Confidence Index 2017

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buyer and provider perspectives giving us a 360 degree view of sentiment and current issues and ..... facilities and the
Ireland Logistics & Supply Chain

Confidence Index 2017 CBRE and KPMG explore the latest industry trends and outlook

Introduction CBRE, KPMG Ireland and the FTAI, in conjunction with specialist sector research agency Analytiqa, have recently undertaken the second in a series of annual surveys to assess confidence and expectations in the Irish logistics and supply chain sector. This survey mirrors similar analysis that is undertaken by Analytiqa in other countries on this specialist sector of the economy and follows on from last year’s inaugural Irish survey.

Garrett McClean, Executive Director CBRE

We are delighted that more than 50 senior decision makers from across the logistics and supply chain sector in Ireland have for the second year running kindly expressed their views and insights to facilitate this important industry research. Three-quarters of respondents have taken part in both surveys, giving us valuable consistency of participation. Respondents included CEOs, managing directors and senior management of some of the largest logistics providers firms and buyers in the State. The resulting report examines the key performance indicators for businesses operating within the logistics and supply chain sector. It provides insights from both logistics buyer and provider perspectives giving us a 360 degree view of sentiment and current issues and topics affecting the sector. In addition to sharing their views on the recent performance of the logistics sector, respondents also outlined their expectations over the near term.

Fionn Uibh Eachach Director KPMG

Since last year’s survey was conducted, it is fair to say that the landscape has changed immeasurably, with seismic events affecting Ireland’s two largest trading partners. Concerns such as last June’s unexpected Brexit referendum result and the election of a new President in the United States have exercised the minds of respondents to this year’s survey and it is no surprise that there has been a deterioration in overall confidence in the sector year-on-year considering the more uncertain backdrop. Throughout the report, we have compared this year’s results with those from 12 months ago for reference. Considering how significant Brexit will be for this sector of the economy, we have provided additional commentary on this subject in the subsequent pages, which we hope will be of interest. We trust you will enjoy reading this year’s edition of the CBRE KPMG Irish Logistics and Supply Chain Confidence Index and would welcome any feedback you might have.

All figures and data relating to the Irish Confidence Index within this report have been researched by Analytiqa. Analytiqa is a market analysis and business intelligence company providing published reports, custom research and strategic advisory for multinational clients across all sectors and industry verticals of the global supply chain. Analytiqa delivers high quality, commercially relevant research to assist clients to grow and profit in challenging and competitive markets. www.analytiqa.com No part of this publication may be reproduced or stored in a retrieval system, in any form or by any means, electrical, mechanical, photocopying or otherwise, without the prior consent of the publishers. The views and forecasts presented in this report represent independent findings and conclusions drawn from a study by Analytiqa. Analytiqa can accept no responsibility for any investment decision made on the basis of this information or for any omissions or inaccuracies that may be contained in this report. This report has been produced in good faith and independently of any operator or supplier to the industry.

Contents 1.

CBRE Market Summary............................................................ 1

2. KPMG Industry Focus – Brexit.................................................. 5 3. Measuring Confidence.............................................................. 9

Respondents....................................................................11

4. How Confident is the Irish Logistics Sector?...........................13 5. Business Confidence Compared to 12 Months Previous.........14 6. Business Confidence Forecast for Next 12 Months................15 7.

Growth Opportunities..............................................................17



Anticipated Changes in Turnover......................................17



Anticipated Changes in Profitability..................................19



Forecasts of Capital Expenditure.................................... 21



Forecast Changes to Employment.................................. 22

8. Key Issues............................................................................... 23

Eircode......................................................................... 24



E-Commerce................................................................ 25



Comparing Ireland Internationally................................ 27



Logistics Property........................................................ 30



Innovation..................................................................... 31



New Business.............................................................. 33



M&A Activity................................................................ 33



3PL in Ireland............................................................... 33



Business Priorities....................................................... 34

9. Key Challenges........................................................................ 35 10. Key Opportunities................................................................... 37 11. Brexit....................................................................................... 39 12. About The Sponsors................................................................ 44 13. Contacts.................................................................................. 45

CBRE Market Summary

CBRE KPMG Logistics & Supply Chain Confidence Index 2017 2

Attempting to predict what the year ahead holds for the Irish economy and indeed the real estate sector is not without its challenges considering the extent to which the global economic and political landscape has changed over the last 12 months. Despite the fact that Ireland remains on course to be one of the best performing economies in the Eurozone for the fourth year running in 2017 and now has more than 2 million people employed, a combination of seismic events has muddied the waters, to the extent that the trajectory of the Irish economy remains somewhat uncertain. Economics, tax and politics will all have a huge bearing on the market over the course of the next 12 months. Considering the €1.2 - €1.4 billion of trade between Ireland and Britain each week and the fact that Ireland is the only country sharing a land border with the UK, Brexit is a particular concern for Ireland, with potential implications for jobs, economic growth and Government finances. Meanwhile, political risks in the Eurozone have risen following President Trump’s victory, heightening perceived risks of populist parties gaining power in other countries in Europe. There is understandably some concern about the sustainability of Foreign Direct Investment (FDI) flows into Ireland from the USA following last year’s surprise election result and expectations that corporate tax rates in the US will be lowered in an effort to encourage some occupiers to remain in the US. We don’t see this having an adverse impact on multinationals that are already operating successfully out of Ireland and in any event many corporations will still need to have an EMEA presence to service their European customer base. This bodes well for Ireland, particularly considering that our 12.5% corporate tax rate remains intact.

