Friday, February 29, 2008

Green Distribution Systems - A Start

The Inland Empire owes much of its success to transportation and warehousing. One of my responsibilities is to track industrial space as well as the transportation industry as a whole.

Something I have noticed is that consumers are beginning to "go green" and in the past 3-5 years the environmental movement has reached a tipping point and has entered the mainstream.

Industrial real estate can ignore this green movement at its own peril. The common conception is that industrial uses are dirty uses, that industrial space is more environmentally un-friendly than other land use types.

For certain types of industrial space (manufacturing in particular) this is the truth and it is hard to deny, the smokes stacks and waste runoff are a clear giveaway. Coal plants and paper mills are what pops into many peoples heads when I say that I work with industrial real estate, however such operations are few and far between in the Inland Empire.

Warehouses are pretty easy to make environmentally friendly. ProLogis (a major warehouse developer & owner) recently decided to make only LEED certified warehouses. Most of the buildings they were constructing were LEED compliant already, they just didn't advertise that fact entirely and only minor changes were necessary to meet the LEED certified standard.

Some of these changes include:

  • Reducing energy consumption through addition of solar panels, green roofing options and skylights
  • Water conservation through native landscaping & low flow fixtures in the office portion of the warehouse.
  • Reduce parking spaces to the minimum zoning requirements
  • Incorporate ventilation and outdoor air delivery to reduce HVAC energy consumption.

These changes are a benefit to the tenant since it lowers the operating costs of the warehouse.

Not only should the warehouse be of environmental concern but how the goods within the warehouse are delivered and manufactured should also be considered. The EPA has designed a number of plans that distributors can join in order to lower their carbon footprint.

They include:

There are several non-for-profit groups that also exist in order to help distributors help the environment.

In addition to these public and private groups, simple common sense can go a long way in reducing distribution costs while also helping to save the environment.

  • Reduction in packaging usage through order cubing
  • Selection of recyclable packaging materials
  • Using reusable containers/storage equipment
  • Implementing order consolidation (decreasing unused space on trucks)
  • Reducing fork truck hours
  • Replacing gas-powered fork lifts with fuel efficient options
  • Route optimization (reducing empty miles)
  • Increasing cube utilization of equipment
  • Contracting with providers/carriers that support Green initiatives
  • Reducing truck idle time
  • Migration to more aerodynamic trucks
  • Replacing diesel-powered trucks with alternative fuels
  • Implementation of alternative power sources for refrigerated trailers

Distributors, in modernizing their logistics networks to be more lean and efficient, will adopt these green initiatives because they are more efficient and lean. Distributors will be led, through the choices made by their green conscious consumers and also with consideration for their bottom line to adopt green principals, as if guided by an invisible green thumb.







Friday, February 22, 2008

Kosmont Cost of Doing Business Survey - SoCal

It have been awhile since my last Google Earth post, so here is a little data mashup of the Kosmont Business Survey

Basically, the Kosmont-Rose Institute publishes a survey which ranks cities from $ to $$$$$ based on the cost of doing business in the following criteria:
1. Business Taxes
2. Telephone Taxes
3. Sales Taxes
4. Property Taxes
5. Electric & Utility Taxes
6. State Corporate Income Taxes

The graphic above shows cities in Southern California based on the Kosmont Cost Ratings. Red is a city with a cost rating of $$$$$, while blue represents a cost rating of $. (Green is $$, Yellow is $$$ and Orange is $$$$).

The big red blot in the middle is the City of Los Angeles, which has quite a large number of taxes, but what kills it is a professions tax (LAMC code 21.190) which imposes a $5.50 tax per $1,000 in revenue annual tax for self-employed people engaged in "professional activity".

A surprise for me includes the big red blotch in the Inland Empire, the city of San Bernardino/ Rialto. I am not sure why these cities received the dreaded 5 dollar rating, but it may have something to do with its $2.50 per $1000 in revenue professional business fee.

That red blot in Orange County? It's Irvine.




Thursday, February 21, 2008

EPA CO2 CALCULATOR

One often overlooked value in transportation (or at least the transportation costs that I tend to deal with) is the impact of CO2 emissions.

