Last October, all anyone seemed to be talking about was the Affordable Care Act (ACA). The first open enrollment period had just begun, and nothing seemed to be going right.
Millions of Americans were receiving cancellation notices from their health insurance providers because their existing health insurance policies didn’t meet the minimum coverage requirements. On top of that, the website for the federally operated insurance exchange repeatedly crashed, unable to handle the volume from a crush of consumers shopping for new coverage.
ACA implementation certainly got off to a rocky start, but one year later, the program seems to have regained momentum. Despite rollout problems, over 8 million Americans signed up for health insurance coverage on the state and federal marketplaces and another 8 million or so consumers gained coverage through other provisions of the new law.
Now, as the start of the second enrollment period looms on November 15, what changes can we expect nationally, and more specifically, in North Carolina? Will the website work this time, and what else will change for 2015?
Success But Challenges Remain
According to the Department of Health and Human Services (HHS), between October 1, 2013, and April 19, 2014, nearly 2.6 million people signed up for health insurance coverage on State-based Marketplaces and over 5.4 million signed up in the Federally-facilitated Marketplace. An additional 4.8 million people gained coverage through Medicaid expansion, and HHS estimates another 3 million young people under the age of 26 gained coverage under their parents’ plan, bringing the total Americans securing new health care coverage to over 16 million.
Health care advocacy group The Commonwealth Fund conducted a national survey of 19- to 64-year-old adults this spring to compare to a similar survey conducted in the summer of 2013, prior to the first enrollment period. The survey found that the uninsured rate for the 19-to-64 age group declined from 20 percent in 2013 to 15 percent in 2014. The uninsured rate for young adults 19 to 34 declined the most of any adult age group, falling from 28 percent to 18 percent.
In North Carolina, 357,584 people enrolled through the Federally-facilitated Marketplace. Of those, 91 percent qualified for federal premium subsidies. Most popular were the mid-tier Silver plans, chosen by 74 percent of enrollees. North Carolina was in the top five nationally in ACA enrollment.
As the only insurer to offer products on the exchange for all 100 North Carolina counties, Blue Cross and Blue Shield of North Carolina (BCBSNC) signed up over 230,000 customers through the Federal Marketplace. (Aetna’s Coventry subsidiary, which offered coverage in 39 counties, accounted for the rest of the NC total.) But with an estimated 1.3 million marketplace-eligible consumers in the state, BCBSNC President and CEO J. Bradley Wilson says there is still a huge opportunity to tap.
“There’s great opportunity out there for 2015 and beyond,” says Wilson. “There are plenty of people who did not choose to purchase for 2014. It was a strong start, but there are many more people who can come into the system beginning this fall.”
With the success of the 2014 enrollment, one additional competitor will enter the North Carolina marketplace for 2015. United Healthcare will become the third company on the N.C. exchange, but may not offer products in every county.
Despite the strong start, Wilson says there are reasons for concern moving into 2015. A massive effort is underway to get the Federal Marketplace website functioning properly, but he says technology concerns remain for the second enrollment period, which runs from November 15, 2014, through February 15, 2015.
“As we all know, the technological capability of the federal exchange fell far short of anyone’s expectation,” says Wilson. “I know they have been working diligently since the close of open enrollment in April to get ready for reenrollment in November. But while great strides have been made, our concern is that it is still going to fall short.
“People who are looking for the Amazon-type experience this fall will not have that. It is still going to be challenging and complicated, but we are all committed to working together to make it as seamless and as painless as possible.”
The renewal process for 2015 plans is intended to make it easier for customers to keep the plan they selected last year. However, it is important for customers to update their information for 2015 subsidy eligibility. There is a new calculation, so even if customers do not have any changes to their personal information, they will want to make sure they receive the amount they are qualified to receive in 2015. If no updates are made, the system will automatically renew with 2014 information.
But the technical challenges are not the only issue for 2015. As it turns out, the health demographics of the 2014 enrollees were somewhat different than expected.
“We’re also concerned because the pool of new customers was generally less healthy than what we had anticipated,” says Wilson. “The pool was also older than what we anticipated. Not surprisingly, those folks who needed insurance most desperately probably stayed with it longer, worked through the technical challenges, and procured their insurance. But that means the cost pressure will continue to be there as we go forward. So we clearly need more young people to enroll and purchase through this program.”
Wilson says that while the health and age of the marketplace pool will put upward pressure on premiums, the primary reason rates continue to increase is that overall medical costs keep rising. Whether it’s a new drug like Sovaldi that can cure Hepatitis C, but costs over $84,000 for a 12-dose regimen, or the increased use of medical services caused by aging baby boomers, or whether it’s the obesity epidemic, uncompensated care for the uninsured, or rampant waste and inefficiency in hospitals, overall health care costs continue to rise.
“Insurance premiums reflect the underlying cost of care,” explains Wilson. “If you really want to think about it simplistically, insurance premiums basically reflect the average cost of care in the particular geography where they are charged, plus an administrative cost for product construction, maintenance, and customer service.”
BCBSNC will announce rates for individual under 65 plans this month.
Uncompensated Care and Medicaid Expansion
One component of rising health care costs has always been uncompensated care, which is defined as care that is delivered, but for which the health care provider does not receive any or sufficient compensation—usually because the patient is uninsured. A hospital must try to recoup that loss through other mechanisms, which include looking to commercial insurers to pay more for the services their customers are receiving. The cost of uncompensated care gets calculated into the premium paid by people who buy insurance in the commercial and public marketplaces.
One of the primary goals of the ACA was to increase access to health insurance, thus decreasing the amount of uncompensated care. The act expanded Medicaid eligibility for Americans living at or below the poverty level, and the subsidized plans offered on the federal or state marketplaces were designed to cover those families living above the poverty level.
But in 2012, the U.S. Supreme Court ruled that the federal government could not mandate that the states accept Medicaid expansion, thus turning it into a state option. About half the states opted out of Medicaid expansion—including North Carolina—leaving many of those below the poverty line ineligible for either Medicaid or the subsidized exchanges.
According to The Commonwealth Fund survey, in the 25 states that, along with the District of Columbia, expanded their Medicaid programs, the uninsured rate for adults with incomes under 100 percent of the federal poverty level declined from 28 percent to 17 percent. In the states that did not expand their programs, the uninsured rate remained almost unchanged at 36 percent, compared to 38 percent in 2013.
A study done by the Kaiser Family Foundation showed 319,000 North Carolinians are in the coverage gap created by the state’s decision to opt out of Medicaid expansion. The North Carolina Institute of Medicine estimates 500,000 state residents in total—both those in and slightly above the coverage gap—would qualify for Medicaid under an expansion. The federal government would have funded the entire cost of the expansion for the first three years, with North Carolina’s contribution never rising above 10 percent.
“In my view, it is unfortunate that North Carolina did not expand Medicaid,” say BCBSNC’s Wilson. “Those North Carolinians who would be eligible for that coverage are still accessing care today. When they need medical services they are going to the emergency room, and our hospitals are delivering that care. But there is no mechanism for those hospitals to get paid. Medicaid provides a rational way to get some of that care paid for.
“There is plenty of opportunity to improve the way we do Medicaid, but while we are working to improve it, not covering these people does not add to the solution, in my opinion. The federal money is available, so turning it down does not do anything to balance the federal budget. The money is simply going elsewhere.”
The burden of uncompensated care is particularly acute for many of North Carolina’s rural hospitals, a number of which are highly dependent on Medicaid payments for their revenue model. Wilson says these hospitals are among a growing chorus urging the state legislature to reverse course and opt to expand Medicaid in North Carolina. Only time will tell whether that actually happens.
Impacts on Employers
The ACA “employer mandate” requires that all businesses with over 50 full-time-equivalent employees provide health insurance or pay a per-employee penalty. Originally set to begin in 2014, the mandate was delayed until 2015 for companies with more than 100 full-time employees and to 2016 for those with 50 to 99 full-time employees.
“Employers are evaluating what their options are, whether they are going to be able to afford it, and if not, what the alternative is,” explains Wilson. “Most employers would like to be able to continue to provide the benefits, but for small employers there is high anxiety about the value proposition and whether they are simply going to be able to afford it.
“We will provide the best products and services we can, at the best price, and will help employers make the right decision for themselves and their employees. I also think there will be an ever-growing place for private exchanges as companies try to control costs.”
Private exchanges are similar to the public marketplaces operated under the ACA, but are offered by employers to their own employees. While there are many variations of private exchanges, companies will generally contribute a specific amount for employees to spend on insurance, with the workers choosing from a menu of options.
“According to some estimates, there could be as many as 40 million people—about 10 percent of the population of the country—enrolled in private exchanges by 2018,” says Patrick Brady, Blue Cross’ Charlotte-based director of major and national accounts. “National research shows that a lot of the exchange activity is taking place in mid-sized companies with up to 1,000 employees, but any company with over 50 employees will be able to purchase coverage on BlueBenefits Center, Blue Cross and Blue Shield of North Carolina’s private exchange.”
Most large companies are not directly impacted by the employer mandate since they already offer coverage to their employees. But the ACA also mandated minimum coverage levels, out-of-pocket maximums, and other plan elements that went into effect for 2014. Large employers had several years to prepare, so they should already be in compliance.
“Enrollment by employees of larger employers has actually ticked up some this year,” offers Brady. “I think it is an awareness by employees that the individual mandate requires that they have health insurance, so they need to either look at their employer’s plan or look at the public exchange to see if that is better than what they can get from their employer.”
“Employers are offering more choice, and more choice for the consumer is a good thing,” Brady continues. “It allows them to self-direct what they want to accomplish in health care, much like they would in any financial environment. We’re now in an era when the consumer is being asked to make good decisions, and in order to make good decisions the consumer needs good tools. So we have focused and will continue to focus on providing those tools.”
With greater choice comes the need for the consumer to understand health insurance and the options and tradeoffs they will be faced with in choosing the right plan for their own family and their own situation. Gone are the days when their employer made all of the decisions with a “one-size-fits-all strategy.”
“I believe that having informed and empowered consumers will be the key to improving and transforming our health care system,” concludes Wilson. “Being informed and empowered starts with education and engagement, so I think that is where this country is headed with health insurance.”
When you think of renovation, you likely think of upgrading a few fixtures in a kitchen or bathroom, but for the Crowne Plaza Charlotte Executive Park located at 5700 Westpark Drive, renovation has meant a year-long process to change not just the look of the hotel, but also the feel, both inside and out. From the new open lobby/restaurant/bar concept to the guest rooms and even the hotel’s green spaces, virtually everything has received an upgrade that calls to mind beautiful European influences.
Of the renovations, General Manager Bill Bennett says, “When you look at the scope of the renovations that we’ve done at this hotel over the past year and how dramatically they have changed the look and feel—to take a building that’s served this market for over 30 years and completely change it—it’s just exciting to be a part of that.”
Although the Crowne Plaza brand is new, “The hotel itself was built in 1983, so it’s been serving the Charlotte market for quite some time,” acknowledges Bennett. “It originally operated as a Marriott hotel. At that time, Marriott was in the middle of a very large growth span, so you saw a lot of these hotels open in the early to mid-’80s.
“One of the main attractions here was a high-energy nightclub, which is now our lobby/restaurant/bar concept, ‘Food for Thought.’ This was one of the first true luxury hotels outside of the city center area, and a lot of people we talk to have fond memories of coming here for meetings or to the nightclub during that era.
“It operated under the Marriott franchise agreement until June 2013. The prior November, Marathon Asset Management, located out of New York, bought the hotel. At that time, they were reevaluating the direction they wanted to take things and they questioned whether Marriott was the right brand. Even though it had been operating under Marriott for 30 years, was it truly reflective of what today’s business traveler is looking for?”