However, we may see some deceleration of US FDI in 2017 as potential occupiers take time to reflect, which could potentially negatively impact take-up volumes in the industrial and logistics sectors of the market in Ireland. This year’s survey has some valuable insights into respondent’s particular concerns around Brexit which make for interesting reading. Demand for industrial and logistics facilities remained very strong throughout 2016 although annual take-up volumes in the Dublin market were down compared to the extraordinary performance achieved in 2015, primarily due to a scarcity of modern industrial accommodation along key road networks – an issue which has been picked up by respondents to this year’s survey. As we had forecast, prime industrial rents rose by more than 25% during 2016 to reach €94 per square metre (€8.75 per sq. ft.) by year-end. Prime rental values are now close to levels that justify new development and on that basis, we expect to see an increase in development activity in this sector of the market in 2017. We expect to see a notable increase in planning applications for new industrial schemes being lodged over the course of the next 12 months and also some limited speculative development commencing. It remains to be seen if appetite for industrial properties will be negatively impacted in 2017 or if some occupiers will put location decisions on hold as a result. In any event, we expect to see continued appetite from logistics and distribution sector occupiers along with data centre end users and operators throughout 2017.

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With the supply of modern industrial accommodation scarce and expected to remain constrained for some time, an increasing proportion of occupiers in the industrial and logistics sector are now willing to commit to 10 year leases and in some cases longer leases. However, occupiers such as those fulfilling back-to-back contracts, who can only commit to shorter terms will increasingly struggle to find suitable modern premises in strategic locations around the M50. These occupiers will, in some cases, be forced to locate further from the capital in an effort to secure premises. New lease accounting rules will increasingly have an impact on the lease length and lease terms that occupiers are willing to commit to being that this has a bearing on the company’s balance sheet.

From a design perspective, we expect to see increased demand for the provision of higher clear internal heights within new logistics buildings. We also expect to see increased use of mechanisation and robotics in order to increase efficiency and reduce long-term operating costs, another issue which has been identified in this year’s survey. From a green perspective, we are seeing more energy efficient lighting systems being installed within warehouses and to a lesser extent the use of photovoltaic and solar panels being installed on the roofs of larger logistics and manufacturing buildings. That said, we don’t expect to see the same level of adoption as the UK where there are Government incentives in place to encourage sustainability.

CBRE KPMG Logistics & Supply Chain Confidence Index 2017

Although this year’s survey clearly points to weaker confidence amongst both logistics operators and shippers (the collective name for manufacturers and retailers) as a result of economic uncertainty, with developments in e-commerce driving demand for modern distribution facilities and the explosion in technology and cloud computing driving demand for data centres, we are confident that demand will remain strong in this sector throughout 2017. We are encouraged that 2017 will see the

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first meaningful improvement in the development of new speculative industrial and logistics facilities now that rental levels have reached a level that justifies the development of much-needed new modern stock. It remains to be seen however, if and how Brexit and indeed changes in tax policy in the US may impact on the volume of activity in this sector over the course of the next 12 months.

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KPMG Industry Focus – Brexit

CBRE KPMG Logistics & Supply Chain Confidence Index 2017

6

In this year’s report, we look at the special topic of planning for ‘Brexit’ – arguably the most impactful political development of 2016 for business on the island of Ireland in the short to medium term. The UK Government maintains it is on track to leave the EU by the end of March 2019. While there are many levels of political and technical issues to negotiate, the indirect tax issues are likely to be a particular challenge for many Irish businesses and especially relevant to those in the logistics and supply chain industry. Given the relatively short timeframe for exit from the EU, it is critical that Irish businesses trading in or with the UK start to plan ahead in order to minimise potential additional costs, negative cash flow and disruption to supply chains. This exercise will need to be done in parallel with negotiations which will determine the rules to apply post exit from the Union - not afterwards, as that could be too late to implement meaningful supply chain modifications. The UK Government have declared their preference to implement the World Trade Organisation model (which has commonly been referred to as the ‘Hard Brexit’ model). Under this model the UK would not be part of any customs free trade area, trade bloc or association. Furthermore, the UK may decide not to negotiate a preferential trade agreement with the EU and, by default, the most favoured nation tariffs will be applied in line with membership of the World Trade Organisation. Under this model the cost and administrative burdens of trading in

and out of the UK would increase significantly, particularly for certain sensitive industries such as agriculture. The findings of the report concur, with both logistics and shipping businesses in agreement that increased financial costs and tariffs will be a significant threat to their business. In addition, the UK would not remain within the EU VAT area – accordingly businesses should plan for the resulting changes in the VAT treatment of their supply chains in and out of the UK and consider any mitigation strategies which may be beneficial. It should be noted that the VAT rules may not be reciprocal. For example, the UK may decide to implement preferential VAT treatment to replicate the current position but EU countries will be required to treat UK imports like all other imports from non-EU countries.

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Our ‘Brexit’ section of the study shows that the vast majority of businesses expect ‘Brexit’ to have a negative impact on both their company and the economy of the island of Ireland. As the UK is Ireland’s largest trading partner these findings come as no surprise and ‘Brexit’ is sure to have a major impact on businesses trading in and out of the UK and the wider economy. Therefore it is critical that Irish businesses understand what changes are coming down the tracks to circumvent any avoidable negative impact. Whilst not an exhaustive list, some of the implications of a ‘Hard Brexit’ are set out as follows.

VAT regulated by EU-wide rules It is expected that the current UK VAT law will largely remain in place, but it is unknown if the UK will retain its domestic VAT rules in the same form and how it will interact with EU counterparts. There are many policy choices which the UK government will need to decide on, ranging from incentivising certain industries or transactions to using VAT to increase the total tax take. Fundamentally, it will mean that current VAT zero-rated intra-community supplies of goods are likely to be treated as VATable imports and exports between UK and EU Member States. Apart from the potentially negative cash flow effects, the implication of these changes in treatment includes the need to alter Enterprise Resource Planning (ERP) systems, invoicing and VAT reporting processes. It could also lead to disruption or delay in certain supply chains, which may require solutions such as VAT and customs warehousing or other supply chain modifications.