The EPA has developed a greenhouse gas calculator, which you can view here.

Little did I know that by driving to and from work for a week that I am producing 0.09 tons of carbon dioxide. The carbon contained in 10 gallons of gasoline (my average fill up) takes 2 trees 10 years to absorb and to sequester.

These are just averages but it does give me something to think about.

There is an environmental cost to all the goods that we consume and it is not limited to just the packaging and waste (which can be recycled or re-used).

Wednesday, February 20, 2008

Interview with Ted Oyama - Fresh and Easy Distribution Center Architect


After visiting the Fresh & Easy distribution center in Riverside, I wanted to learn more about the construction of the Tesco facility as well as distribution centers in general. A good friend of mine works for AEPC, and arranged the following interview with Ted S. Oyama, the Lead Senior Architect of Record for the Riverside distribution facility.


1. Please tell me a little about yourself (job title, responsibilities, years of experience) your profession (architects and the design process) and the company you work for.

I am the manager of architecture at AEPC Group, LLC. I am responsible for the architectural design for all projects within the company. I have been licensed for 25 years and I currently am registered in 13 states. The architect can be compared to a maestro leading the band. Each player can play music but needs to be directed by someone to work in harmony. The architect orchestrates the different engineers and consultants (Structural, civil, mechanical, electrical, fire protection, solar, etc.) to work towards the same goal and within each others constraints. In the Tesco case it was working with other architects. The two smaller buildings were designed by E A Bonelli of Oakland. I was responsible for the large “Dry-Box” distribution warehouse. The other consultants were security and refrigeration.

2. What other distribution centers in the Inland Empire have you worked on and can you tell me a little about those? (Size, clearance, special considerations)

I worked on TUBE One Inc. This project was a shell that was being remodeled to accommodate there manufacturing requirements. About 40,000 SF with a 22’ clearance to the underside of the steel trusses.

3. Do you design (or work with) mostly build-to-suit facilities with a specific tenant in mind or general speculative space?

This company designs both speculative and build to suit designs. Sometimes we also go “Design Build.”

4. What are the most prominent/ defining features of a distribution center?

Truck loading, off loading and circulation to the docks.

5. How has warehouse design changed over the span of your career? (ESFR sprinklers, higher clearance, bigger facilities etc.)

I believe the tilt panels are becoming more creative to dissolve the Hugh massing height and length.

6. What role (if any) do real estate brokers have in design conceptualization of projects?

In this specific example, I did not deal with any brokers. I am sure this happened way before I became involved.

Fresh & Easy Distribution center in particular.

1. Can you share the specs of the distribution center? (Size (refrigerator & freezer space), clearance, parking, # of dock doors?

76 roll up dock doors with 11 knock out panels for future dock doors. The 76 roll up doors area are a mix of edge of dock and dock levelers. 34’-6” min. clearance to underside of trusses. Parking was not designed by AEPC. The freezer and refrigerator building were done by E A Bonelli.

2. What was your role for this project?

I was the architect of record. This means the original floor plan and exterior elevations were designed by E A Bonelli. I made their conceptual design buildable and to the model building code.

3. How was this project different from other distribution centers you had previously worked on?

The owner (Tesco) had their own consultant such as the civil engineer, fire protection, security , solar, and refrigeration. Since these consultants were not hired by AEPC, we did not have direct control over them and items fell through the cracks, so to speak. The structural steel was by a design build outfit that was not hired by AEPC. The structural foundation and tilt up panels were designed by AEPC‘s consultant.

4. Was there anything different in working with an overseas client (TESCO)? Any special considerations / limitations for this client / project (freezer space, fridge space, heating and cooling, special considerations for the giant solar panel on the roof?)

I had to become accustomed to the “Queen’s English.” The DRY warehouse did not have refrigeration but the refrigeration piping did travel across this building’s roof. Build out is what the Brits use for a T.I. (Tenant Improvement) Stowaway is what they use for storage.

5. I heard that for this project they had two teams of architects, one team in the United States and one team overseas. Any truth to this, and if so can you tell me a little more about why this work arrangement was needed and how it worked.