Marathon Asset Management decided to convert the hotel to the Crowne Plaza brand. Crowne Plaza is part of the InterContinental Hotel Group, the largest hotel chain in the world. Currently, the company is in the process of completing a full re-launch, and the Charlotte location is conceptually the face of the new Crowne Plaza brand.
Bennett continues, “June of 2013 we came under new management by Valor Hospitality Partners, based out of Atlanta, Ga. I’ve been at this hotel since April 2010. I come out of a sales and marketing background, but I do have a history of running hotels as well with the Peabody Hotel Group under the Hilton brand. When we converted to the Crowne Plaza hotel, I was honored to be appointed to general manager.”
Renovating and Reinventing
It has been a challenge over the course of the last year for the hotel’s staff to contend with providing guests with excellent service in the midst of renovations at the Crowne Plaza Charlotte Executive Park, acknowledges Bennett, yet rewarding he says as he’s watched his team handle the process with skill and ease. In fact, he acknowledges, “The team is the heart of the hotel.”
He explains, “24/7…that’s an operation that takes a team in order to be successful. Our management philosophy is that we believe our relationship with our associates is cultural. We have to develop the culture where our associates can excel. Our relationship with our guests is emotional. Knowing and understanding that travel today is much different than it was five years ago, 10 years ago, we want to make that emotional connection with our guests, and it’s only through our associates that we can do that.”
“A hotel is nothing more than brick and mortar,” Bennett adds. “No matter how much money you invest into a property, it’s your hotel team that gives it its personality. The culture within a hotel is what plays a major role in delivering a memorable guest experience. So, in order to take care of a 24/7 operation, you have to surround yourself with stellar team members, and you have to develop a culture where those team members can excel.”
Finding the right team members, however, is only one piece of the puzzle. In a city full of lodging accommodations, it can be easy to get lost in the crowd as more and more hotels are vying for the business of travelers in the Queen City. In fact, near Crowne Plaza alone, there are at least six hotels within walking distance.
As companies like Bank of America, Wells Fargo and Duke Energy have expanded over the last decade, they have brought with them more workers traveling in and out of the region, meaning it takes more than just a comfy bed to attract guests.
In order to stand out, Bennett says, “First, we have to start with the facility itself. There’s no other facility in the city of Charlotte that can offer what we do in terms of proximity. We’re three blocks from the Lynx light rail. And if you want to go to uptown, go to South Park and do some shopping or enjoy dining at some of the bistros there, if you want to go to the White Water Center or to Carowinds, literally everything is within about a 15-minute reach of this location.”
“On top of that,” he continues, “we offer 300 guest rooms and, 16,000 square feet of meeting space. But we also sit on almost seven acres of land, so we have a park-like feel to the hotel. Our pool deck area is very expansive, contains dual fire pits, and is able to accommodate receptions for up to 200 people. Simply put, our outdoor area is second to none. Additionally, there’s only a handful of full-service hotels that offer complimentary airport transportation, and we’re proud to be one of them.”
Crowne Plaza Charlotte Executive Park is also meticulous in how it organizes its team as the facility caters to thousands of guests each month. Using a leadership team comprised of Bennett, a sales and marketing force, food and beverage director, a chief engineer, a director of financing, an executive chef, and several other experts, Crowne Plaza Charlotte covers every detail to deliver a memorable guest experience.
“Everything that we’ve done with our restaurant ‘Food for Thought’—in fact, everything that we’ve done with our entire kitchen’s makeup—has been scrutinized by our leadership team,” Bennett remarks. “When searching for an executive chef, we spent nine months, reviewed 180 resumes, and flew in 10 candidates just to find the right individual to fit into this team.
“This hotel, even under the dramatic, invasive renovation that we’ve experienced over the last year, is currently rated number four for meeting satisfaction tracking surveys,” Bennett continues. “Out of 400 hotels, we’re number four, which is something that wouldn’t be possible without our leadership team and all of our associates.”
Keep Guests Coming Back
Speaking to changes and growth at Crowne Plaza Charlotte Executive Park, Bennett says, “Right now, we have about 140 employees, but we anticipate seeing that grow. Over the course of the last year, we’ve had on average 74 rooms out of service at a time, and as we continue to rebound out of this renovation, we anticipate adding about 30 new associates.
“Charlotte is such a dynamic market, and we’ve had unprecedented occupancy growth. I want to say something like 36 months of continued occupancy growth within the city itself. As a result, it’s our duty to our guests to keep up with this growth.”
Attracting and retaining guests also requires the right marketing, the right loyalty rewards, and the right feedback mechanisms. Currently, Crowne Plaza Charlotte uses a variety of marketing channels, including digital and print, but it also relies on its strategic partnerships with BMW Motorsports and the PGA Crowne Plaza Invitational at Colonial to get the word out.
In terms of building guest loyalty, Bennett points out that the hotel targets a demographic referred to as “strivers.” These individuals are highly motivated and work in a fast-paced environment, but they are also in need of a hotel environment where they can transition from work to leisure to socialization, all in the same area.
“Take a look at how this hotel is now designed to accommodate today’s traveler,” says Bennett. “They can sit in our lobby and enjoy complimentary WiFi, which is also available in all guest rooms, and that’s something that’s rare in today’s hotel environment. They can return their emails, watch sports on TV, get a bite to eat, share a plate or cocktails with friends, all from the comfort of our lobby. This is just one small part of what keeps our guests coming back.”
He continues, “We also offer IHG Rewards, the largest hotel rewards system in the world, but brand consistency is key as well. What you receive in Charlotte is what you’ll receive at the Crowne Plaza in Greenville, S.C., or at any one of our 400 locations.”
What Bennett truly attributes to Crowne Plaza’s success in keeping guests coming back, however, is the passion with which its management team serves each hotel.
“Every management company has their own mantra or value system, but how many really believe in their passion and develop an entire company around it? At Valor Hospitality Partners, our managing partner, Euan McGlashan, has operated the Cape Grace Hotel in South Africa, the number one hotel in the world as recognized by Condé Nast.
“After this experience, he decided that he was going to start his own management company. He wanted to work with people that have that passion for excellent service, people that want to be successful. In a short amount of time, Valor Hospitality Partners is up to 22 hotels in the United States and in Europe, which is why you’ll see the European influence in our recent renovation.”
Keeping Up With Change
Bennett keeps abreast of technology as it impacts the hotel industry as a whole and specifically Crowne Plaza Charlotte Executive Park. “Technology is a major player shaping the future of our industry, and I think it’s great—but it can also be a hindrance,” he remarks. “Nowadays we need to be connected, but at the same time, we need to be able to just unplug.
“We offer free WiFi and a strong bandwidth and things like programmable voicemail for our guests, but we’ve also designed our pool, fitness and green spaces to be inviting to help our guests get away for a little bit.”
Indeed, technology is changing the face of the hotel industry. Many hotels are toying with the concept of doing away with check-in and check-out times, allowing customers to remotely check-in online, and some have begun instituting the ability to use smart phones to unlock doors. This may speed up the check-in process, but it can also lead to a “self-service” experience.
Bennett says, “At the end of the day, the hotel business is still about the art of hospitality, and in order to be hospitable, you have to have a staff that is trained in guiding towards that. People still want to be pampered, recognized, they still want to sit down and share a plate with friends. Whoever can provide that along with the technology side is going to win the race.
“I feel like, as an industry, we’ve done a great job at greying those lines of delineation. Today’s business traveler knows that they need convenience. They need something that’s clean. They need to have something—how they want it—at the time they want it.
“It still goes back to the fact that we’re in a people business and you have to provide that level of care and understanding.”
Charlotte’s role as a global hub for international commerce extends beyond the Catawba River to the high seas. Within the city limits are corporate, sales and marketing offices for 11 of the world’s major shipping lines. But there is little to compare among Orient Overseas Container Line, Horizon, Cosco, Evergreen Line, Maersk Line, Hyundai and Yang Ming.
Maersk Line is the luxury yacht to their river rafts. With over 25,000 employees, 600 steamships and 100,000 customers worldwide, Maersk Line is the largest container shipping company on the planet.
The Copenhagen-based company first docked in Charlotte in 1999. Their office was in Barclay Downs—the former Charlotte base for SeaLand. The building choice was hardly a coincidence. In 1999, SeaLand, the company that invented container shipping, was purchased by what was then A.P. Møller-Maersk Line. The buyout included vessels, containers, related container terminals and lease obligations.
The formidable Sea-Land name did not entirely disappear with the takeover. The new container company became Maersk SeaLand Services. But simplicity eventually won out and in 2006 the Danes opted for Maersk Line. Maersk Line Agency, USA, is the North American container division of Maersk Line.
The Barclay Downs office near the South Park Mall stayed active for the next two years. In early 2008, Maersk dramatically expanded their Queen City presence. They combined the east-coast and mid-west customer service, land and oceanside operations and a majority of their finance functions at 9300 Arrowpoint Boulevard on the city’s southwest side. Maersk had purchased the 346,000-square-foot building from Royal & SunAlliance in 2006. It became a model of environmentally friendly renovation.
Maersk is not a name that easily rolls off the tongue. It is pronounced as if the “a” were absent—Mersk. Say it quickly and it sounds like a major drug manufacturer.
“For my first five years with the company, my mother thought I worked for Merck,” chuckles Tim O’Connell. Since July, the 41-year-old O’Connell has been senior vice president of North American (NAM) inland operations. Also in Charlotte are Kevin Hickey in charge of customer service, Cindy Ott over human resources, and Al Gebhardt, in charge of liner operations.
The Charlotte consolidated office is one of the newer developments in the company that A.P. Moller and his father Captain Peter Maersk Moller founded in 1904. The father-son team had just a single freighter. By the mid-1950s, Maersk had freighters in the plural, but they and other steamship companies were slowly evolving into container carriers, the paradigm-shifting invention of North Carolina native Malcolm McLean.
Fast forward to the late 1970s and Maersk and others evolved again into door-to-door product delivery systems. Since 1977, steamship lines have interacted with rail and trucking companies in what the world has come to know as intermodal shipping.
Although Maersk is headquartered in Florham Park, N.J., O’Connell refers to the Charlotte office as a “dual headquarters” with Florham Park. The commercial functions are in Florham Park, while O’Connell, Hickey, Ott and Gebhardt handle operations, customer service and HR in Charlotte.
O’Connell is well-suited for his role. He started with Maersk immediately after graduating from the University of Scranton in 1995. He liked the company’s philosophy right from the start. And they liked him. Maersk has moved the Pennsylvania native through customer service, pricing, sales, information technology, trade and marketing, and now inland operations for all of North America.
What did Charlotte have going for it?
“Obviously, we already had a presence at the old SeaLand office at South Park,” says O’Connell. Among the other factors in Charlotte’s favor, O’Connell found a ready source of excellent resources, a sensible work-life balance, proximity to all of Maersk’s major suppliers and customers, the airport, great people, good colleges and jobs from entry level to executive. Charlotte’s growing role as a center for national and international conferences also played a part.
“Charlotte enables us to attract a really good and diverse workforce,” attests O’Connell. “Aside from that Charlotte is just beautiful. I love it here,” he adds.
O’Connell also commented on Maersk’s resurrection of the SeaLand brand announced earlier this year. “For our North American business, one of the key markets is Latin America,” he explains.
Maersk has struggled with how best to serve that market. For answers, they looked to Seago, its intra-Europe/Mediterranean and MCC, Seago’s intra-Asia counterpart. These short-haul, small-customer operations served as a model for the new SeaLand.
“As it turns out, the SeaLand brand carries a significant amount of weight in Latin America. In short, having a brand connected to the beginning of this industry is important and something that really resonated.” Headquarters for the new SeaLand will be located in south Florida.