Access to internal market It is unknown if the UK will retain rights to access the single market or if it will enter into negotiations with the EU for a free trade agreement or membership of European Economic Area / European Free Trade Area (EEA/EFTA). Assuming the UK does not join the EEA post exit from the EU, then the UK will no longer have access to the benefits of the internal market arrangements. This could lead to a potential increase in the cost of

goods imported into the UK and for UK goods sold into EU countries. It is certain that this route would result in increased trade costs, increased compliance costs and the need to amend ERP systems.

Access to EU Free Trade Agreements The UK may no longer be entitled to avail of EU FTAs with third countries such as Mexico, South Africa, Chile, Switzerland, and South Korea (as well as other arrangements in the pipeline such as the USA, Canada and Japan). As a result, the UK would be required to negotiate new trade agreements with their major trade partners which typically involves a prolonged negotiation process. From a UK perspective, they will have greater autonomy in the negotiation process and greater input into desired outcomes, although their trade partners will also have their own objectives. In the absence of any successfully negotiated trade agreements however, the net result could be potential trade barriers – for example, exports and imports in and out of the UK may be subject to significant additional customs duties and compliance procedures. This is particularly relevant for certain exposed sectors in Ireland, such as agri-business which trades heavily into the UK.

Unions Customs Code and EU Regulations Currently the Unions Customs Code and EU Regulations (to include the current customs reliefs and measures) are the primary source of UK customs legislation. Post ‘Brexit’, the EU customs legislation would become redundant in the UK which would potentially result in increased customs duties, revised procedures, increased administrative costs of EU/foreign trade and systems changes. This will be of particular importance to both logistics and shipping businesses upon which the burden of dealing with such administrative and systems changes will fall.

CBRE KPMG Proposal Logistics for the & provision Supply Chain of audit Confidence services toIndex 2017 88

Waiting to see what will happen post ‘Brexit’ is not an option. According to the findings of the report, the single biggest challenge that businesses envisage that they will face following ‘Brexit’ is a recession or a downturn in economic performance. It is therefore essential that businesses start planning now. Interestingly, the findings show that generally businesses have not engaged with

their professional advisors to assist them in quantifying the potential impact ‘Brexit’ could have on their businesses. Businesses who have a good understanding of their supply chains and have managed their ‘Brexit’ exposure in detail at a product, customer or supply chain level will be well placed to create the most competitive solution which is fit for the post-‘Brexit’ world.

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Measuring Confidence

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In undertaking this survey, we have adopted the same methodology used across similar surveys conducted by Analytiqa research for other jurisdictions. As this is the second recording of the Irish Logistics and Supply Chain Confidence Index, we have for the most part followed the same questioning as last year to aid comparison and analysis. The insights recorded take a dual perspective across the sector, with responses from those operating as logistics providers and buyers of these services. This report was supported by senior decision makers, some of Ireland’s most successful PLCs, prominent MNCs and large logistics providers, including:

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Respondents There were a total of 52 respondents to the survey of which 27 were from logistics firms and 25 were shippers. 36% of respondents were classified as Managing Directors, while a further 33% of respondents were Directors of their firms. A further 17% described themselves as Supply Chain Directors with almost 8%

being Logistics Directors of their firms. In more than two-thirds of firms in the logistics sector, the survey was completed by the Managing Director. Meanwhile, 36% of respondents from shippers were supply chain directors with a further 36% being directors.

36%

4%

CFO

33%

17%

8%

2%

CEO

MD

Supply Chain Director

Logistics Director

Director

CBRE KPMG Logistics & Supply Chain Confidence Index 2017 12

Description of Logistics Respondents

Description of Shipping Respondents

Of the logistics firms that responded to this survey, 48% are categorised as a 3PL company, 30% as a Forwarding company, 18% were Hauliers with the remaining 4% being Express firms.

Of the shipping firms that responded to this survey, there was a relatively even split with 24% described as Pharmaceutical companies, 20% as Industrial firms, 24% as Food companies, 24% as Retailers and 8% described as Technology firms.

3PL

Food

Forwarder

Industrial

Express

Pharma

Haulier

Retail Tech

8% 24%

30%

24% 48% 4% 24% 18%

20%

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How Confident is the Irish Logistics Sector? It is once again encouraging to report a positive outlook from the sector. The CBRE KPMG Ireland Logistics and Supply Chain Confidence Index for 2017 has been set at 60.4, down, however, from the 72.7 figure reported in 2016. Within this context, interestingly, there has been a reversal of confidence sentiment this year. In 2016, logistics operators were considerably more confident (81.1) than shippers (64.0). This year, we see confidence amongst logistics operators fall to 59.7, with a 61.2 measure at shippers.

Our index takes into account the proportion of respondents quoting improvement, no change or deterioration in the sector. In the calculation of the index, a reading of over 50.0 indicates an improvement, or expectation of future growth, while below 50.0 suggests a decline. The further away from 50.0 the index is, the stronger the change over the period.

Shippers Confidence

Logistics Operators Confidence

60.4

61.2

59.7

Ireland Logistics Confidence Index 2017

Overall Confidence

Business Confidence Compaired to 12 Months Previous 50% of respondents to the Irish survey this year say they are more confident about business conditions in the logistics and supply chain sector than they were only 12 months ago, a figure down some 16% on last year. The deterioration year-on-year is perhaps not surprising considering the extent to which the global economic landscape has changed in the intervening period and levels of uncertainty currently prevailing in the aftermath of the unexpected ‘Brexit’ referendum result and changing policy in the United States. The number of respondents

who said that conditions were ‘somewhat more difficult’ compared to 12 months ago was up by more than 23% year-on-year. When asked how confident they were compared to 12 months previously, 48% of respondents say that conditions are ‘somewhat more favourable’, which is encouraging. Only 2% of respondents say that conditions are ‘much more favourable’ than last year, which is down year-on-year with 9% of respondents last year having anticipated much more favourable conditions in 2016.