I suspect there was someone in England who looked at the preliminary drawings. The project manager came from SE Asia where he built a similar distribution warehouse.

6. Anything else about distribution centers or the Fresh & Easy center that you feel is of interest and that the general public should know?

There is a large area devoted to recycling. Product and recyclables come from the stores and are recycled at the warehouse. All of the fork lifts use rechargeable batteries packs.

7. Will you (or your firm) be working with Tesco in the future? (Designing the retail stores or the kitchen facilities that they have planned?)

We are currently working on three Fresh and Easy Neighborhood markets stores in the Bay Area.

I am deeply grateful to Ted Oyama for taking the time to answer my questions about the Fresh & Easy distribution center and for his insight into the role architects have in creating distribution centers.


Tuesday, February 19, 2008

Commercial Sales Market Share - Los Angeles Basin

Commercial Real Estate companies generally have two types of employees; self-employed brokers and everybody else.
I (and the rest of the research staff) fall into this later category. We are the liabilities, those that don’t generate direct revenue.

It is almost impossible to measure (in dollars) how my efforts translate into deals (sales and leases). For the real estate brokers, it is obvious and measureable. It can be measured in dollars since it is fairly easy to determine how much each broker brings in. It is also fairly easy to see how much each company makes and what its market share is.

Here are the 20 largest commercial real estate firms by sales for the Los Angeles Basin from 2003-2007. Sales information is a lot easier to obtain than lease information, so that information will be presented first.

There are many interesting things that can be explored here, such as a Gini Index to measure income disparity, the marginal impacts of brokers or even what factors are important in predicting how much a broker can sell in a given year. There is a wealth of information that can be explored, but first here is an inventory of where we start; firm rankings by sales volume for office and industrial real estate.






Friday, February 15, 2008

How the Inland Empire Ruined Christmas

I am putting together the final numbers for the LA Basin Industrial Report. This report combines all the market information from all the individual industrial reports done by the local offices (the industrial reports that I cover are the West & East Inland Empire and the San Gabriel Valley).


One big indicator of concern is the net absorption which measures the occupied square footage of this quarter minus the occupied square footage of the previous quarter.

Net absorption is a proxy for demand. If it is positive, then there are more occupied SF this quarter than last quarter and vacancy rates are decreasing (demand is strong). If it is negative then there was more occupied SF last quarter and vacancy rates are rising (weaker demand).
For the first time in 5 years, the net absorption for the LA Basin (which now includes the East Inland Empire) is negative. This is due to recent developments in the Inland Empire; I tallied 2.75 million SF of negative net absorption.
Thus the LA Basin's greatest industrial asset has turned into a potential liability. Granted the fourth quarter was a rough quarter for all submarkets compared to the previous quarter, but not of the magnitude felt in the IE.







Thursday, February 14, 2008

A better mousetrap

This blog talks about the possibility of the County Assessor using aerial photography to survey properties and to catch tax cheats.

Here is how the system works: City and county agencies provide copies of building permits that were issued to the assessor. The assessor calculates the value of the property which goes to the auditor who applies the correct tax rate to determine the actual amount of property taxes owed.

Thus homeowners have an incentive to not inform their city when significant improvements are made to the property. This avoids the fee associated with filing building permits and also the increase in assessed tax rates.

Aerial photography is freely available which could allow the county assessor to match up what is supposed to be on your property on paper and what actually exists on the premises.

Since home values are declining in many parts of the country, this has the effect of lowering the assessed value of homes, lowering the amount of property tax collected. Using existing technologies to catch property tax evaders could help close that gap.





Wednesday, February 13, 2008

SLOOS II Consumer Loans

Yesterday I looked at the most recent Senior Loan Officer Opinion Survey (SLOOS) in the context of commercial real estate loans. There is also an important consumer loans section to this report.

As many of you know, consumer spending accounts for almost 70% of GDP. So if consumer spending decreases then chances are good that we will enter a recession. Recent interest rate cuts by the Federal Reserve (monetary policy) has been aimed at keeping consumer spending from stalling (among other things). If that wasn't enough, the "actual" government is stepping in to provide an "economic stimulus" package (fiscal policy) in order to keep things moving forward.