Inquiries like these into innovative models of customer service are not typical of the shipping industry. In their 2014 book, Creating Global Opportunities, authors Chris Jephson, a former Maersk senior executive, and Henning Morgen, a company historian, back up this assessment with a telling anecdote.
In 1978 an advertising agency was asked to celebrate the 50th anniversary of Maersk Line’s services between the U.S. and Southeast Asia with a video documentary, wrote Richard Milne in a book review. Maersk McKinney Moller, the longtime CEO and company figurehead, watched the video, thanked the people involved then shelved the film. Instead, he sent a personal letter to each top customer because it was more in keeping with what his father would have wanted.
O’Connell acknowledges, “The container business kept growing and growing (in the second half of the 20th century), but the industry itself didn’t really grow. Volume-wise, yes, there has been growth, but how we think about business and global trade is somewhat antiquated. We are not really in the main stream of using e-commerce, efficiency programs and lean operation. For years the industry has been plagued with terrible results. Return on capital is very bad.”
He then addressed the how-to-fix-it question. The answer is a third wave of evolution, says O’Connell; an evolution that builds on the foundation provided by containerization and door-to-door logistics.
“Our business is maturing,” he says. “We are starting to understand how to best use data, facilitate trade and serve our customers in a more efficient and meaningful way.”
O’Connell points to Soren Skou, the global CEO of Maersk Line, as a leader in an evolving industry. Skou learned his leadership lessons the hard way. During his first two months on the job—January and February of 2012—Maersk Line lost $500 million. That’s $9 million a day. At that rate, the company was headed for a $3 billion end-of-year disaster. Instead, Maersk Line had a $461 million profit in 2012, but Skou admits that even that was not a good return on what the Maersk conglomerate had invested in Maersk Line.
Under Skou, Maersk has adopted an even more green approach to fuel reduction and cost containment. In 2013, the company had reduced its carbon dioxide emissions per container shipped by 25 percent. Maersk had targeted 2020 for a reduction of that magnitude. Congratulations were short-lived, however. Skou raised the percent to 40 by 2020. The 50-year old MBA from IMD Switzerland also upped the ante on how the company is organized, serves its customers and meets its delivery schedules.
Maersk Line recently reported a profit of $547 million for the second quarter of FY 2014. The container shipping division helped drive up the Maersk Group’s half-year earnings by 42 percent.
Skou is overseeing the launch of Maersk’s new Triple E class ships, the largest ships in the world. The Triple E designation plays well for marketing department spinmeisters: economy of scale, energy efficiency and environmental improvement.
Maersk Line initiated the E Class in 2006 with the Emma Maersk and Estelle Maersk. Each holds the equivalent of 14,770 20 by 8 by 8 ft. containers (TEU). All eight Maersk E Class sister ships begin with the letter E.
Triple E Class container ships—20 ordered, 10 delivered—are even larger. Each will measure a quarter mile long and hold 18,000 TEU on its 19 decks. The highly computerized EEEs will part the waves at 23 knots with a skeleton crew of 22. One kilowatt of energy per ton of cargo will propel a Triple E 114 miles. Compare that to a jumbo jet that travels a mere third of a mile using the same amount of energy per ton of cargo.
Charlotteans who tour the Maersk building at Arrowpoint will find a large model container ship with thousands of tiny boxes nestled in its hull. “That’s one-third the size of a Triple E,” says O’Connell. The largest ship Maersk docked on the U.S. east coast was 10,000 TEU. More typically, it is 7,500 TEU.
With all classes of container ships—large, larger and largest—port selection is a major concern for O’Connell. His port roster includes Wilmington, Norfolk, Baltimore, Newark, Charleston, Savannah, Mobile, Houston, Los Angeles, Long Beach, Seattle, Vancouver, Halifax and Montreal.
“Larger ships place greater demand on a port,” says O’Connell. Cranes have to be large enough to reach over ships like the Triple E’s expanded hull. Ports have to be deep enough; rail lines and roads must be efficient and accessible.
Another port decision issue, says O’Connell, is customer density. He cited Gildan and the Port at Wilmington as an example. Textile giant Gildan has a distribution center in Eden, N.C., that receives finished goods imported from Central American manufacturers. In 2012, Gildan increased its use of Eden and the port at Wilmington to export textiles to countries in the European Union.
Maersk shifted Gildan’s import and export business from the port at Charleston to Wilmington. “One thing that really matters to Maersk is how our customer needs to be served,” says O’Connell.
While markets in Central America, Africa and Asia are exploding, the elephant in the room is always China. “Our company has a very long history of doing business in China,” says O’Connell.
In early 2015 Maersk’s trans-Pacific, trans-Atlantic and Asia-Europe business will enter a new evolutionary phase. That’s when a 10-year vessel sharing agreement between Maersk Line and Mediterranean Shipping Company (MSC), the so called 2M partners, is expected to go into effect. The agreement will mobilize the capacity of 185 container ships and possibly result in a 30 percent share of the total Asia-Europe container market.
That is less than what Maersk, MSC and France’s CMA CGM hoped to gain from a proposed three-way vessel sharing agreement they floated in 2013. Known as the P3 Network—the P standing for parties—it would have controlled 40 percent of the trade detailed in the 2M arrangement. P3 was scuttled in June 2014 by the Chinese due to competition concerns. The quickly hatched 2M plan did not need approval from the Chinese Commerce Ministry.
Only a few major and minor industries in the world are outside Maersk’s 100,000-plus customer base. When meeting the rare non-user, Tim O’Connell first talks about needs, schedules, price and corporate fit.
Then it’s a discussion of Maersk’s strong brand, long history, financial stability, good network and customer service.
He concludes with a notion voiced by many in the container industry: “What’s not to like?”
“There are a number reasons to use Maersk. I think most importantly it’s centered on our philosophy of constant care. Whether that be for our customers, and delivering their promise to their customers, our business, our partners and their business, or our colleagues and creating a rewarding place to work, we work hard as company to ensure we have a strong balance and intent focus on delivering results.”
“It’s a small world, but I wouldn’t want to paint it.”
That one-liner made famous by absurdist comedian Steven Wright decades ago never anticipated the ultra fast-paced world we live in today. In the intervening years, quantum leaps forward in technology and communications have truly made the world a smaller place. And while the ability to literally paint it remains beyond our grasp, the global reach of innovative third party logistics (3PL) companies like TransGroup Worldwide Logistics makes it seem figuratively possible.
In the digital age, everything moves at the speed of bits. The constant stream of 1s and 0s has changed the world forever. This is especially true in business. Yesterday’s technology is antiquated today; tomorrow’s demands will be even greater. This insatiable need for speed oftentimes conflicts with another, unchangeable constant—the need for reliability. When these worlds collide, the results can be very bad for business.
TransGroup Worldwide Logistics is a modern global company designed and engineered to succeed in the modern global economy. With its vast network of 90 stations stretched across five continents, and with more than 100 additional alliance partner stations worldwide, the company is uniquely positioned to meet the demands of its clientele head-on.
The multinational freight forwarder offers a full complement of domestic and international services to companies of all different sizes. Complete A-to-Z transport logistics solutions are individually customized to meet each client’s needs, ranging from air and ocean charter services; to warehousing and distribution; to transportation of dangerous goods.
Specific Requirement Transportation (SRT) services are available for trade shows, museums and exhibitions; sensitive medical equipment and pharmaceuticals; government and military entities; and the furniture, garment and automotive industries, among others. The Seattle-based company carries hazmat and TSA certifications and U.S. Customs clearances. They are proud to have been the very first 3PL company to partner with the EPA’s SmartWay initiative for environmental sustainability.
“We are a multi-national freight forwarder offering international services, domestic services and all kinds of other services for customers importing or exporting their products,” says TransGroup’s Charlotte Branch Manager and local member partner Anita Sanders. “And we offer solutions for these customers to make this happen. We started from a small company and we’ve certainly grown as TransGroup—one single company—for 28 years.”
Success on a Global Scale
Co-founders Ron Lee and Greg Vernoy launched TransGroup in 1986. From the outset, their mission to innovatively engineer “The Future of Transport Logistics” was envisioned as a global endeavor. With stations today ranging from Anchorage to Auckland, Boston to Beijing, Bangladesh to Vietnam—and a network of international agents all over the globe—they have done just that.
“Ron and Greg had a vision that there was a need for a single freight forwarding company that could offer some solutions for their customers outside of the box, that could customize programs to fit their needs,” adds Sanders. “And they just built that business over the years with each individual customer, each individual need.”
That formula has proven to be highly lucrative. According to the company, TransGroup drives $800 million in revenue annually; $300 million in North American business and an additional $500 million internationally. It currently projects an organic growth rate of 10 to 15 percent over the next five years.
Much of TransGroup’s success over nearly three decades in the business can be attributed to its intense focus on innovation. The company supports eight distinct technology divisions: TransTMS (Transportation Management System); TranShipper (shipment initiation); TransTracker (worldwide shipment tracking and reporting); TranStatus (worldwide shipment status); TransAlert (automated shipment milestone alerts); TransWarehouse (inventory management); TransTech (in-house technology customization); and TransLogic (integrated logistics solutions).
“It’s a pretty sophisticated operation,” notes Sanders. “There are lots of different specialized groups under the TransGroup umbrella.”
The TransGroup Charlotte station opened for business in 2006 at 3200 International Airport Drive, just off West Boulevard near the southwest corner of Charlotte Douglas International Airport. Industry veteran Sanders has been at the helm since day one.
“I’ve been a freight forwarder in the Charlotte market for almost 30 years,” observes the native Charlottean. “When I started in the business I knew Ron Lee. I knew about TransGroup for many years and what they offered. The direction that they were going was very much of interest to me.
“I’d worked for several multinational freight forwarders over the years,” she continues. “I’ve learned a lot in terms of all kinds of phases of international transportation, from customs brokerage to documentation to supply chain; offering solutions and where to go with solutions for customers; directing them along the way.”
According to Sanders, Charlotte’s Southeastern location has been a boon for the company, even through some of the region’s most recent economic turbulence.
“In 2008-2009 there was a significant drop in terms of manufacturing, and we were not alone, a lot of freight forwarders felt that impact during those years,” Sanders recalls. “It was difficult. That’s when we really sharpened our pencils and put together a lot of programs to save money and offer the customer added value.”
As a result, TransGroup’s Charlotte office has been able to craft a complete range of one-stop shopping options, including door-to-door services for both domestic and international operations.
“A lot of other offices will only offer international services or maybe some domestic services. We offer both,” Sanders explains. “We have a projects team here that not many offices in the country have. And that’s a definite plus.”
The project group in Charlotte is part of the larger projects team based out of TransGroup’s Houston office.
“The projects team deals with more sophisticated cargo that requires a lot of special needs,” is how Sanders sees it. “Big cargo, usually defined as over 30 metric tons, that doesn’t fit in a container, is out of gauge and that really requires specialized skills. They travel to job sites around the world, supervising loading, taking pictures, making sure that things are coordinated properly with permits and specialized equipment. It’s a pretty sophisticated operation that has to have blue prints, coordination and engineers on site.”
The six-person team in Charlotte has amassed an impressive 150 years of collective experience in the freight forwarding industry. That level of 3PL expertise helps TransGroup attract clients new to the area, as well as existing companies headquartered here and medium-sized companies that sometimes feel like they’re getting lost in the market.
Sanders and her staff thoroughly engage each customer, listening carefully to their plans, taking great care to understand their business operation and really studying their agendas in order to craft personalized solutions.
“We work very closely with these medium-sized customers to offer them ways they can develop their business internationally,” offers Sanders. “We know how to identify these people and we really take them in under our wing.
“If they’re nervous about sending thousands and thousands of dollars’ worth of orders to some international customer that they don’t have a relationship with, we talk to them a little about that. We can help them open letters of credit through our partners that do legalized documents.