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17% of respondents see current conditions as broadly the same while 29% of respondents view current conditions as ‘somewhat more difficult’ than 12 months ago. Despite increased uncertainty, it is encouraging to note that less than 4% of respondents see current conditions as ‘much more difficult’. The responses to this question differ somewhat between the logistics sector and shippers, with shippers being more confident. 37% of logistics operators say that conditions were ‘somewhat more difficult’ compared to the same period last year compared to 20% of shippers.

This marks a notable deterioration in sentiment yearon-year. Interestingly, only 41% of logistics operators describe conditions as ‘somewhat more favourable’ compared to 56% of shippers. While 4% of shippers describe current conditions as ‘much more favourable’, no logistics operators described conditions as ‘much more favourable’ compared to 12 months ago. 18% of logistics operators have seen no change in conditions year-on-year compared to 16% of shippers.

Business Conditions vs 12 Months Previous Much More Favourable

Shippers

4%

Logistics

0% 56%

Somewhat More Favourable

41%

16%

The Same 18%

20%

Somewhat Difficult

Much More Difficult

37%

4% 4%

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Business Confidence Forecast for Next 12 Months When asked how confident they are about business conditions over the next 12 months, 40% of respondents say that conditions will be ‘somewhat more difficult’ which is perhaps not surprising. A further 6% of respondents say that conditions are likely to be ‘much more difficult’ next year. 21% of respondents expect business conditions to be the same while 31% expect conditions to be ‘somewhat more favourable’ over the next 12 months. Only 2% of respondents are expecting business conditions to be ‘much more favourable’ over the next 12 months. The responses differ somewhat between the logistics sector and shippers, with logistics operators being more pessimistic. 44% of logistics operators say that conditions over the next 12 months are likely to be ‘somewhat more difficult’ compared to the same period last year compared to 36% of shippers. Meanwhile, 36% of shippers say that conditions are likely to be somewhat

more favourable’ over the next 12 months compared to 26% of logistics operators, which is interesting. 21% of respondents expect no change in business conditions over the next 12 months. 19% of logistics operators expects no change year-on-year compared to 24% of shippers. Meanwhile, while 4% of logistics operators expect ‘much more favourable’ conditions over the next 12 months, no shippers expect ‘much more favourable’ conditions over the next 12 months. The overall figures point to a deterioration in confidence year-on-year with 46% of respondents to this year’s survey expressing a negative outlook for the coming 12 months, more than 25% higher than 12 months previously.

Business Conditions Over Next 12 Months 0%

Much More Favourable

Somewhat More Favourable

4%

36% 26%

24%

The Same

Somewhat More Difficult

19%

36% 44% 4%

Much More Difficult

7%

Shippers Logistics

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Growth Opportunities The study aims to uncover the confidence indicators to validate the index score. We asked participants to reveal their projections and plans for the year ahead. In this section, we will look at turnover, profitability, capital investment and workforce projections to determine the changes in key business indicators and decisions, hinting at confidence levels throughout the industry.

Anticipated Changes in Turnover When asked about anticipated changes in turnover over the next 12 months, it was encouraging to note that 80% of respondents said they expected turnover in their organisation to increase over the next year although this reflected an 8% deterioration year-on-year. 44%

of respondents expect a relatively modest increase of between 2% and 5% in turnover over the next 12 month period, with 19% anticipating an increase of between 5% and 8% in turnover in the period. 8% of respondents forecast an even higher increase in yearon-year turnover of between 8% and 10%, while almost 10% of respondents to the survey expect turnover in their business to increase by more than 10% over the next 12 months. Less than 10% of respondents expect turnover to deteriorate in 2017 although no respondents are expecting turnover to decline by more than 8% in the period. Approximately 9% of respondents expect turnover to remain stable over the next 12 months.

Change in Turnover Over Next 12 months Increase 10%+

Increase 8-10%

8% 19%

10%

No Change (-2% to +2%)

9% Decrease 2-5%

Increase 5-8%

8% 2%

Increase 2-5%

44%

Decrease 5-8%

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In contrast to last year’s results, shippers are considerably more confident of increasing turnover in their businesses over the next 12 months when compared to logistics companies. 78% of respondents in the logistics sector are expecting to increase turnover over the next 12 months (compared to 96% last year) while 84% of shipper respondents expect to grow turnover over the next 12 months (up from 81% of respondents last year).

Interestingly, the majority of shippers expect to see turnover growth of between 2% and 5% this year. No shippers expect to grow turnover by more than 10% in 2017 while more than 18% of logistics companies are expecting turnover growth of more than 10% over the next 12 months. In total, almost 15% of logistics companies are anticipating a deterioration in turnover this year compared to only 4% of shipper respondents.

Change in Turnover in next 12 months Shippers

Increase 10%+

Increase 8-10%

Increase 5-8%

0% 19% 16% 0% 16% 22% 52%

Increase 2-5%

No Change (-2% to +2%) Decrease 10%+

37% 12% 7% 0% 0% 0%

Decrease 8-10%

0%

0%

Decrease 5-8% 4%

Decrease 2-5%

4% 11%

Logistics

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Anticipated Changes in Profitability With the vast majority of respondents being confident about increasing turnover over the next 12 months, when asked about anticipated changes in profitability over the next 12 months, it was encouraging that respondents were also generally positive, with almost 58% of respondents expecting increased profitability over the next 12 months.

More than a third of respondents expected no change in profitability this year and while almost 8% expected deterioration in profitability this year, all of these respondents expect profitability to decline by between 2% and 5% with no respondents expecting a higher deterioration in profitability.

