloading
      3. 2080 work hours per year
      4. Safety factor of 25%
    2. Calculation
      1. (7,000 trucks per year x 2.5 hours for loading / unloading) / 2080 work hours per year) = 8.4 x 1.25 safety factor = 10.5 docks or 11 dock high positions needed at a minimum
  2. Number of Truck Positions Needed = Number of Trucks per Hour x Turnaround Time per Hour [2]
    1. Inputs
      1. 20 trucks per day
      2. 8 hour work day
      3. 150 minute turnaround time
    2. Calculation
      1. (20 trucks per day / 8 hour work day) = 2.5 trucks per hour x (150 minute turnaround time / 60 minutes per hour = 2.5 turnaround time) = 6.25 dock positions needed or 7 positions needed
      2. If all trucks arrive in AM, then work day would be shortened to 4 hours and the dock requirements would be 12.5 or 13 positions needed
  3. ((Peak trucks per day) x (Average dock time per truck) x (Safety factor of 1.5 to 2)) / Number of hours in work day [3]
    1. Inputs
      1. 20 trucks per day
      2. 2.5 hours per truck
      3. 8 hour work day
    2. Calculation
      1. ((20 trucks per day) x (2.5 hours per truck) x (1.5 safety factor)) / 8 hour work day = 9.375 docks required or 10 docks needed

These three calculations show that depending on the formula used, roughly the same inputs will yield slightly to drastically different minimum dock requirements. Where formulas 1 and 3 resulted in 11 and 10 positions required, formula 2 resulted in only 7. Not surprisingly, formula 2 did not employ a safety factor. Safety factors are used to account for unforeseen variability such as disruptions in deliveries or labor.

Companies may also employ manual simulations of dock requirements.  These simulations include the detailed logging of docks used by the various types of vehicles that deliver or ship to a facility.  These simulations can show how to improve dock assignments or delivery schedules for better dock utilization and determining of minimum docks required.[4]

The use of technology in determining the minimum number of dock positions required may make the use of the manual calculations above obsolete. Warehouse management systems or WMS may include dock requirements based upon much more detailed inputs and trends.  However, the manual calculations formulas above help to show the importance of understanding the external and internal factors involved with determining the minimum number of dock positions for a given operation.

 

Real Estate

Chinese car maker BAIC has disclosed plans to build an assembly plant in Mexico after opening a dealership in Mexico last month. Among Chinese car makers in general, there is growing interest in Mexico as a potentially strong export market. Last year Chinese car makers exported over 330,000 vehicles to Mexico.

Amazon has announced that it will build its 10th fulfillment center in California, agreeing to locate an 855,000 square foot facility near Sacramento International Airport.  The fulfillment center will bring a reported 1,000 warehouse jobs to the area.

PortFresh Logistics is constructing a 100,000 square foot cold storage facility at the Port of Savannah. The facility, which will primarily serve the importers of South American produce, will create 40 jobs upon its opening with an expectation of 75 full-time jobs by 2021.

Newegg, a web-only retailer of technology products, has opened what it calls a Hybrid Centre in Ontario, Canada. The 81,000 square foot facility will include a showroom where customers can view some of its latest offerings.  Newegg also has a Hybrid Centre next to its Los Angeles headquarters.

UPS has applied for Miami-Dade County incentives to build a $65 million sorting facility in the northwest part of the County. In the deal UPS would reportedly receive $877,180 in county funds in exchange for creating 25 jobs and retaining 2,005 existing jobs.

Wal-Mart opened its new $100 million grocery distribution center in Mebane, North Carolina.  The center will employ more than 550 and distribute food to more than 55 Wal-Mart stores in North Carolina and Virginia.

Prologis, the global leader in logistics real estate, reported record second quarter 2016 results.  Rents on lease renewals jumped 17.8%  while rents overal rose 7.9 percent.  These led to second quarter net earnings per share of $0.52 compared to $0.27 in the second quarter of 2017.

Many of China’s logistics property companies have disclosed plans to go public amidst the e-commerce boom there.  Groups such as China Logistics Property and GLP have already gone public and otheres, such as e-Shang Warehouse Services, plan to list soon.