“If they’re not big enough, if they don’t have a warehouse for example, but they want to bring in some products from China or from Europe but they’re small, we have partners here in the area that have warehousing we can coordinate for them through our own local databases. So we can do warehousing and distribution for them and help them grow their business. And they’re very interested in that because it’s a very cost-effective way for them to grow.”
Efficient, sustainable growth is the name of the game. Through its relationships with the major air carriers, TransGroup has the ability to strategically route flights and get its clients’ goods from point of origin to final destination at the best possible cost. These savings can then be passed along to the client, boosting both bottom lines and customer satisfaction.
In order to keep operating costs low, TransGroup maintains a network of partnerships with trusted third party vendors such as local trucking companies and warehouse operators. One such entity is International Express, a large independent warehouse in a nearby industrial park that leases space to TransGroup.
“We’re all about efficiencies,” reports Sanders. “To operate our own warehouse costs a lot of money, so if we work with these partners that have their own warehouses, we can save a lot of money for our customers. We work with a lot of independent people who make this whole logistics package come together. That’s what we do. We all kind of collectively operate that way to keep our operating overhead down.”
The Allure of the Queen City
Charlotte’s strategic location in the Carolinas offers tremendous geographic and business opportunities for TransGroup. With its ready access to three major ports—Savannah, Wilmington and Norfolk—as well as three international airports—Hartsfield-Jackson Atlanta, Charlotte Douglas and Washington Dulles—and expansion of the Norfolk Southern rail facility, prospects for economic development of the region have rarely looked better, particularly for the third party logistics industry. As an important hub for import and export of manufactured goods via air, sea and land, Charlotte finds itself in an enviable position.
With the expansion of the transportation hub with Norfolk Southern, Sanders says, “We’re looking at all of the possibilities that they’re going to offer in terms of moving cargo to and from ports. And it’s a block away from my office—it’s right here!”
The ability to expand its radius of operations is hugely appealing. The Charlotte station predominantly handles shipments in and out of North and South Carolina, along with some business from Virginia. As infrastructure in the market improves, so does the market itself. And a rising tide raises all ships.
“The market in Charlotte is growing,” confirms Sanders. “You’ve got a lot of interest in terms of multinational companies looking at Charlotte. We’ve got an active Chamber of Commerce, we’ve got a lot of companies coming here, and with the growth of the city we’re very happy to be anchored here and to be a part of that development.”
TransGroup Worldwide thinks globally and acts locally. The corporate office is bullish on the Charlotte market and is heavily invested in the future success of the region.
“We’re very interested in what the city is doing in terms of bringing in multinational companies,” Sanders affirms. “We think there’ll be phenomenal growth. We’re real optimistic about this.”
Along with growth come challenges. While Sanders expects the Charlotte station will experience a robust growth rate of about 20 percent this year, she knows that complacency is the enemy.
“The biggest challenge is always to keep the customers happy and to build their business and to keep the pricing structure in place and provide the services,” comments Sanders. “There are always competitors that are going after your business, so you have to be one step ahead in terms of customer service and pricing. We have to stay on our game just to stay in business and do what we do well.”
From its local station here in Charlotte to points all around the planet, TransGroup Worldwide Logistics is helping to make our global village a little smaller every day. Yet one thing remains unchanged.
We still wouldn’t want to paint it, even if we could.
Layer-by-layer, room-by-room, the hotel property at 201 South McDowell Street has been transformed by major renovations and is now officially open as Fairfield Inn & Suites by Marriott.
Owner, JHM Hotels out of Greenville, S.C., purchased the hotel in June of 2011 while it was still operating as the Crowne Plaza Uptown Charlotte, whose branding contract with Intercontinental Hotels Group was set to expire. After transitioning the property into an independent hotel they named Charlotte Plaza Uptown Hotel, JHM has fulfilled its goals to renovate and reposition the hotel in the Charlotte market as part of the Marriott family.
“JHM is very excited to be part of the Charlotte Uptown marketplace,” says Michael Smith, vice president of sales and marketing for the hotel group. “Charlotte is a vibrant city with lots of marvelous aspects. We are thrilled to be part of this community.”
According to Smith, JHM had its eye on the Charlotte market for some time. “Charlotte has a great hotel market. When we saw this hotel, we knew that it had an upside potential from its former condition. We knew that with renovation and the right brand it would be a homerun.”
The building’s original occupant was The Downtowner Hotel which opened in 1972. It later became an independent hotel named the Government House prior to being branded as a Sheraton Hotel. Next, it was known as a Best Western Hotel and from there it was re-branded to a Crowne Plaza Hotel before being purchased in 2011 by JHM Hotels.
The property has come a long way in the past year.
“This was not merely a cosmetic renovation,” says Bill Moore, who has served as general manager to the property since 2006 and continues in that role. “There has been almost as much done that the guests and public will not see as there has been in aesthetic upgrades.” Moore cites work done to install new fire and life-safety systems, electrical systems, all new high speed Internet infrastructure, increased bandwidth, and sound proofing has been added to all guest rooms.
“As an older building, I don’t think it had ever been brought up to current codes to be safer; more energy efficient. This was a deep, total, inside-out, top-to-bottom renovation. Everything was replaced.”
Fresh, new color schemes adorn the interior and exterior of the hotel. New signage, driveway and a beautiful limestone wall around the new pool all add up to what Moore calls a “rebirth” for the hotel.
The Fairfield Brand
The new Fairfield Inn & Suites Charlotte Uptown serves the Charlotte market with 196 well-appointed rooms, banquet and meeting space, and a complete kitchen for room service and full, rate-included breakfast. Q Tavern will serve both guests and the public for lunch, dinner and cocktails.
“This location has had a really strong lunch business due to its proximity to county offices and the courthouse across the street,” says Moore. “This location has also had a strong occupancy rate.
“Business in Charlotte is really good for hotels,” he continues. “Occupancy projections by the CRVA for Mecklenburg County are approaching 70 percent by the end of 2014. Our goal is always to be above market. With the transient demand that is generated uptown by Bank of America, Wells Fargo, Duke Energy and other uptown businesses, this should be doable.”
The hotel caters to business travelers, those needing a mid-sized hotel for meetings and events, and leisure travelers who are visiting Charlotte around events or family or for a getaway.
“We’ve repositioned this hotel to be an available niche that customers are looking for—not too high end, not too low-end. Whether they are traveling for business or pleasure, it’s a great place to stay,” says Smith. Approximately 40 percent of room sales are from the corporate market, while groups make up approximately 35 percent, and contract (e.g. airline) sales are approximately 15 percent.
Within the Marriott family, Fairfield hotels are select service hotels, bundling services such as high-speed Internet connectivity and breakfast. Fairfield hotels will typically have less public space. A “full-service” Marriott would be more upscale physically, have more restaurants, higher staffing levels and charge for these types of services.
“The Fairfield Inn & Suites Charlotte Uptown will be very atypical in that the hotel will have 10,000 square feet of meeting and banquet space and a restaurant attached to the hotel,” says Moore. “In addition, we own and operate our own parking garage which is a great advantage. Drivers can pull right off of Highway 277 into our parking lot. That’s a great value.”
Also a bit unusual is JHM’s dual role as owner and management. This is very good for the hotel, according to Moore: “It’s a good situation when you have ownership and management as one entity. It totally aligns everyone’s goals. I feel confident that I could call the president of the company at any time. Things happen faster.
“JHM is an operations and sales-driven hotel company,” Moore continues. “People in upper management of JHM have been hotel managers and directors. They know the business.” JHM has approximately 40 hotels across the country; mostly on the east coast with one in Illinois. This is their first hotel in Charlotte.
“JHM really likes to work with Marriott,” says Moore. “With a great base of loyal travelers, 41 million members in the Marriott Rewards Program, and a great reputation for quality and service, JHM feels that Marriott-branded hotels perform well for owners.” Working with a brand also provides the benefit of reservations systems and marketing, according to Moore.
With the transition to a Fairfield Inn & Suites Charlotte Uptown, the Marriott family of hotels is well represented in uptown Charlotte by the Ritz Carlton, Marriott City Center, Residence Inn, and Courtyard by Marriott.
Being a Good Host
Miraculously, the hotel remained open throughout renovations. “We’ve had as many as half of our rooms out of service at one time but we never closed,” says Moore. “Some staff members had fewer work hours through renovations but we didn’t have to let people go. Some of our people were able to go to work at other JHM hotels which helped a lot. I don’t think we’ve lost a single person.” The restaurant and bar area did close down in March.
The new Fairfield Inn & Suites has 75 associates on payroll including 10 net new positions resulting from its re-branding and renovations. A robust sales team that reports to the director of sales completes the staff.
“We hired separate managers for Q Tavern and Studio 220 meeting space oversight, giving them less daily responsibility but greater focus on these specific areas,” says Moore. “All managers must be able to step in to overall hotel operations if needed.” To accomplish this, there is significant cross-training between departments.
“Training is a big deal in the hotel business,” says Moore. Training is sourced through the hotel brand as well as the management entities. “When you come into the Marriott family, you have to be trained in the appropriate programs, for example, the Marriott rewards program, life safety programs and food service. There’s a whole curriculum built on several courses each associate must take.”
A variety of tools is used including classroom instruction, study guides, DVDs, tests. An online training center situated within the hotel is available to associates. Marriott also offers off-site classes and seminars to staff and management of Marriott-branded properties. JHM Hotels also provides significant training. “Our goal is to insure that each guest will have the same quality experience no matter which department or associate they encounter,” stresses Moore.
Running a hotel that is hospitable, comfortable, safe, efficient and attractive brings daily challenges. According to Moore, “All that we do to maintain excellence in the physical property must be done at the same time we are serving our guests. There is no downtime.”
Attracting and keeping the right associates is one ongoing challenge. “We are lucky here to have a core group—65 to 75 percent of our staff—that has been here for several years. We have great retention,” says Moore. “There is a lady who works in the kitchen who has been here for 32 years.”
Still, there is always a certain percentage of associates that are coming and going, according to Moore: “We’re always bringing new people in and getting them up to speed. Keeping them trained, happy and incentivized in a 24/7 business can be a challenge.”
Another ongoing challenge is keeping the hotel clean and maintained. “We can see a thousand people come through in a day,” reports Moore. “We’re constantly cleaning, buffing, fixing scratches.” The hotel’s preventive maintenance program requires each guest room to be inspected against a detailed checklist.
Getting the Word Out
Marketing, too, is a joint effort between hotel staff, JHM Hotels and Marriott. Often, when a company wants to do business in Charlotte, especially for meetings and conventions, they will send a Request for Proposal to Marriott.
A really important piece of the marketing effort, according to Moore, is the group of sales managers who go out and make direct sales calls to large companies and universities.
“People will do business with people that they have good relationships with and they like to be able to put a face to it,” says Moore, adding, “The hotel business is very competitive. All the hotels in the Uptown market are good, high quality hotels with strong sales and management teams. Our marketing program must be excellent.”
The hotel also works closely with the Charlotte Regional Visitors Authority. “The CRVA does a great job,” says Moore. “They work hard to bring tons of business and revenue to Charlotte by way of sales and occupancy taxes.”
“Many people don’t realize how big tourism is and how much it contributes to Charlotte,” says Moore. “We’re busy all the time—weekdays and weekends. In addition to our corporate and conference business, Charlotte pulls people in for concerts, sports events, festivals and other large gatherings. Visitors looking for a getaway are now seeking out Charlotte for its attractions, restaurants and nightlife. At night, people are everywhere.”
Moore has been in the hotel business for 38 years. He’s been a general manager for the past 30 years and has worked exclusively in the Piedmont of North Carolina. “I’m a North Carolina guy,” says Moore who hails from Statesville. “I can’t imagine living anywhere else.”