When the market fails it is the duty of the government to step in, right? Well, back to the SLOOS survey, 10% of respondents reported that they had tightened their lending standards on credit card loans. While this may seem like a small number, but when it happens to you it might as well be 100%.

35% of domestic institutions indicated that they experienced weaker demand for consumer loans of all types. This may have something to do with weaker demand for home equity lines of credit.








Monday, February 11, 2008

SLOOS, Why do you have to be so mean?


It took me awhile to realize this, but money really does make the world go round. Money has a very prominent role in what we economists assume people are motivated by and respond to.
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For example, most Marchallian charts (those with supply AND demand) have price (money) right there on the vertical axis with units on the horizontal axis.
.Indeed, capitalism would be very difficult without money (capital) which is why so much talk recently has been focused on the so called "credit crunch"
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I personally wasn't incredibly worried until I happened across the latest issue of SLOOS (Senior Loan Officer Opinion Survey).
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Basically, the Fed sends a survey to the heads of the largest lending institutions in the country and asks them what their risk outlook is like for the upcoming year and how much money these institutions plan on lending to the economy at large.
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80% of respondents (the people who loan out money) say they plan on tightening their standards for commercial real estate loans in a situation that eerily parallels the last notable real estate credit crunch, the 1980's S&L crisis.
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While there is a potentially large difference between what senior loan officer's say and what senior loan officer's do, the report covers what we all have known for some time. A less favorable economic outlook leads to tightening terms on commercial real estate loans. The sky isn't falling, but the world may stop turning.
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Part II - Explaining Home Price Decreases - Charting the Information

Hello,


Last week we started to explore average home prices for Los Angeles County in 2006 and 2007.
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This week we will look a little harder at the information we do have and what conclusions can be drawn. Then we will explore what other information is available and if it can be used to help explain what is happening to home prices in LA County.
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The chart above shows 2007 home prices on the vertical axis and 2006 home prices on the horizontal axis. It is the same information as what we started with last week, except that it is displayed here graphically instead of in a table.

Scatter plots are great when first looking at the information. Bar charts or line graphs assume a certain level of order in the data and are more for telling a story convincingly than finding a story in the data. A scatter plot is messy and allows for much more interpretation, which is why you shouldn't ever use them at sales meetings, they tend to scare and confuse the managers.

The red line in the chart above has a slope of 1. This is important because all the data points (average home prices) above this red line appreciated while those below this red line depreciated. The farther away from the line, the more appreciation / depreciation occurred.

I picked out a couple of choice cities. Santa Monica stands out as the clear winner as far as home appreciation goes, with Pasadena (my current place of residence) doing better than most. The shortest distance from the Pasadena dot to the red line (an imaginary perpendicular line) represents a $40,000 increase in home values over the previous year. I point this out so that you, the reader, can gauge what a $40,000 increase looks like on this chart and to allow you to estimate what the home price appreciation must have been in Santa Monica. (It was $250,000).

On the other side of the coin, home price depreciation in West Hollywood was simply amazing, a $270,000 drop in a single year, and Marina Del Ray had a $131,000 drop. Probably the saddest story this chart tells is of Pacoima, where home prices fell $173,000. Pacoima is fairly close to the origin (where the axis meet), meaning that a $173,000 drop for this city is worth a larger percentage of total house value than those cities that are further away.

There is more charting to be done and more relationships to be found.

Coming up next: Power Laws?

Friday, February 8, 2008

Ouch! Explaining Home Price Decreases

To the left (in the small print, I apologize) is a table showing median home values for cities in Los Angeles County.

For the most part, what we see here is a decrease in price from 2006 to 2007. This shouldn’t be a surprise to anybody following the news lately. What is of interest is why the drop in price was not consistent. Why did home prices plummet 34% in Pacoima while rising 29% in Santa Monica? Is there something about these regions that explain these price differences, or could it be human error or some other mundane flaw in the data?