Profitability in Next 12 Months

36% 35% 8% Decrease 2-5%

No Change (-2% to +2%)

Increase 2-5%

9% Increase 5-8%

8% Increase 8-10%

4% Increase 10%+

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Logistics operators are considerably more confident of increasing profitability in their businesses over the next 12 months when compared to shippers. 63% of respondents in the logistics sector are expecting to increase profitability over the next 12 months compared to 78% of respondents last year. In contrast, 52% of shipper respondents expect to increase profitability in 2017 (up from 46% last year). 26% of logistics operators expect no change in profitability in 2017 compared to 44% of shippers. 11% of logistics operators expect a deterioration in profitability over the

next 12 months compared to 4% of shippers although in both cases, respondents don’t expect profitability to decline by more than 5%. 7% of logistics operators expect profitability to increase by more than 10% over the next 12 months while no shippers expect profitability to increase by more than 10% in the period.

Profitability in Next 12 Months Increase 10%+

0% 7%

Increase 8-10%

12% 4%

Increase 5-8%

4% 15%

Increase 2-5%

36% 37%

No Change (-2% to +2%)

44% 26% 4%

Decrease 2-5%

11%

Decrease 5-8%

0% 0%

Decrease 8-10%

0% 0%

Decrease 10%+

0% 0%

Shippers Logistics

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Forecasts of Capital Expenditure When asked about the likelihood of their company making significant logistics and supply chain related capital expenditure over the next 12 months, responses varied. 33% of respondents said it was likely that they would make significant capital expenditure in these areas over the next 12 months while almost 22% said they were very likely to do so, which is encouraging. However, respondents were in general less positive about making significant capital expenditure than they were 12 months ago.

Likelihood of Significant Capital Expenditure

Unlikely 45%

Likely 33%

Very Likely 22%

58% of respondents in the logistics industry said they were likely or very likely to incur significant capital expenditure over the next 12 months (compared to 74% last year), while the equivalent figure for shipper respondents was 52% compared to 64% this time last year. 48% of shippers said they were unlikely to incur significant capital expenditure in their supply chains this year compared to 42% of logistics companies.

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Forecast Changes to Employment When asked if they would be increasing or decreasing supply chain headcount over the next 12 months, 48% didn’t anticipate any change compared to 39% this time last year. It is encouraging to note that despite the more uncertain backdrop, 46% of respondents intend to increase their logistics-related headcount to some extent over the next 12 month period with the largest cohort (29%) expecting to increase their headcount by between 2% and 5% year-on-year. Less than 6% expect to see a reduction in headcount over the next 12 months with most of these expecting to reduce headcount by between 2% and 5%. Only one respondent expected to see a reduction of more than 10% in headcount in 2017.

More than 55% of respondents in the logistics sector expect to increase headcount in their organisations in the next 12 months compared to only 36% of shippers. Almost 30% of logistics operators expect to increase headcount by 2-5% over the next 12 months, compared to 28% of shippers. 41% of logistics operators expect no change in headcount year-on-year which is up considerably compared to last year while 56% of shippers are expecting supply chain headcount to remain steady in 2017. Encouragingly, only 3.7% of logistics operators expect to see a decline in headcount this year while amongst shippers, 8% of respondents are expecting to reduce staff numbers in 2017.

Expectations for Headcount in Next 12 months

29%

7%

6%

4%

Increase 2-5%

Increase 5-8%

Increase 8-10%

Increase 10+%

48%

2%

4%

Decrease 10+%

Decrease 2-5%

No Change (-2 to +2%)

Key Issues

CBRE KPMG Logistics & Supply Chain Confidence Index 2017 24

Eircode When asked if they were more positive about the Eircode system this year compared to last year, interestingly the majority of respondents (72%) said there had been no change in their attitude compared to this time last year. Almost 20% of respondents however said they were more positively disposed towards the Eircode system than they were 12 months ago. This is probably attributable to considerable advertising and promotion that has taken place over the course of 2016. 8% of respondents describe themselves as more negative towards Eircode than they were 12 months ago.

Interestingly, shippers have become more positively disposed towards Eircode in the last 12 months with 24% saying they are more positive about the system now than they were last year compared to 15% of logistics companies. 77% of logistics companies said they felt no different about Eircode compared to last year while 68% of shipping companies said there was no change in their attitude towards the postcode system year-on-year. Many respondents said that there is now a greater adoption of Eircode but for the most part, it is not having a huge impact on their business to date.

Change In Attitude Towards Eircode In The Last 12 Months 0%

Significantly more negative 8%

Shippers Logistics

8%

Marginally more negative 0% 68%

No change in attitude 77% 20%

Marginally more positive 15% 4%

Significantly more positive

0%

92% of respondents say they have not adapted their business processes in order to exploit Eircode. 89% of logistics companies have not taken any action in relation to their business processes with the introduction of Eircode, with 96% of shipper respondents highlighting no changes since its introduction.

Has your company adapted its business processes in order to exploit Eircode? 8% Yes 92% No

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E-Commerce When asked by what % E-Commerce is likely to grow by across the island of Ireland in 2017, most respondents have lesser expectations for growth in this sector compared to 12 months ago. In total, 52% of respondents believe that E-Commerce has the potential to grow by up to 5% over the next 12 months; 31% of respondents expect E-Commerce to grow by 6-10% this year, with 17% of respondents expecting growth of 11-15% during 2016. No respondents expect E-Commerce to grow by more than 15% year-on-year in 2017 despite almost 10% of respondents expecting this level of growth last

year. For the second year running, logistics operators are considerably more bullish on the potential for growth in E-Commerce in 2017, with 26% expecting growth of more than 10% to be achieved year-on-year compared to only 9% of shippers who expect growth of more than 10%. 35% of logistics respondents expect growth of 0-5% to be achieved over the next 12 months compared to 69% of shippers who opted for 0-5% growth in 2017. Meanwhile, 39% of logistics companies expect E-Commerce growth of between 6-10% this year compared to 22% of shipping companies.