Moore says his entry in the business was serendipity: “I needed a part-time job at one point. I liked it and was in the right place at the right time.” Moore came on board in 2006 with the McDowell Street property when it was branded as a Best Western Hotel.
“Like any business, you have tough days. But the great thing about being in the hotel industry is that you meet so many great people; fantastic people. The part I like most is engaging someone in the lobby and finding out what brought them to Charlotte. It’s a habit that follows into my personal life,” laughs Moore. “When I’m out with my family, I usually end up talking with strangers about visiting Charlotte.”
JHM is constantly looking for opportunities to own or manage hotels in the southeast and would like to acquire others in Charlotte and other North Carolina cities, according to Smith.
“We look at both new developments and newly built hotels as well as older hotels where the price is right and renovation can happen. The end game is to operate profitably. We are not a buy and sell operation,” assures Smith. “In the last five years, we have sold only one property. We’re in it for the long term.”
If you’ve bought anything from shoes to pharmaceuticals in the last few decades, chances are good that Kuehne + Nagel was involved in shipping it.
As the first place leader in seafreight forwarding, the second place provider of air cargo forwarding, and the third place provider of overland freight forwarding in Europe, Kuehne + Nagel delivers global logistics and supply chain management to top companies around the world, including many right here in Charlotte.
Michael Raffler, vice president for the company’s Carolinas division, says, “Think of Kuehne + Nagel as a travel agent for cargo. Let’s say you want to go on a honeymoon with your loved one. You contact a travel agent, and even though the travel agency doesn’t own the airline, taxi, or hotel, they get your tickets and make sure everything is set up for you. As a freight forwarding company, we do the same for cargo through contracts with major airlines, steamship lines, and trucking companies. And you can track the progress of your shipment every step of the way!”
Raffler adds, “We view Kuehne + Nagel as an extension of our customers’ businesses. Companies have to move parts, materials, and products on the international playing field. They can leverage one-stop shopping through our integrated logistics solutions—whether for airfreight, seafreight, overland or warehousing/distribution. Essentially, we handle the entire shipping process from start to finish.”
While the company got its start in Charlotte during the late 1970s, the heyday of textile manufacturing and woodworking in the region, its history extends back to 1890 in Bremen, Germany. There, August Kuehne and Friedrich Nagel partnered to create a shipping company. For the next 30 years, Kuehne + Nagel mainly focused on German transportation involving heavy cotton and lumber, but it quickly evolved.
In the 1950s, Alfred Kuehne, son of founder August Kuehne, began working to make the company a global presence. This was achieved by contracting with major shipping companies across the world and establishing local offices in industrial hotspots. As more locations were added, the company’s reputation in the shipping and logistics industries grew stronger, allowing it to gain more market share as companies began approaching Kuehne + Nagel for logistics and supply chain management solutions.
In the 1980s, Kuehne + Nagel moved its global headquarters to Schindellegi, Switzerland, a city outside of Zurich. In the United States, New York serves as the national headquarters, and today, Kuehne + Nagel has 1,000 locations in over 100 countries and boasts a workforce of 63,000 logistics professionals.
Of the Charlotte office, Raffler explains, “When the office was initially opened in the late 1970s, there were only two people: a sales person and an assistant. When I joined the Charlotte office in 1990, there were 19 people. The Charlotte office now employs nearly 130 people, including full-time and temporary staff.”
“We came when the textile and woodworking industries were booming, but our continued success in the Carolinas can be attributed to evolving with the region,” Raffler continues. “As Charlotte has welcomed automotive parts suppliers, Kuehne + Nagel has adapted to keep up.
“The aviation industry has also come to the Carolinas, and we do business with many of these suppliers. Charlotte is still very strong in manufacturing and assembly, and, of course, it’s just a great place to live, work, and play,” he says with a smile.
Globally, Kuehne + Nagel serves a variety of industries, including oil and gas, pharmaceuticals, fast-moving consumer goods, and technology, but in the Carolinas, the focus is a bit more narrow.
“Here in the Carolinas, which contain our offices in Charlotte, Greenville, Raleigh, and Charleston, we focus mainly on automotive, aviation, aerospace, and general industrial as well as some retail,” explains Raffler.
Securing the Valuables
When it comes to business assets, there are many options a company may choose to list, but for Kuehne + Nagel, its staff is at the top. The company provides an ongoing training program to ensure that all of its employees are up on the latest in logistics technology, and each staff member goes through a rigorous screening process before joining the Kuehne + Nagel team.
“We care deeply for our people, and we’re very detail-oriented. When it comes to international freight forwarding, mistakes can be costly, so we ensure that only the best logistics professionals get hired,” notes Raffler.
“Our team is quick to react to market changes, challenges, expansions, and contractions. We’re outstanding in identifying and eliminating weak spots. This is one of the most important factors in helping our customers,” he continues.
Kuehne + Nagel has also gained a solid reputation in the shipping industry due to showing care for its customers, many of whom know Kuehne + Nagel for its entrepreneurial spirit, a spirit that has driven the company’s innovative approach to meeting customer’s needs. As Raffler tells it, Kuehne + Nagel often goes into countries and regions where specialized resources exist, such as oil and gas, in order to establish connections right where the suppliers are—ultimately allowing the company to meet needs that other logistics providers can’t.
“One part of our focus is on vertical industries in order to handle logistics through multiple layers of the shipping process. We do this so that we can connect with customers directly,” he says. This approach allows Kuehne + Nagel to be nimble and flexible enough to adjust to changes in the industry as a whole and on a local level, which is crucial when facing a changing and evolving society.
For example, a customer’s area may be facing certain socio-economic difficulties or political changes, and it’s imperative for Kuehne + Nagel to have a local presence in order to identify and meet such challenges.
Another key to Kuehne + Nagel’s success is how it cares for its branch managers. Each branch functions almost as its own entity, meaning branch managers are given the authority to make important business decisions without the weight of corporate bureaucracy stifling them. If a concern is encountered in a specific region, the corresponding office is able to react quickly to address a customer’s needs in the most efficient manner possible, and this is critical when it comes to the time-sensitive shipping arena.
Failing to react and solve customer issues may result in delayed shipment or, in the case of fast-moving consumer goods that have been left to sit, unusable products and materials.
In addition to caring for people, Kuehne + Nagel also goes to great lengths to care for its cargo. There’s no doubt that the shipping world has changed since 9/11 and logistics companies have had to change along with it. As security is a top priority, Kuehne + Nagel partners with a number of federal law enforcement and regulatory agencies to ensure that its facilities and its customers’ cargo are protected.
“Security is a major concern for Kuehne + Nagel,” Raffler says. “Today, our office here in Charlotte is as secure as Fort Knox, if I may say so. Our team recognizes the various threats facing the shipping industry, and we’re proactive in protecting our customers’ cargo and our people.”
He continues, “We’ve taken steps to ensure that we’re in compliance with all federal safety regulations, and we’re always screening cargo. Although this takes a little bit longer to prepare shipments, these are steps we’re willing to take to protect our customers and their materials and products. The secure movement of cargo is very important to Kuehne + Nagel.”
Connecting Customers and Information
In addition to keeping up with security regulations, Kuehne + Nagel is also keeping up with technology. More and more, customers are craving information online, and Kuehne + Nagel’s KN Login is delivering that information with precision.
KN Login is the company’s main information platform through which customers can see real-time, comprehensive data regarding a specific shipment’s status, including its location and expected arrival time and date. This service is available 24 hours a day on the Internet and is accessible to all of the company’s customers, regardless of language or country.
“We’re in a time where information technology is so important. We’ve seen so many changes over the last 15 years as a result, and our customers need information. Because we don’t own vessels, airplanes, and such, we interface with our service providers through a network of connections.
“We take all of this information and pull it together on one platform, KN Login, to provide one complete picture for our customers,” states Raffler. “Our KN Login portal is an industry recognized, state-of-the-art system to allow customers to see their cargo through each step in the logistics process.”
Customers are also able to use this interface to place orders for shipments, minimizing or eliminating the amount of time spent on the phone or doing paperwork. Once an order is processed, Kuehne + Nagel takes care of the rest and provides each customer with updates through KN Login.
When it comes to connecting with customers through marketing, Kuehne + Nagel relies heavily on its reputation. The company does very little in the way of traditional marketing and advertising, even when it comes to trade publications.
“Our company is involved in direct business-to-business transactions, and if you’re not a part of global logistics and supply chain management, you might not know us. We don’t advertise much because our expertise and presence in the market speaks for us,” Raffler mentions. “Our network and our people, our local presence, these all provide a large amount of marketing for us.”
This has created brand loyalty, and many of Kuehne + Nagel’s customers have been with the company for decades.
The Future of Logistics
Looking ahead, it seems that most changes in the logistics industry are positive. Due to the sophistication of much of today’s logistics technologies, workers are coming into the industry more educated.
“The logistics industry has changed massively over the past 25 years,” says Raffler. “We’ve evolved into a logistics solutions provider. We used to talk to traffic managers who had minimal knowledge about freight outside of their own position, but today, so many people in logistics know so much more.
“This has caused Kuehne + Nagel to adjust accordingly by keeping up with our own staff’s education. We’re also constantly updating our technology to stay ahead of the market and provide the best freight forwarding services.”
Unfortunately, there are some potential challenges on the horizon for the industry, including 3D printing. This technology, while not yet perfected or commercially viable, does have the potential to eliminate manufacturing jobs, and therefore, lower shipping volumes.
In its current incarnation, 3D printing has proven to be successful at manufacturing small items, but recently in China, entire houses have been 3D printed, signaling that this technology’s ability to create larger items may be in the near future.
“I think 3D printing will likely change the face of international transportation, logistics, manufacturing, all of that,” Raffler states. “We’ll see less smaller-size consumer products, tools, parts, hardware, being shipped. It will all be done with a mouse click and produced at home or in a small business.”
“I can’t imagine how the impact will be right now,” he continues, “but I expect it to have an effect. 3D printing is certainly something to watch.”
As for the future of Kuehne + Nagel, however, Raffler says, “I’m confident that we’ll remain one of the top three logistics solution providers in the world as we’re always poised to meet our customers’ needs.
“As for our presence in the Charlotte market, we’ll continue to grow with the city and our partners. Our position right now is outstanding and our reputation in the market is wonderful. The future is bright for Kuehne + Nagel.”
Twelve years ago, Tom Barnes purchased thin plywood boards from a local home improvement store to serve as “poor man’s whiteboards” in the guest room of his Matthews home. He and his first two team members looked for clients during the day, while he coded the initial version of global trade software at night. Those were the humble beginnings of Integration Point, a global trade management firm now employing over 500.
Today, there is a bank of flat-screen monitors across the wall in the two-story Integration Point office off Providence Road. The screens track trade activity across the world, along with server data and a multitude of global information.
Integration Point now has offices in six continents and manages trade in 167 countries.
“There are many disparate solutions across the world today. My goal was to change all that,” he says of his start in 2002.
“Trade programs in different parts of the world vary dramatically,” explains Barnes, “and corporations need one platform to facilitate the management of their trade programs efficiently. We bring those capabilities together on one platform.”
Building software on a single, Web-based platform, Integration Point allows organizations to manage trade programs and comply with global regulatory requirements while improving visibility and realizing savings. The company also provides solutions for import/export management, supply chain security, entry validation, denied party screening, product classification, free trade agreement qualification, foreign-trade zones, and global duty deferral program management.
“We have an opportunity to redefine global trade,” says founder and CEO Barnes, 46. “Some think of our business as software, but we are also involved in updating regulatory content. This, combined with the connectivity to supply chain partners and government entities across the world on one platform, provides the opportunity to help mold our industry.”
Integration Point operates globally, not locally or regionally, so Barnes had his choice of great places to establish the company headquarters. “Charlotte offers the perfect environment both from a corporate and family perspective,” Barnes affirms.