Part of the problem we have in breaking these numbers down has to do with the nature of the data, it is aggregate data. (What is listed here in the table is all I have to work with.) This means that instead of the actual data points, instead I have to work with averages. Thus, it would be difficult to do any sort of hedonic model attributing the change in price to characteristics of the house such as gross square footage, number of bathrooms or school quality for instance. While it is possible to back these factors out of the data using some elaborate process (such as an ecological inference solution), I don't recommend it. We will use the data at hand, limitations and all, and see what kinds of valid conclusions can be obtained.

Coming Up Next ...

Chart of the Information and What It Tells Us
Map of the Information and What It Tells Us
Regression and
Forecasting?

Stay Tuned.

Thursday, February 7, 2008

Survival Guide to the Age of Information, Part II

This is a continuation from a previous post. The aim is to explain how the information game is played and to explain the rules of survival to my fellow information workers.

Axiom 4: Information Wants To Be Free

Give away everything you know and more will come back to you. Ideas are open source. They are to be developed and improved.

Don't be afraid to share your ideas. The problem with hoarding your ideas is that you are running on reserves, ideas that have already been developed. Eventually you will run out of ideas and you will be stale. You will isolate yourself and insulate your ideas from criticism, your theories will be full of holes that you didn't see; a rough draft that is good, but never great.

Strange, bizarre and ultimately useless ideas were developed by brilliant people working in a vacuum. I know, because people come to me for inspiration. I am full of bizarre and (to me)useless ideas. These are perfect for others in developing for their needs and I give them away for free because someday they will return the favor.

If you share everything you have, you will be forced to replenish your supply of ideas, to be creative, interactive and dynamic. This is the only way to survive in the age of ideas.



This boy is not cheating, he is un-limiting himself
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Axiom 5: Who you know is more important than what you know

In the age of information, we are all experts. Being an expert means that you know a great deal about very little; you have made all the mistakes possible in a very narrow field. The field that I chose to study is commercial real estate, with a specialization in industrial warehouse space in the Inland Empire. There is a lot to know about commercial real estate but probably the most important thing you could ever know is who you need to talk to.

If you know who to talk to and you have the right connections, you know everything we know and our knowledge adds to your strength. When you use a broker, you are renting his market knowledge as well as the broker's personal connections to people like myself who can help to fill in the blanks.

What you know may be valuable and important but who you know will multiply that strength, leverage it and apply it to great use.

Who's Who > What's What

I wish they taught me this in school.


Wednesday, February 6, 2008

I, Pencil - Lessons From The Invisible Hand

The following comes from Leonard E. Read which I reproduced in it's entirety from the Foundation for Economics Education. Milton Friedman echoed Read's marvel on the construction and distribution of the pencil in his groundbreaking PBS series Free to Choose (the video below is an excerpt of Milton Friedman's work). It is such an elegant and concise way to demonstrate how the mundane objects in our everyday lives is a result of a very complex series of human interactions that span the globe.



I, Pencil
By Leonard E. ReadLeonard E. Read (1898-1983) founded FEE in 1946 and served as its president until his death.

“I, Pencil,” his most famous essay, was first published in the December 1958 issue of The Freeman.

I am a lead pencil—the ordinary wooden pencil familiar to all boys and girls and adults who can read and write.*
* My official name is “Mongol 482.” My many ingredients are assembled, fabricated, and finished by Eberhard Faber Pencil Company.


Writing is both my vocation and my avocation; that's all I do.

You may wonder why I should write a genealogy. Well, to begin with, my story is interesting. And, next, I am a mystery— more so than a tree or a sunset or even a flash of lightning. But, sadly, I am taken for granted by those who use me, as if I were a mere incident and without background. This supercilious attitude relegates me to the level of the commonplace. This is a species of the grievous error in which mankind cannot too long persist without peril. For, the wise G. K. Chesterton observed, “We are perishing for want of wonder, not for want of wonders.”

I, Pencil, simple though I appear to be, merit your wonder and awe, a claim I shall attempt to prove. In fact, if you can understand me—no, that's too much to ask of anyone—if you can become aware of the miraculousness which I symbolize, you can help save the freedom mankind is so unhappily losing. I have a profound lesson to teach. And I can teach this lesson better than can an automobile or an airplane or a mechanical dishwasher because—well, because I am seemingly so simple.