Growth Rate for E-Commerce 2017 80% 70%

Shippers Logistics

60% 50% 40% 30% 20%

35%

69%

39%

22%

10%

26%

9%

0% 0%

0% 0-5%

6-10%

11-15%

>15%

CBRE KPMG Logistics & Supply Chain Confidence Index 2017 26

When asked how their companies would accommodate growth in E-Commerce in 2017, 42% of respondents said that they would do this by improving technology in their organisations compared to 48% who opted for this answer last year. A further 29% said they would do so by better collaboration between customers and service providers (up from 24% last year), while almost 17% said

that they would have to recruit additional resources to accommodate E-Commerce growth. While the responses from logistics operators and shippers differed, both sectors shared the main focus on improved technologies; 72% of logistics companies said they would utilise technology as opposed to almost 42% of shippers.

Accommodating Growth in E-Commerce

Improved technology

42%

Shippers

72%

Logistics Better collaboration customers/providers

17% 0% 4%

Additional resource (warehouse & fleet) Additional resource (people)

0% 21% 14% 0%

Extended service window

Other

14%

16% 0%

0

10%

20%

30%

40%

50%

60%

70%

80%

27 CBRE KPMG Logistics & Supply Chain Confidence Index 2017

Comparing Ireland Internationally Respondents were asked a series of questions as to how the island of Ireland compares with other EU countries in terms of its logistics performance and/or ease of managing supply chain operations. Less than one third of respondents believe that Ireland is ‘better than average’ in terms of the speed of supply chain operations, with the majority of respondents (63%) saying that Ireland is average in this respect. In terms of the cost of supply chain operations, more than one third of respondents say that Ireland is ‘worse than average’ with approximately 43% of respondents saying that Ireland is ‘average’ in this respect. Interestingly, 54% of respondents say that in terms of legislation, red-tape and bureaucratic decision-making, Ireland is ‘average’ with a further 20% ranking Ireland ‘better than average’ in this respect and 26% describe Ireland as being ‘worse than average’. Following last year’s research, shippers are again somewhat less positive than logistics operators on this measure.

There was an improvement in Ireland’s attractiveness as an investment destination year-on-year. At a time when Ireland is focussed on increasing FDI, it is encouraging that more than 87% of respondents say that Ireland is either ‘average’ or ‘better than average’ in terms of investment attractiveness compared to other EU countries, with shippers more positive than logistics companies in this area. In total, 92% of shippers said that Ireland was either ‘average’ or ‘better than average’ in terms of investment attractiveness. For the second year running, respondents were particularly positive about labour force skills in the Irish market; in total, more than 90% of respondents described labour force skills in Ireland as being ‘average’ or ‘better than average’ with shippers and logistics operators aligned in their views.

CBRE KPMG Logistics & Supply Chain Confidence Index 2017 28

How does the island of Ireland compare to other EU countries in terms of its logistics performance and / or ease of managing supply chain operations? Speed of Supply Chain Operations

Cost of Supply Chain Operations

Legislation/ Red-tape/Bureaucratic Decision-making

Investment Attractiveness

Labour Force Skills

Average

63%

43%

54%

50%

50%

Better than Average

28%

22%

20%

37%

41%

Worse than Average

9%

35%

26%

13%

9%

Average

50%

36%

59%

41%

50%

Better than Average

36%

28%

18%

41%

41%

Worse than Average

14%

36%

23%

18%

9%

Average

75%

50%

50%

59%

50%

Better than Average

21%

17%

21%

33%

42%

Worse than Average

4%

33%

29%

8%

8%

Combined

Logistics

Shippers

29 CBRE KPMG Logistics & Supply Chain Confidence Index 2017

CBRE KPMG Logistics & Supply Chain Confidence Index 2017 30

Logistics Property 56% of respondents expect an increase in demand for logistics property in 2017, with logistics operators considerably more bullish in this respect, mirroring trends in last year’s survey. 77% of respondents from the logistics industry expect to see an increase in demand for logistics properties in 2017 compared to only 38% of shippers.

considering the fact that new development is as yet unviable in the Irish market which has severely restricted the supply of modern accommodation in locations that occupiers are particularly looking to locate in. In fact, takeup in the Dublin market in 2016 was down 32% year-onyear as a direct result of this scarcity of modern industrial accommodation.

When asked what issues they foresaw in relation to supply or in securing additional warehouse accommodation, the issues which resonated most with respondents (26% and 24% respectively) was the cost of facilities and the location of facilities. A further 19% of respondents overall said the size of new facilities was a concern, with 22% of respondents concerned about the attributes and quality of the accommodation on offer. This is not surprising

The biggest issue for logistics companies is the physical attributes and cost of new accommodation while the location and cost of new facilities are of most concern to shippers being that these companies typically require facilities as close as possible to customers and / or transport networks and the fact that the supply of such accommodation is limited.

Issues in Securing New Accommodation 30%

Shippers Logistics

25%

20%

15%

10%

5% 21% 28%

14% 24%

27% 16%

Location

Size

Attributes & Quality

24% 28%

14% 4%

0% Cost

Contract Terms

31 CBRE KPMG Logistics & Supply Chain Confidence Index 2017

Innovation Over 81% of respondents plan to introduce some form of new innovation to their business over the next 12 months compared to 85% 12 months ago. Of those that intend introducing new innovation in 2017, 20% of respondents said that they intend investing in big data and analytics in 2017. A further 16% respectively said they will be investing in the ‘Internet of Things’ and automation /robotics in 2017

while almost 18% said they would be investing in cloud services this year. 3% of respondents said they will be looking to implement 3D printing this year compared to 1% of respondents last year while surprisingly no respondents indicated they would be investing in drone technology over the next 12 month period.