Gap said they will add more than 100 jobs and invest $3.1 million in uprades and technology to increase its e-commerce capabilities in its Gallatin, Tennessee facility.

Retailers are adding more distribution centers closer to major population centers in an effort to provide more efficient customer service.  Customers increasing demand to receive orders faster and cheaper has pushed many of the so-called inland ports to grow much faster than average US industrial markets.

General Mills announced the layoff of 1400 jobs, including 550 in United States as part of a rework of its supply chain.  General Mills plans on selling a plant in southern New Jersey and sell another in northern Ohio.

 

 

 

[1] Mulcahy, David E. Warehouse Distribution and Operations Handbook. New York: McGraw-Hill, 1994. 4.18-.20. Print.
[2] 4Front Engineered Solutions, Inc. “Dock Planning Standards.” (n.d.): 10. Web. 31 July 2016.
[3] Gross & Associates. “Calculating Dock Door Requirements.” (n.d.): n. pag. Web. 31 July 2016.
[4] Mulcahy, David E. Warehouse Distribution and Operations Handbook. New York: McGraw-Hill, 1994. 4.18-.20. Print.

Move to Cushman & Wakefield

In order to better serve my clients, I have moved from Newmark Grubb Knight Frank to Cushman & Wakefield as of May 27th.  Cushman & Wakefield is the world’s largest private commercial real estate brokerage company and I am excited about the opportunity to leverage its resources in my business.  I will be working in the Long Beach and Torrance offices.  Please contact me anytime if I can be of assistance.

T +1 (562) 276-1405

H +1 (714) 771-2063

M +1 (310) 874-7934

E Chuck.Berger@cushwake.com

On Leases

A client, who is a large private landlord, and I were discussing one of his tenants recently who was singing the blues about their lease and how they did not think it was fair that the landlord was enforcing certain provisions of the lease because “they had not read it”.  You would think that this is rare.  After all, it is hard to imagine something more dangerous for a business than not examining the contracts to which they are a party.  In my experience, however, this is not a unprecedented occurrence.  Business leaders whose firms lease space (tenants) seemingly have less and less time to understand a lease’s impact on their business.  Even if tenant’s hire a real estate representative and attorney to negotiate the lease, they still can be surprised by a problem during the lease term.  Yet, tenants can mitigate their risk for surprises by following a few best practices which are essential for avoiding most problems down the road.

First, tenants should fully understand their intended use in the building, both at the time their lease is negotiated and during the lease term, and make sure their present and future use is allowable under the lease and any other entitlement (i.e. zoning, code, CC&Rs, etc.).  In addition, tenants should confirm that the amenities within the premises are sufficient for its operations.  There are horror stories of industrial tenants signing long-term leases only to find out the sprinkler system required for their product is insufficient and will substantial capital to upgrade.  Problems such as these can cause significant and, sometimes, terminal disruptions to an operation.  The key is for tenants to properly convey their present and intended use to their real estate representative and attorney, and be certain their use is amenable in all respects.

Second, tenants should understand their obligations under a lease.  Leases are typically unique, and just because a lease is referred to as a net, triple net, gross, full service gross, percentage or other lease type does not mean that the actual tenant obligations in the lease will be consistent with the aforementioned descriptions.  Of particular concern are maintenance provisions, i.e. who takes care of what and when, and when rent is due and considered late.  Tenants should review all of their obligations under a lease with their real estate representative and attorney prior to signing the lease.

Third, tenants should review their leases periodically over the lease term.  Things change and even the most thorough lease at signing can be in need of amendment after a few years to reflect changes in a tenant’s business or other external factors.  Also, tenants should consider a lease audit or review of its financial obligations under its lease(s) to determine if it has overpaid for any charges levied by the landlord.

Finally, tenants should hire a qualified real estate representative and attorney to negotiate business and legal terms with the landlord and serve as a resource throughout the term of the lease.  Both can serve as insurance against entering into a lease that will prove problematic in the future.  In addition, tenants should look for a real estate representative and attorney who will be a resource in the future and, if possible, help focus the tenant’s attention on future lease obligations when necessary.