Simple? Yet, not a single person on the face of this earth knows how to make me. This sounds fantastic, doesn't it? Especially when it is realized that there are about one and one-half billion of my kind produced in the U.S.A. each year.

Pick me up and look me over. What do you see? Not much meets the eye—there's some wood, lacquer, the printed labeling, graphite lead, a bit of metal, and an eraser.

Innumerable Antecedents

Just as you cannot trace your family tree back very far, so is it impossible for me to name and explain all my antecedents. But I would like to suggest enough of them to impress upon you the richness and complexity of my background.

My family tree begins with what in fact is a tree, a cedar of straight grain that grows in Northern California and Oregon. Now contemplate all the saws and trucks and rope and the countless other gear used in harvesting and carting the cedar logs to the railroad siding. Think of all the persons and the numberless skills that went into their fabrication: the mining of ore, the making of steel and its refinement into saws, axes, motors; the growing of hemp and bringing it through all the stages to heavy and strong rope; the logging camps with their beds and mess halls, the cookery and the raising of all the foods. Why, untold thousands of persons had a hand in every cup of coffee the loggers drink!

The logs are shipped to a mill in San Leandro, California. Can you imagine the individuals who make flat cars and rails and railroad engines and who construct and install the communication systems incidental thereto? These legions are among my antecedents.

Consider the millwork in San Leandro. The cedar logs are cut into small, pencil-length slats less than one-fourth of an inch in thickness. These are kiln dried and then tinted for the same reason women put rouge on their faces. People prefer that I look pretty, not a pallid white. The slats are waxed and kiln dried again. How many skills went into the making of the tint and the kilns, into supplying the heat, the light and power, the belts, motors, and all the other things a mill requires? Sweepers in the mill among my ancestors? Yes, and included are the men who poured the concrete for the dam of a Pacific Gas & Electric Company hydroplant which supplies the mill's power!

Don't overlook the ancestors present and distant who have a hand in transporting sixty carloads of slats across the nation.

Once in the pencil factory—$4,000,000 in machinery and building, all capital accumulated by thrifty and saving parents of mine—each slat is given eight grooves by a complex machine, after which another machine lays leads in every other slat, applies glue, and places another slat atop—a lead sandwich, so to speak. Seven brothers and I are mechanically carved from this “wood-clinched” sandwich.

My “lead” itself—it contains no lead at all—is complex. The graphite is mined in Ceylon. Consider these miners and those who make their many tools and the makers of the paper sacks in which the graphite is shipped and those who make the string that ties the sacks and those who put them aboard ships and those who make the ships. Even the lighthouse keepers along the way assisted in my birth—and the harbor pilots.

The graphite is mixed with clay from Mississippi in which ammonium hydroxide is used in the refining process. Then wetting agents are added such as sulfonated tallow—animal fats chemically reacted with sulfuric acid. After passing through numerous machines, the mixture finally appears as endless extrusions—as from a sausage grinder—cut to size, dried, and baked for several hours at 1,850 degrees Fahrenheit. To increase their strength and smoothness the leads are then treated with a hot mixture which includes candelilla wax from Mexico, paraffin wax, and hydrogenated natural fats.

My cedar receives six coats of lacquer. Do you know all the ingredients of lacquer? Who would think that the growers of castor beans and the refiners of castor oil are a part of it? They are. Why, even the processes by which the lacquer is made a beautiful yellow involves the skills of more persons than one can enumerate!

Observe the labeling. That's a film formed by applying heat to carbon black mixed with resins. How do you make resins and what, pray, is carbon black?

My bit of metal—the ferrule—is brass. Think of all the persons who mine zinc and copper and those who have the skills to make shiny sheet brass from these products of nature. Those black rings on my ferrule are black nickel. What is black nickel and how is it applied? The complete story of why the center of my ferrule has no black nickel on it would take pages to explain.

Then there's my crowning glory, inelegantly referred to in the trade as “the plug,” the part man uses to erase the errors he makes with me. An ingredient called “factice” is what does the erasing. It is a rubber-like product made by reacting rape- seed oil from the Dutch East Indies with sulfur chloride. Rubber, contrary to the common notion, is only for binding purposes. Then, too, there are numerous vulcanizing and accelerating agents. The pumice comes from Italy; and the pigment which gives “the plug” its color is cadmium sulfide.