Innovative Supply Chain Solutions

20%

15%

10%

5%

18%

20%

3%

0%

9%

Nothing New

Big data & analytics

3D Printing

Drones

Sharing Economy

16%

16%

18%

0%

Internet of things

Cloud Services

Other

0% Automation

CBRE KPMG Logistics & Supply Chain Confidence Index 2017 32

There were some differences in responses from the logistics community and the shipper community with the logistics companies primarily focussed on big data and analytics and shippers most focused on exploiting the ‘Internet of Things’. No respondents in

the logistics industry or shippers intend investing in drone technology in 2017. There has been an increase in focus on investing in 3D printing with 4% of shipper respondents who intend to invest in this technology in 2017.

Innovative Supply Chain Solutions Shippers

30%

Logistics

25%

20%

15%

10%

5%

0%

30% 12%

22% 19%

0% 4%

0% 0%

Nothing New

Big data & analytics

3D Printing

Drones

11% 8% Sharing Economy

11% 18% Automation

7% 20%

19% 19%

Internet of things

Cloud Services

33 CBRE KPMG Logistics & Supply Chain Confidence Index 2017

New Business

3PL in Ireland

Respondents were asked to identify the key drivers influencing contract wins from customers or contract awards to service providers in the last 12 months; most respondents (29%) cited price competitiveness as being of significant importance, mirroring last year’s results. This was followed by value added services (25%). 21% said that the scale of networks played a part and 16% said that personal relationships were a key influence (compared to 13% 12 months ago). There were some discrepancies between results for logistics operators and shippers, particularly in relation to personal relationships with more than 26% of logistics companies citing personal relationships as key to influencing contract wins in the last 12 months compared to less than 9% of shippers.

When shippers were asked what their perception of the 3PL service provider market across the island of Ireland, the vast majority (75%) said that the choice and variety of service providers is adequate, up from 68% of respondents to last year’s survey. 17% said that the 3PL sector is too fragmented and needs to consolidate while 8% of respondents said that there are too few service providers capable of meeting their requirements, compared to 12% of respondents 12 months ago.

M&A Activity Respondents classified as logistics providers were asked if they intended making any acquisitions over the next 12 months. Two thirds of respondents said they didn’t intend to make any acquisitions in 2017. Of the 33% of respondents who said they intend making an acquisition in 2017, the largest majority (57%) said they intended to do so in order to access new markets, which is perhaps not surprising considering the appetite to expand into new markets and reduce reliance on the UK and the US considering political developments. 42% of respondents, who intend making acquisitions over the next 12 months, are doing so because, in equal shares, they either want to expand their service offer, get access to specific customers or to achieve economies of scale.

CBRE KPMG Logistics & Supply Chain Confidence Index 2017 34

Business Priorities When asked what their key business priorities for the next 12 months are the two most important issues identified by logistics operators was maintaining their existing customer base and winning new customers. In contrast, the biggest focus for 2017 for shippers was cited as cost control and optimising operational efficiencies and speed.

Business Priorities for Logistics Companies Cost control

Winning new contracts

6 11

Offering more services

3

Contract margin

6

improvement Maintaining existing customer base

12

New vertical sectors

2

New geographies

2

Enhancing supply

1

chain footprint

Number of Appearances as Top 2 Ranking Business Priorities for Shipping Companies Cost control

18

Optimising operational efficiencies and speed

16

Technology

3

Investment in assets

0

Enhancing inbound supply chain operations

6

Securing inbound materials

4

Enhancing outbound supply chain operations

1

Enhancing supply chain footprint

0

Number of Appearances as Top 2 Ranking

Key Challenges

CBRE KPMG Logistics & Supply Chain Confidence Index 2017 36

Overall, 18% of respondents to the survey respectively said that economic conditions and ‘Brexit’ uncertainty were the biggest challenges facing their business in 2017. Other concerns that ranked highly in this year’s survey included customer price pressures & reducing costs as well employee wage pressures. Interestingly, while 18% of respondents are specifically concerned about ‘Brexit’ uncertainty in 2017, only 5% of respondents were concerned about this issue in last year’s survey.

The key supply chain challenges differed somewhat between logistics and shippers. Logistics companies are most concerned about economic conditions, ‘Brexit’ uncertainty and employee wage pressures while the primary concerns for shippers this year are reducing costs and ‘Brexit uncertainty’.

Key Challenges Over Next 12 Months Shippers Logistics 20%

15%

10%

5%

20% 17%

12% 3%

14% 18%

15% 5%

5% 3%

5% 6%

8%

19% 18%

5% 15%

3% 7% 1% 0%

1%

0% Economic Conditions

Driver / Skills shortages

Customer Price Pressure

Employee Wage Pressure

Long Payment Terms

Shortage of Accomm.

Eurozone Uncertainty

Brexit Uncertainty

Market Volatility

Foreign Exchange Rates

Costs

Key Opportunities

CBRE KPMG Logistics & Supply Chain Confidence Index 2017 38

When asked to identify three key opportunities for their business over the next 12 months, offering value-added services, achieving market growth both internationally and domestically were deemed to be the most important opportunities for both logistics and shippers combined.

In the logistics sector, offering value added services and looking for opportunities to grow internationally and domestically ranked highest, while amongst shippers, increasing employee skills and training was also identified as an important opportunity in 2017.

Key Opportunities Over Next 12 Months Collaboration with customers/other shippers

Collaboration with other service providers

Increasing employee skills and training

11%

Shippers

16%

Logistics

10% 9% 15% 5%

Improving IT competitiveness

8% 9%

Offering value-added services

13% 25%

Consolidating service providers

11% 2%

Marketing growth international

17% 17%

Marketing growth domestic

15% 17%

Brexit

CBRE KPMG Logistics & Supply Chain Confidence Index 2017 40

The outcome of the UK’s referendum has no doubt influenced business confidence across all sectors on the island of Ireland and has evidently impacted the outlook of our respondents who participated in the survey. As this period of uncertainty looms, Ireland’s logistics and supply chain community are in speculation mode until it is unveiled to what extent ‘Brexit’ will impact the transport of goods between Ireland given our shared land border and trade links with the UK.