Although born in Mexico City, Barnes had lived in Texas, the Midwest and North Carolina. He graduated from East Gaston High School in Mount Holly. He went on to graduate from the University of South Carolina in Columbia, working on two degrees: management science and business economics.
While living in Texas in 1993, Barnes was impressed with an uptick in growth and business in Charlotte. He kept in touch with his former home via The Charlotte Observer and had kept tabs on the employment classifieds.
Speaking of his wife, Barnes says, “We both had job interviews there on the same day, flew up on the same day, and got job offers the same day. So we moved to Charlotte, deciding it was meant to be.”
Barnes started his career as a software developer in Mexico, designing international trade systems at different consulting firms, and managing systems for a global manufacturing company.
“I’ve always had one foot in the IT world and another in international trade,” he remarks.
In 2002, he said to his wife, “I have a good idea for a business, so let’s take our life savings and invest in a company that can offer one trade platform for global needs.”
“Luckily she agreed,” he says with a laugh, and they found a new use for their spare bedroom.
Barnes then set to work forming a core team. “I thought of everyone I knew—the best of the best,” he says.
“That’s important,” offers Clay Perry, senior vice president of global markets, who was also the second employee of the company. “We know a company like this is only good as the team.”
Making It Connective
Barnes emphasizes: “Economies change. Governments enact new regulations. Trade channels are updated. Supply chain partners alter services or products. Regardless of the country or year, global trade is always dynamic.”
It’s those factors that drive him and the team at Integration Point to provide a central platform for importers and exporters.
“What a client needs for Brazilian imports and what a client needs for Asian fair trade agreements is completely different,” says Barnes “Our platform is multilingual and supports all languages. We manage the regulations for 167 countries on a daily basis. Every company has its unique aspects to global trade and that goes with political regimes and economies. That’s why they need us even more to help keep track of this.”
Barnes continues, “Integration Point is architected to satisfy the needs of customers to implement modules as required, on a functional, geographic and corporate basis. This enables them to pay for and use the capabilities required across the enterprises on a country-by-country basis.”
Barnes says his goal from the beginning was to create a tool to give companies the visibility and the necessary regulatory information to facilitate compliance.
“Even if you are an expert on exports in the U.S., you don’t know all the regulations for Japan, Brazil or Australia. There are big discrepancies throughout the world,” says Barnes from firsthand knowledge.
Integration Point created and now maintains a single, Web-based platform that allows organizations to manage trade programs and comply with global regulatory requirements while improving visibility and realizing savings.
Barnes’ company provides solutions for: import/export management, supply chain security, entry validation, denied party screening, product classification, free trade agreement qualification, foreign-trade zones, and global duty deferral program management.
“The platform is cloud-based. Our clients are processing off our server and all are on same code-base. It’s highly configurable,” he says. “We configure our technology to meet their needs. We must understand their business very closely.
“To do that, we have to maintain a talent pool like no other, as well as the ability to stay on top of global trade on a daily basis,” he notes.
“To qualify for a free trade agreement you must be able to show where every component comes from and account for that to save duty,” he says. “Our objective is to expand our global footprint and associated solutions to meet the needs of our global clients no matter what. It’s a big world.”
He notes that the company’s very first client—a large global 200 company—still works with Integration Point. Integration Point also does quite a bit of work for large logistics providers. Their roster of clients includes large petroleum companies, electronic providers, recognizable retail names and pharmaceutical giants.
Barnes insists on high standards in the company’s hiring and exposes employees to a rigorous training program. He believes that Charlotte has a great talent pool—recruiting from regional universities that include USC, UNC Charlotte, Western Carolina, Winthrop, and Clemson.
Customs and Customization
In addition to offering a global trade management solution, Integration Point also works closely with U.S. Customs and Border Protection (CBP), the largest federal law enforcement agency of the U.S. Department of Homeland, charged with regulating and facilitating international trade, collecting import duties, and enforcing U.S. regulations, including trade, customs, and immigration.
Melissa Irmen, senior vice president of products and strategy, works for Integration Point remotely from her northern Virginia home. That way, she says, she’s closer to Washington, D.C. and in tune with ever-changing regulations from the customs and border agency.
“CBP is going through a complete systems overhaul right now,” she says. “With new software development, they have a process of asking for information from the trade to help them build better systems. We spend a lot of time in interaction with CBP.”
Irmen, a self-described “trade geek,” says it’s work that she truly likes.
“I really enjoy my role as a government liaison. I’m contributing not only regulatory processes here but also trade everywhere,” she says. “Being able to deliver something to someone to help them leverage their business, I think that’s really exciting.”
“We have locations in every major continent and personnel all around the globe—China, Mexico, Australia, India, Brazil, Belgium and more. Our goal is to focus and to have a localized presence in areas of high activity so that we have the knowledge and the scope of what’s in each country,” she says.
She describes Integration Point’s product as a forever-growing platform with multiple functions and easy accessibility.
“Perhaps all you need to do is denied party screening for your exports and you can purchase just that piece of the software, and later you start importing and you need a tool to help to manage free trade agreement,” she says.
“If you are exporting you are required to screen all of the people that you send your exports. That’s one of the functionalities of the platform. If you are importing, you are required to file with the U.S. CBP, and the platform does that as well. We also offer trade programs to improve your competiveness.”
“The key takeaway is that everyone exporting and importing needs to do these things and we make it simpler, faster and more cost effective to do so,” Irmen says.
Because of Integration Point’s involvement in community and regulatory agencies around the world, they are often recognized by trade organizations and industry magazines. In July, customers nominated the company to receive the designation of “Great Supply Chain Partner” for 2014 by SupplyChainBrain, a popular trade magazine.
“It is always a compliment and huge honor when your customers take the time to point out how much they enjoy working with you, how much your solutions assist their operations, and the savings opportunities that are realized,” says Jeff McCauley, vice president of global accounts at Integration Point.
Barnes says Integration Point’s software product, its diversity, ability to be configured and keeping in touch with government customs agencies is working. “We’ve been profitable from day one.”
He points out that the company’s software pieces can be tailored to meet the needs of customers quickly.
“We have over one million regulatory controls in our content base and, wherever you are, you need to understand the rules and regulations and we give you the tools to do that,” he says. “We have different competitors across different geographies and trade programs. The difference is that our one platform meets all those needs and provides visibility globally.”
Barnes says he sees a future full of opportunity. He is positive that Integration Point is meeting the needs of the global trading industry. “My goal is to build the network of global trade,” he says. “We are in the position to define an industry. Very few people have that opportunity.
CEO Tom Duncan greets visitors to China-based Positec’s North American headquarters with a firm handshake and huge smile. Then, he ushers them over to a completely furnished workshop stretching the entire right wall of the reception area, complete with a huge workbench, drills, table saws, circular saws, replacement bits and blades, and more. He walks through the shop with a gleam in his eye; he says he gets to work his dream.
“Whether it’s an end user, a retail client, or a product developer, Positec is dedicated to providing a hands-on experience here at our Charlotte headquarters,” explains Duncan. “This workshop has been created so that we can not only test out our new products, but also provide our buyers with a totally immersive experience.”
Duncan laughs as he admits that he often feels like a kid in a toy store when new products arrive for testing in the workshop.
As is evident from the company’s name, short for Positive Technology, Positec’s entire approach to creating home improvement technology is one that centers on innovating for the customer. On display are many of the company’s products including a new battery powered string trimmer and a wheelbarrow that can transform into eight separate forms. One display shows off several of the company’s over 2,000 patents and Duncan says that another 2,000 are currently being processed.
Duncan cites the Worx TriVac patent as an example of the company’s innovative problem solving. The Worx TriVac is both a leaf blower and a vacuum, changing functions with the flip of a switch. Duncan describes how other leaf vacuums require a long, cumbersome barrel so that users can’t injure themselves by reaching into the vacuum.
Positec’s engineers decided to design a unit with a short barrel with a slight bend at the end to keep hands out of harm’s way, resulting in a blower/vacuum combo that is only slightly larger than a traditional hand vacuum.
“Because of one small, innovative change, the entire concept of a blower/vacuum combo has been turned on its head,” Duncan remarks, most satisfied.
Looking for a Start
After graduating from the University of Virginia in Charlottesville, Duncan describes his “first real job” with Lawler Ballard Advertising in Nashville, Tenn., where he wrote sales brochures and managed a few accounts.
“It was a great first business job. I’d compare it to the hub of a wheel—I dealt with different types of businesses. I’d visit a liqueur account in the morning and, while still in my suit, a dairy farm in the afternoon to learn about its forage grass for cows. The next day I’d visit a bank.
“I was hearing about the coming formation of the European Union, and that interested me,” Duncan continues. “I decided to get an M.B.A. in international business studies; I left my job and enrolled in the University of South Carolina (USC) Moore School of Business.
“As part of the program, I took an intensive German language course and then spent eight months in Germany as an intern at a packaging machinery company. Learning a language in school and then having to speak it in a business setting is one of the most humbling experiences you can have.”
“I’ve always had an international outlook when it comes to business. In fact, I think a lot of Positec’s success is due to that. I meet business owners all the time who are focused solely on their specific regions, and many are afraid to step out of their comfort zones,” he says. “I am completely comfortable in international communities. I enjoy the diversity, learning the culture…it’s all part of the fun.”
With his business degree in hand, Duncan went to work for Vermont American, a joint venture of Emerson Electric and Robert Bosch in 1992. “I was recruited because I knew German,” he says. “In 1998, I was promoted to vice president, and in 2000 Bosch bought Vermont American. He stayed on as vice president of international with the Accessory Business Unit of Robert Bosch Tool Group for a couple of years, but was intent on starting his own company.
“At that point, I wanted to do something entrepreneurial. So I left in 2003 and acquired the rights to use the Rockwell name for power tools. Rockwell International had sold premium-priced tools for professional tradesmen and serious do-it-yourselfers under the name until the early 1980s, but not since.
“I planned to reintroduce the brand with a new line of tools and sell them through stores like Sears, Lowe’s and Home Depot. So, I started looking for investors and a factory to make them.”
Making a Connection Abroad
“It was right about then, in 2004, that I met Don Gao in Shanghai.”
In the mid-1990s, Gao was a contract tool manufacturer with his own factory. He manufactured private-label hand tools for clients (as an OEM, original equipment manufacturer) such as Sears. He won a huge order for angle grinders from U.S. tool titan Black & Decker. In one year he shipped 700,000 of them, Then, Black & Decker cut its orders, deciding to make the grinders itself—and right in Gao’s own city, Suzhou.
But with Gao’s setback came inspiration. “Chinese companies are too focused on price,” he says. “You can succeed only if you build loyalty,” and he was convinced brands were the best way to do that.
So he started Positec to manufacture and distribute his own branded power tools, rolling out his Worx label in 2004.
“I think too often Americans have a negative perception of Chinese companies,” says Duncan. “But I have a unique perspective. I was impressed with Positec’s operation, which was entrepreneurial and driven by innovation.
“He was starting the Worx brand of tools and was interested in joining forces, so we began talking,” says Duncan. In late 2005, Gao hired Duncan to head up his North American operations to sell Worx and Rockwell lines of home improvement tools.
Also that year, the company selected Charlotte for its North American headquarters. It chose the Queen City over Atlanta and Chicago because of its proximity to Mooresville-based Lowe’s Cos. Inc., which has become one of the company’s largest customers.
“It just made all the sense in the world to be right next to the second-largest home-improvement retailer,” Duncan says. “It was the best decision we ever made. Our business with them has really expanded, and I think being here and having this office so close just makes doing business so much easier.”
Some of the same advantages apply since it is also relatively close to the Atlanta headquarters of Home Depot.
Duncan adds that it was also “because of the people.”