No One Knows

Does anyone wish to challenge my earlier assertion that no single person on the face of this earth knows how to make me?

Actually, millions of human beings have had a hand in my creation, no one of whom even knows more than a very few of the others. Now, you may say that I go too far in relating the picker of a coffee berry in far off Brazil and food growers elsewhere to my creation; that this is an extreme position. I shall stand by my claim. There isn't a single person in all these millions, including the president of the pencil company, who contributes more than a tiny, infinitesimal bit of know-how. From the standpoint of know-how the only difference between the miner of graphite in Ceylon and the logger in Oregon is in the type of know-how. Neither the miner nor the logger can be dispensed with, any more than can the chemist at the factory or the worker in the oil field—paraffin being a by-product of petroleum.

Here is an astounding fact: Neither the worker in the oil field nor the chemist nor the digger of graphite or clay nor any who mans or makes the ships or trains or trucks nor the one who runs the machine that does the knurling on my bit of metal nor the president of the company performs his singular task because he wants me. Each one wants me less, perhaps, than does a child in the first grade. Indeed, there are some among this vast multitude who never saw a pencil nor would they know how to use one. Their motivation is other than me. Perhaps it is something like this: Each of these millions sees that he can thus exchange his tiny know-how for the goods and services he needs or wants. I may or may not be among these items.

No Master Mind

There is a fact still more astounding: The absence of a master mind, of anyone dictating or forcibly directing these countless actions which bring me into being. No trace of such a person can be found. Instead, we find the Invisible Hand at work. This is the mystery to which I earlier referred.

It has been said that “only God can make a tree.” Why do we agree with this? Isn't it because we realize that we ourselves could not make one? Indeed, can we even describe a tree? We cannot, except in superficial terms. We can say, for instance, that a certain molecular configuration manifests itself as a tree. But what mind is there among men that could even record, let alone direct, the constant changes in molecules that transpire in the life span of a tree? Such a feat is utterly unthinkable!

I, Pencil, am a complex combination of miracles: a tree, zinc, copper, graphite, and so on. But to these miracles which manifest themselves in Nature an even more extraordinary miracle has been added: the configuration of creative human energies—millions of tiny know-hows configurating naturally and spontaneously in response to human necessity and desire and in the absence of any human master-minding! Since only God can make a tree, I insist that only God could make me. Man can no more direct these millions of know-hows to bring me into being than he can put molecules together to create a tree.

The above is what I meant when writing, “If you can become aware of the miraculousness which I symbolize, you can help save the freedom mankind is so unhappily losing.” For, if one is aware that these know-hows will naturally, yes, automatically, arrange themselves into creative and productive patterns in response to human necessity and demand—that is, in the absence of governmental or any other coercive master-minding—then one will possess an absolutely essential ingredient for freedom: a faith in free people. Freedom is impossible without this faith.

Once government has had a monopoly of a creative activity such, for instance, as the delivery of the mails, most individuals will believe that the mails could not be efficiently delivered by men acting freely. And here is the reason: Each one acknowledges that he himself doesn't know how to do all the things incident to mail delivery. He also recognizes that no other individual could do it. These assumptions are correct. No individual possesses enough know-how to perform a nation's mail delivery any more than any individual possesses enough know-how to make a pencil. Now, in the absence of faith in free people—in the unawareness that millions of tiny know-hows would naturally and miraculously form and cooperate to satisfy this necessity—the individual cannot help but reach the erroneous conclusion that mail can be delivered only by governmental “master-minding.”

Testimony Galore

If I, Pencil, were the only item that could offer testimony on what men and women can accomplish when free to try, then those with little faith would have a fair case. However, there is testimony galore; it's all about us and on every hand. Mail delivery is exceedingly simple when compared, for instance, to the making of an automobile or a calculating machine or a grain combine or a milling machine or to tens of thousands of other things. Delivery? Why, in this area where men have been left free to try, they deliver the human voice around the world in less than one second; they deliver an event visually and in motion to any person's home when it is happening; they deliver 150 passengers from Seattle to Baltimore in less than four hours; they deliver gas from Texas to one's range or furnace in New York at unbelievably low rates and without subsidy; they deliver each four pounds of oil from the Persian Gulf to our Eastern Seaboard—halfway around the world—for less money than the government charges for delivering a one-ounce letter across the street!