In this section, we asked our respondents for their outlook in the event of ‘Hard Brexit’, being a full departure from the EU including the Single Market, restriction of free movement of people and reinstatement of a ‘hard-border’ between Northern Ireland and the Republic of Ireland. Not surprisingly all respondents feel that a ‘Hard Brexit’ would have a negative impact on the economy of the island of Ireland – the majority feel it is a significantly negative scenario for Ireland.

What Impact would a ‘Hard-Brexit’ Have on the Island of Ireland Economy?

Significantly negative impact

26%

74%

Marginally negative impact

41 CBRE KPMG Logistics & Supply Chain Confidence Index 2017

The outlook is only slightly more diverse in opinion when respondents in the logistics industry were asked about the impact of ‘Brexit’ on their business; while the vast majority believe ‘Brexit’ will have a potentially negative impact, 10% believe it will have some form of positive impact on

business. Perhaps this is reflective of new opportunities in cross-border logistics between Ireland and the UK. All shipper respondents see ‘Brexit’ as having a negative impact on their business.

What Impact would a ‘Hard-Brexit’ Have on Your Company?

0%

Significantly positive impact

Shippers 5%

0%

Marginally positive impact

5%

0%

No impact 10%

63%

Marginally negative impact

50%

37%

Significantly negative impact

30%

Logistics

CBRE KPMG Logistics & Supply Chain Confidence Index 2017 42

The survey asked respondents to outline what would be the greatest challenges posed to their organisation by ‘Brexit’; in both logistics and shipper responses the possibility of an economic recession as a result of ‘Brexit’ tops the list of threats. For shippers, the introduction of an alternative tariff scheme or additional costs and changes

in foreign currency trading were deemed to be other considerable risks. Logistics respondents ranked their top challenges in similar positions. Greater bureaucracy and administrative burden is also a notable concern among respondents, along with maintaining the level of labour supply and talent within the industry.

Greatest Challenges Posed to Company by ‘Brexit’

Introduction of terrifs or additional cost

Maintaining labour supply and talent

Greater bureaucracy and administrative burden

11 8

6 6

7 8

17

Economic recession 14

Foreign currency trading

9 9

Number of Appearances as Top Two Challanges

Shippers Logistics

43 CBRE KPMG Logistics & Supply Chain Confidence Index 2017

In response to the overall issue of ‘Brexit’ and to the specific challenges highlighted by our respondents, we asked how they have planned for the impact of ‘Brexit’ to date. 22% of all respondents indicated they have taken no action to date on the matter – 41% of logistics respondents and only 4% of shipper respondents. Of those who have taken action, the responses indicate a difference in approach between logistics and shipper respondents. For logistics respondents, informal discussions with customers and trade organisations has been the main tactic, along with background research into

Company response to ‘Brexit’ Issue Engaged professional advisors to support

Informal discussions with customers & third parties

Set up internal working groups

0% 0%

22% 50%

45% 6%

Background research on key issues

33% 44%

the key issues. For Shippers, setting up internal working groups has been the priority, along with background research and engagement with customers or trade organisations. Surprisingly, no respondents to the survey indicated that they had to date engaged with professional advisers on any ‘Brexit’ matters or implications. Perhaps as the scope for ‘Brexit’ becomes clearer for the industry there will be more uptake on the insights and skills of professional advisers for technical direction and to help chart best course of action.

Shippers Logistics

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About The Sponsors CBRE CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (based on 2015 revenue). The Company has more than 70,000 employees (excluding affiliates), and serves real estate investors and occupiers through more than 400 offices (excluding affiliates) worldwide. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com. In Ireland, CBRE is the country’s largest commercial real estate services company, employing over 150 employees and offering a full range of property services including property sales and acquisitions; leasing and management; investment; corporate services; debt advisory; project management; consultancy; business rates and compulsory purchase; valuations and research. Please visit our website at www.cbre.ie or www.cbre.co.uk/ni.

KPMG KPMG is a global network of professional services firms providing Audit, Tax and Advisory services. We operate in 155 countries and have 174,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such. KPMG Ireland is a provider of professional services, offering a range of audit, tax and advisory services to a broad range of domestic and international clients across

all sectors of business and the economy. KPMG in Ireland is the No.1 auditors of Irish plcs providing audit services to 44% of Irish companies listed on the Irish and London Stock Exchanges. We operate on an all-Ireland basis and have 78 partners and over 2,400 people in five offices in Dublin, Belfast, Cork and Galway. Full details of all the services we offer can be found on our website www.kpmg.ie.

FTAI FTA Ireland is a trade association representing the transport interests of members and works to ensure the safest, most efficient and sustainable logistics operations throughout the country. Our work enhances the influence and image of the freight industry in Ireland by promoting the highest standards of safety and compliance. Our experience and expertise in the transport industry puts us at the forefront of new information and changes to legislation, ensuring our members are the first to know about the latest developments in supply chain activity and policy.

45 CBRE KPMG Logistics & Supply Chain Confidence Index 2017

Contacts Garrett McClean Executive Director, Industrial & Logistics CBRE Ireland + 353 1 618 5557 [email protected]

Marie Hunt Executive Director, Head of Research CBRE Ireland + 353 1 618 5543 [email protected]

Fionn Uibh Eachach Director, Tax KPMG Ireland Tel +353 1 700 4827 [email protected]

Aidan Flynn General Manager Freight Transport Association Ireland +353 1 844 7516 [email protected]

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