“There are so many talented professionals in the Charlotte region,” he says. “We have some of the best, brightest, and most experienced in the home improvement technology industry right here and we couldn’t pass up the opportunity to tap into that.”
Launching the Brands
Rolling out Rockwell and Worx brands of home improvement tools through Positec here in the U.S., Gao and Duncan faced stiff competition from some of the biggest names in the industry including Black & Decker. At first, breaking in with retailers such as Lowe’s, Home Depot and Sears was not easy. Sears and other clients weren’t receptive to the company’s brands, preferring instead that the company continue to provide the private-label tools carrying the store’s brand.
Fortunately, Duncan reached back to his experience at former employer Robert Bosch GmbH with television marketing directly to consumers, and in 2008 Positec aired its first infomercial around a lightweight, cordless lawn trimmer—the Worx GT. That year, the company sold 400,000 units, Duncan says, more than doubling the entire market.
As sales climbed, consumers began asking for Worx and Rockwell products, resulting in a change of heart from the big-name buyers. Retailers such as Lowe’s took notice and agreed to carry the products on their shelves, finding that infomercial products sold at a higher rate than most other brands.
Positec became a supplier to Lowe’s in October 2009 and was named its 2010 Innovator of the Year among Lowe’s 2,500 suppliers, becoming the first company to win a Lowe’s Supplier of the Year award in its first year as a vendor.
Positec was also awarded 2011 Product of the Year by DIY Weeks, the leading European trade magazine, for the Rockwell Sonicrafter oscillating tool and the G-Force angle grinder in the power tool category and the TriVac blower/vacuum and the Eco cordless mower for the garden tools category.
Also in 2011, Positec Tool Corporation settled into its present location in 25,000 square feet—the entire third floor—of the Linville Building, which is co-located with its 26,000-square-foot reverse-logistics warehouse facility in the Perimeter Woods Business Park in the Huntersville area.
In addition, the company relocated its retail distribution facility from Long Beach, Calif., to about 120,000 square feet of industrial space in Huntersville Business Park.
Today, Positec maintains facilities in China, Italy, Spain, Brazil, and Australia, and here in Charlotte, Memphis and Chicago, and also in Canada.
Positec’s U.S. sales last year totaled over $200 million and made up over half of the parent company’s total revenue. With consumers spending more on home improvement, Duncan expects Positec’s U.S. business to achieve double digit annual growth over the next few years. Further, with certain products such as lawn trimmers, Positec is gaining market share and creeping up on industry giants such as Stanley Black & Decker Inc.
“We’ve created more than 100 high-paying jobs in the United States,” Duncan notes, “and also a number for our business partners here.
All told, the global Positec Group is made up 4,000 employees operating in 12 subsidiaries worldwide with roughly $400 million in revenue. Gao is still sole owner.
Gao, who remembers leaving a state-owned company to start his business with the help of suppliers who allowed him to defer payments, says he has enough money. Except for one possibility he’s happy to contemplate: “Unless I buy Black & Decker,” he says with a smile.
Serving the Marketplace
Positec Tool Corporation’s customer service center is located right in the same building. Customer service representatives answer phone calls and emails from end users, retailers, and manufacturing and distribution partners.
“What we’ve found is that, in order to truly deliver value to our customers and partners, we have to be close to them. You can’t get closer than our headquarters.”
Innovation is Positec’s calling card, Duncan says. The company has developed a robotic lawn mower and a safe chainsaw called the “JawSaw.” The latter features a blade that’s partially enclosed to prevent injuries.
“It’s an industry with giants,” he says. “We’re definitely the smallest guy in the block. But we can offer innovation that maybe they don’t have or can’t provide. Or maybe we’re quicker on the draw than they are. That’s kind of been our niche. The only way we’re going to win is by being different.”
“What we’ve done,” Duncan continues, “is strike out on our own with premium pricing. Sure, you can get home improvement products cheaper elsewhere, but our products will outlast the competition year over year. Our premium pricing is designed to provide extra value for customers, most of whom will not need replacements or repairs, even through heavy use.”
Regarding Chinese manufacturing and its role and image within the United States, Duncan points out that the tide is slowly changing. In the past five years, wages have almost doubled for Chinese workers, placing many manufacturing centers in the country at a disadvantage.
Additionally, he notes, shipping large, bulky items from China is becoming cost prohibitive, causing many companies to begin investigating the benefits of transferring tasks to the United States. “We’re even considering transferring some functions that are now done in China to our North Carolina facility,” Duncan notes.
With the Worx and Rockwell brands putting out innovative products year after year, it seems that Positec is right on track to gain market share in the home improvement industry. At the company’s headquarters, engineers pore over customer feedback in order to define what needs to be done to create products that not only serve to make home improvement tasks easier, but also to construct design ideas that minimize cost and space while increasing efficiency.
“What our team is most committed to,” maintains Duncan, “is making life easier for home improvement enthusiasts the world over.
“Give us a home improvement task, and we’ll make it easier to complete and help you get it done faster. We know that in Charlotte, we’ve got the right people to help our customers get the job done.”
Who knew the 2013 Color of the Year would be cobalt blue, or that the Fall/Winter 2014 hues would be bright jewel tones and soft romantic neutral tones? Who created the dyes and swatches of the Spring/Summer 2015 palette featuring a “rainforest” theme of tropical colors? And who makes those colors into a standard format that can be communicated to a global supplier base?
That would be a very well-known company in the textile industry—perhaps not so well-known here in Charlotte—but nonetheless right in our backyard: DyStar LP. Very simply put, DyStar LP and its parent conglomerate DyStar communicate major retailers’ constantly changing colors to international suppliers.
DyStar LP is a manufacturer and supplier of dye, chemical auxiliaries, specialty chemicals and services to the textile and leather industries throughout North America. They work to make sure colors in manufactured products are true to the intent of the retailers.
It is an impressive challenge that extends across all industries. DyStar LP relies on the resources and the reach of the DyStar group to interact with companies globally and to support their customers at all stages in the textile chain, from the first inspiration of a designer, through production and testing, to the finished product in the store.
DyStar prides itself on consistency and exceptional results. How do they do this? To understand, you first need to appreciate the company’s impressive lineage.
A Colorful Lineage
As it’s constituted today, DyStar’s lineage is a Who’s Who of over 150 years of integrations, mergers and acquisitions. At the same time, it also is a paradigm for successful survival of the decades-long exodus of apparel and textile production to Asia.
DyStar was a direct product of major changes that came to the textile industry during the 20th century—technological innovations, synthetic fibers, logistics, and globalization of the business.
By the late 1980s, the apparel segment was no longer the largest market for fiber products, with industrial and home furnishings together representing a larger proportion of the fiber market. Industry integration and global manufacturing closed down many smaller firms in the 1970s and ’80s.
Here in the U.S., 95 percent of the looms in North Carolina, South Carolina and Georgia shut down, and Alabama and Virginia also saw many factories close.
In the mid ’90s, globalization of the industry within Germany resulted in reorganization of companies and production chains, resulting in a vertical integration of the global value chain—from development to production to sale, a dynamic illustrated in the transformation of DyStar.
DyStar started as a joint venture in 1995 between the textile dye divisions of Hoechst Celanese and Bayer, functioning as a coloration specialist. It then embarked on an impressive expansion by strategic acquisitions of BASF, Mitsui, Zeneca, Color Solutions Inc. and Yorkshire Americas.
These acquisitions were pivotal in transforming the company into a solution provider, offering brands, retailers and their industry partners a complete range of colors, chemicals and services.
By 2004, DyStar was widely recognized as a leader in the textile market, and was acquired itself by private equity firm Platinum Equity for a price analysts estimated at $680 million.
With subsequent acquisitions of Rotta Group (2005), Boehme Group (2006), and Texanlab (2007), DyStar grew in strategic market segments—covering auxiliaries and leather, and becoming a full solution provider.
In the early 21st century disruption of the textile industry continued with advances in electronics, shifting global economics, and more restrictive chemical and environmental regulations. Massive consolidations among European producers were met with the expansion of Indian, Chinese and Asian firms closer to new consumer product makers.
Given the rapidly changing market, the complex collection of DyStar companies proved difficult for its private equity owner in the ‘credit crunch’ era: In the fall of 2009, facing liquidity pressure, DyStar’s German operations filed for insolvency.
In February 2010, China’s Zhejiang Longsheng Group (Lonsen) together with India-based Kiri Dyes and Chemicals purchased the assets of DyStar’s German operations and most of its global subsidiaries for a reported $70 million, and later that year, also Dystar’s North American operations for a reported $10 million.
Longsheng was a major manufacturer in dyes, intermediates and chemicals in China, and also a conglomerate with interests in steel, autoparts, real property and financial investment.
Kiri was one of the largest manufacturers and exporters of reactive dyes and intermediates in India, particularly known for its reactive “blacks” in the industry.
The acquisition included access to DyStar’s 16 manufacturing plants in 12 countries, its brand, patents, technical know-how and most importantly, a 21 percent global market share.
Able to acquire the assets of DyStar without liabilities, Lonsen and Kiri turned around the DyStar business, making it more cost-effective and moving it more towards the growing Asian textile market.
DyStar has continued to expand and diversify in recent years. In October 2012, DyStar acquired the exclusive dealer for DyStar products in Andean countries—Anglostar LLC and its subsidiaries.
And just last fall, DyStar acquired Lenmar Chemical Corporation of Dalton, Ga., a specialty chemical products manufacturer, to further diversify its product portfolio and technical expertise into the textile and carpet, fiber processing, laminate floor, water treatment, oil and agriculture industries.
Since 2012, all DyStar operations come under the umbrella of DyStar Global Holding (Singapore) Pte. Ltd., with shareholders Lonsen (63 percent) and Kiri (37 percent).
Today, the DyStar Group has 14 production facilities in 12 countries and sales companies in all major areas, over 2,000 employees worldwide, and serves about 7,000 customers. Last year, DyStar earned nearly $850 million, with 45 percent coming from Asian markets and 55 percent split between Europe (30 percent) and America (25 percent).
In the first half of 2014, DyStar has achieved a 13 percent increase in revenue compared to the same period last year and doubled the earnings after tax.
In Charlotte, DyStar’s operations include DyStar LP and Color Solutions International.
Color Solutions was itself a product of the textile consolidation going on here in North Carolina. In 1999, John Darsey and Freddy Miller combined businesses to form Color Solutions Inc. Initially focused on creating cotton color standards, they were able to attract major retailers—their first account being Wal-Mart—and transitioned beyond to meet customer needs.
In 2002, DyStar acquired Color Solutions Inc., changed the name to Color Solutions International (CSI), and provided the financial resources, global exposure and technical expertise to expand their product line and services.
Ron Pedemonte serves as president and CEO of DyStar Americas, DyStar LP and CSI . With a background in chemistry, Pedemonte started his career with DyStar in 1991 as a research chemist focusing on developing novel reactive dyes and then was relocated to Germany to continue on new product developments.
Since 2000, he’s been in Charlotte as regional America product manager for reactive dyes, three years later becoming the regional business manager. In 2007, he was promoted to his current position and is also responsible for global textile services. He is the inventor or co-inventor of more than 25 patents in the field of reactive dye chemistry and has published numerous papers in biochemistry.
Although headquartered in Singapore, DyStar’s global head happens to reside here in Charlotte as well. In early 2012, Harry Dobrowolski took the reins as group president and CEO.
Dobrowolski brings a strong financial background to his leadership at DyStar. A native of Ravensburg, Germany, he has lived in the United States since 1985. He received his education in Germany, with a degree in business administration and finance.
He started with DyStar in 2005 as the head of Finance and Business Services for the Region Americas. Previously, he was CFO for Rohwedder North America, an automation systems provider and before that, he had a 20-year career with Siemens Company, which included management positions in Germany and South Africa, as well as the U.S.