The lesson I have to teach is this: Leave all creative energies uninhibited. Merely organize society to act in harmony with this lesson. Let society's legal apparatus remove all obstacles the best it can. Permit these creative know-hows freely to flow. Have faith that free men and women will respond to the Invisible Hand. This faith will be confirmed. I, Pencil, seemingly simple though I am, offer the miracle of my creation as testimony that this is a practical faith, as practical as the sun, the rain, a cedar tree, the good earth.

Tuesday, February 5, 2008

NAIOP TESCO TOUR

Hello again,


I just arrived back into the office from the Meridian Business Center in Riverside. The occasion was a NAIOP (National Association of Industrial and Office Properties) breakfast at the brand new Fresh and Easy Distribution Center. Fresh and Easy ("F&E") is Tesco's attempt to enter the American grocery market and as far as I can tell it is a British version of Trader Joe's as both seem to be going for the small (15,000 SF and less) neighborhood grocery store niche.
A little digression is in order:
I live in Pasadena and I live 1 block away from the first Trader Joe's ever and over the past 8 months the quality of service and food has been, in my opinion, lacking. This is counter-intuitive to me since the flagship store for Whole Foods was recently built not a block away. This was quite a brazen and clear attempt on Whole Foods part to "throw down the gauntlet" and attack Trader Joe's on their home-turf and I expected some sort of retaliation on Trader Joe's part in what I felt was going to be an epic battle of the brands. The Organic Food dollar is a very strong dollar indeed, and it seems to me that Trader Joe's just seemed to curdle up and die in the face of such overwhelming competition.
Then I realized that even though the Wholefoods mega-mall opened a stone's throw from the historic Trader Joe's, that the two were not competing directly with each other. The Wholefoods, complete with sushi-bar, tapas bar, an organic buffet bonanza and a cheese sampling station, (among other esoteric organic offerings) was akin to an organic Costco, whereas the Trader Joe's was designed more as an organic neighborhood 7-11 (a classy 7-11 with produce). The Wholefoods vs. Trader Joe's dichotomy was not one of organic oligopolistic competition, but rather an example of market segmentation.
With this back story in place, I think F&E will absolutely destroy Trader Joe's as I have seen the future and the only hope for Trader Joe's is to manage its inevitable decline gracefully. This company I feel has been trading on the goodwill and the fan base that it has generated over the last 40 years. It is no longer enough to just have Hawaiian shirts and to ride the good vibes that the Trader Joe's name generates (that cutesy organic little guy that we all know and love). F&E is gathering its forces on the horizon and I feel Trader Joe's has let its guard down and has never faced such overwhelming competition.
The F&E Distribution Center is amazing. Much of what F&E offers will be private label, meaning that they make their own food. Trader Joe's follows the same tactic, allowing them to pocket much of the margin, but also absorbing all of the risks associated with food products. The major difference is that many of the private label foodstuff's available at Trader Joe's comes from other parts of the country, whereas all the private label foodstuffs from F&E, as per my understanding, will originate from Riverside, thus I believe that the total "food miles" of F&E will be much lower than that of Trader Joe's. In no small part this is due to the fact that Tesco hails from Europe where the government is much more green.
The push across the pond has been for food-miles labeling and the green movement in Europe is taken much more seriously than here in the States. This means that Tesco is much more advanced in terms of implementing green technology on a large scale. And this shows in how they built their building and operate their logistics system.
The F&E distribution center has on its roof the largest privately owned solar generating plant in North America. There are 500,000 SF of solar panels that are able to generate up to 2 megawatts of power, enough to power 50% of Tesco's massive operation. R30 insulation covers the refrigerated portion of the warehouse, meaning that less energy is lost. The forklifts inside of the warehouse are electric and the delivery trucks that service the local stores are powered by natural gas.

400,000 SF Warehouse



Refrigerated Docking