Speaking of the 2010 acquisition of DyStar by Lonsen and Kiri, Dobrowolski says, “This was a totally new beginning for us. Since 2010, we’ve had very positive and sustainable growth in our results.”
Dobrowolski attributes the financial turnaround of the company to the right strategy and support from shareholders as well as integration of the supply chain. DyStar now has offices, competence centers, agencies and production plants in over 50 countries.
“This helps to ensure our expertise is both local and global for brands and retailers, mills and dye houses,” he reports. “What’s more, there are no superstars. We used to have very good managers; now we have the best team.”
Dobrowolski paints the larger picture: Following the reorganization in 2009, DyStar instituted several changes in operations. It closed some production plants in Germany and Indonesia as they had become outdated and were highly energy-intensive.
Production was shifted to more modern plants, primarily in China, where DyStar invested in state-of-the-art production technology. The new shareholders also helped to integrate the supply system and continue to be an important part of the leadership team.
“It is more than a partnership,” says Dobrowolski, “They need us to sell product and we need our shareholders to provide both suppliers and marketing information,” says Dobrowolski. “We work together very closely on a daily basis.”
A Colorful Presence
DyStar LP operates out of two production sites in Reidsville, N.C., and Dalton, Ga., and four warehouses located in Reidsville, Dalton, California and the Dominican Republic.
Through its CSI division, the company uses DyStar dyes to create over 5,000 CSI formula colors for fabric manufactured across the globe. These colors are developed through face-to-face contact with designers and color managers who have a specific color in mind.
“Globally, we are establishing color standards for more than 100 well-known brands,” says Pedemonte. “Some dyes have a lineage of 50 years or longer.”
“A retailer comes to us with a color palette for the season, whether it is spring or summer, fall or winter, holiday or back to school. They ask us to replicate the color in such a way that it can be communicated to their supply base,” describes Pedemonte. “We are smack in the middle of the textile supply chain, supplying color standards.”
“We take a retailer’s inspirational color pieces and make them into a standard format that can be communicated to a global supplier base,” continues Pedemonte. “Not only are we providing a service, but we are producing a color standard that is produced with dyes found in other countries; we lend technical support.”
The product offered to retailers consists of a certified standard (dye recipe with DyStar dyes) that is sold to global textile mills and vendors via the international website. The textile mill customer then uses this formulation to produce its fabric samples and production using DyStar dyes.
There are limitless applications for DyStar products—apparel, automotive, carpet, specialty chemical, denim, military/workwear and retailer/brand are their seven key markets.
DyStar LP maintains strong relationships with its customers; Pedemonte says that of the top 50 customers, 15 have been with the company for at least 10 years. Its diversified and well-balanced customer base of leading companies across a broad range of industries protects it from market fluctuations. High profile customers include Hanes, Fruit of the Loom, Shaw, Mohawk and Guilford Performance Textiles.
DyStar always has products in development. One of its current focuses is the denim industry. With a history of almost 120 years of producing Indigo, DyStar has developed a patented DyStar Indigo Vat 40 percent solution which represents the state-of-the-art in pre-reduced Indigo liquid. It allows for cleaner denim production and a reduction of the sodium hydrosulfite usage by 60 to 70 percent.
Coloring In the Future
As one of the premier companies in the field with a truly global reach, DyStar operates in many different legal jurisdictions and cultures and is responsible for complying with the laws in the countries in which it works. Additionally, the company aims to conduct business across boundaries with integrity and the highest ethical standards.
“It is our vision to become the world’s most sustainable and responsible supplier of colors, chemicals, and services to the global textile industry,” states Dobrowolski. “Our commitment to sustainability covers all three of its pillars, namely economic, environmental and social sustainability.”
Increasingly, rising wages in China and other countries, combined with higher transportation costs and new environmental regulations, have prompted a number of foreign and American textile companies to consider returning to the U.S. Also, with more consumers looking for ‘Made in the USA’ labels, some companies are turning back to American products.
Wal-Mart, for example, has pledged to buy $50 billion over the next decade in American-made products, including towels and washcloths.
Dobrowolski believes the trend back to Americas will continue—at least for the next few years. He adds that the textile industry itself is expanding because of consumer consumption.
“One of the factors undergirding a growing textile industry is the fact that consumers are buying more,” he says. “People don’t just buy what they need; they buy because they want the latest style or fashion color.”
With a growing industry and an expanding company, Dobrowolski expects DyStar to continue its growth path. But managing a large company with a complicated global supply chain can be challenging.
“We have to make sure our products—and the processes we use to produce them—are safe, follow strict environmental guidelines,” says Dobrowolski, “and their quality is top-notch and consistent worldwide.”
When most people hear the name Alibaba, they think of a character from “Ali Baba and the Forty Thieves,” one of the most familiar of the The Arabian Nights stories. But Alibaba also happens to be the name of the largest global tech company that you’ve probably never heard of. While Alibaba controls 80 percent of China’s online shopping market, it has little name recognition in the United States. But that may all be about to change.
Alibaba is in the process of amending its prospectus for an initial public offering (IPO) on the New York Stock Exchange (NYSE), which will probably occur sometime in September. Alibaba’s market cap will rank up there with household names like Microsoft, IBM, Oracle, Samsung, and Facebook. Some think the offering may approach $20 billion and value the company at well over $150 billion.
Now, in addition to launching what could be one of the largest IPOs ever, Alibaba has set its sights on the American online shopping market. But can a Chinese company and its dynamic founder who has “Americanized” the Chinese market “Chinafy” the American market with the same success? What will be the impact on U.S. online commerce and what are the takeaways?
Amazon, eBay and PayPal With a Dash of Google
Hangzhou, China-based Alibaba Group is a collection of Internet-based e-commerce businesses including online web portals, online retail and payment services, a shopping search engine, and online mapping. Alibaba serves as a marketplace, connecting buyers and sellers, and runs a platform where people and merchants go to sell things and people come to buy. Alibaba says it has no desire to sell products itself so as not to compete with the merchants who drive its middleman/facilitator business model.
Alibaba is, by some measures, the world’s largest e-commerce company. According to The Wall Street Journal, transactions completed on its various online sites topped $248 billion in 2013. That’s more than Amazon and eBay combined. Alibaba’s three largest marketplaces—Taobao, Tmall, and Alibaba.com have hundreds of millions of users and host millions of merchants and businesses. Alibaba has been likened to “a mix of Amazon, eBay and PayPal with a dash of Google thrown in.”
The company was founded in 1999 when Hangzhou native Jack Ma created the website Alibaba.com, an English language business-to-business web portal designed to connect Chinese manufacturers with primarily American buyers. Alibaba.com also offers a transaction-based retail website called AliExpress.com, which allows smaller buyers to buy small quantities of goods at wholesale prices.
Alibaba’s consumer-to-consumer portal, Taobao, is similar to eBay and by itself is China’s largest e-commerce site. Founded in 2003, Taobao is a huge online marketplace where more than 8 million sellers sell over 900 million products direct to Chinese consumers. In such a huge marketplace, it can be hard for sellers to stand out, so advertising designed to drive traffic generates the vast majority of Taobao’s revenue. The company’s powerful search engine also directs traffic to sellers and is an important component of the Taobao advertising strategy.
Tmall.com was launched in 2008 to complement Taobao, but instead of individuals and small businesses selling their products, Tmall is where large companies like Nike, Proctor & Gamble, Apple, Gap, and Walt Disney market their global brands to an increasingly affluent Chinese consumer base. These companies pay to be listed on the site and then advertise to compete and get noticed.
Alipay is an online payment escrow service linked to a customer’s bank account that is China’s biggest payments processor and operates similar to PayPal. Ma created Alipay in 2003 after realizing he could not successfully sell online without an escrow service to protect buyers and give them the confidence to do business with smaller merchants. Sellers do not get their money until the buyer is satisfied.
The company has also recently ventured into logistics because of China’s fragmented logistics network. Unlike the U.S. where UPS, FedEx, and the USPS provide quick and efficient delivery of products nationwide, in China there are literally millions of small one or two truck delivery services, along with a dozen or so larger providers. Ma and Alibaba are currently engaged in at least two major initiatives to create a software-based smart network to help integrate these millions of Chinese logistics providers to speed up product delivery all over China.
In June, Alibaba launched its first foray into the American retail marketplace, 11 Main (11Main.com), which hosts more than 1,500 merchants in categories such as clothing, fashion accessories and jewelry, as well as home goods and arts and crafts. 11 Main is intended to be a go-to for unique, interesting, limited edition products. The brand is designed to evoke a Saturday morning stroll amongst the small, unique shops of Main Street as opposed to driving your car to the Wal-Mart parking lot.
In May this year, Ma stepped down as the Alibaba CEO, but he remains the company’s executive chairman as well as a major shareholder. Few people expect the passionate former English teacher to slip away to the sidelines, though. Most view it as delegating the immediate operations to others while Ma continues to set the course for Alibaba as it expands from its China base into a global market.
Entrepreneurialism in China
Dr. James A. Tompkins is an internationally known authority on supply chain strategy and operations. He is founder and CEO of Raleigh-based Tompkins International, a supply chain and logistics consulting firm. Tompkins has studied Alibaba’s success in China and also has considerable insight on how Alibaba will impact the U.S. marketplace.
“In 2014, I believe that Alibaba will do $420 billion in online sales,” predicts Tompkins. “By comparison, in the United States we only do $475 billion online. I also believe that by 2015, Alibaba will become the largest retail platform in the world…even larger than Wal-Mart.”
Tompkins also points out that Alibaba is growing rapidly, with revenue growth running at an astounding 70 percent per year from 2009 to 2013. That rapid growth has also driven profitability to stratospheric levels as Alibaba earns $0.43 in profit out of every dollar of revenue. By contrast, the profit leader in American online commerce is eBay whose margin in 2013 was just 17.8 percent. Alibaba’s amazing success has also helped make China the world’s largest e-commerce market.
“Alibaba’s IPO will be huge because it is based on the rise of the middle class in China,” suggests Tompkins. “Today in China, only a third of the gross domestic product (GDP) comes from consumers. In the U.S., two-thirds of our GDP comes from consumers, so the growth potential for China is enormous.”
Tompkins believes that to understand Alibaba’s goals, you have to understand its visionary founder, Jack Ma. Ma learned English as an unpaid tour guide for foreign visitors, and later taught English in China for five years. But when he saw the Internet for the first time on a visit to the United States in 1995, he immediately saw its potential as a great equalizer at home. “Our competitors are not in China, they are in Silicon Valley,” Ma has been quoted as saying.
“Jack Ma is also seen as the Godfather of entrepreneurs in China,” says Tompkins. “Alibaba has offered other entrepreneurs the opportunity to have a place to build their own business. He has helped millions of entrepreneurs and has revolutionized retailing in China, but the world certainly did not expect to be taught a lesson on entrepreneurism and commerce by China.”
Chinafication and Americanization
From the beginning, Ma said his goal was to create a global business, but his eyes were always on the United States. His first online business, Alibaba.com, was designed to give Chinese manufacturers greater exposure in the West. So when the time came to expand outside of Asia, instead of focusing on other developing markets—like South America and Africa that have some similarities to the logistical challenges faced in China—Ma chose to set his sights squarely on the American market.
“Jack Ma’s area of expertise is not retail; it’s not technology; and it’s not logistics,” says Tompkins. “His area of expertise is the ‘Chinafication’ of things that work in the West. He studies what works in the West, adapts it and brings it to China. So he is extremely aware that when he comes back to the West he now needs to ‘Americanize’ what he did in China. And I think the real goal that Alibaba has for the IPO is to create brand recognition.”
Tompkins says learning about the U.S. market is one of the main reasons Alibaba has spent over a billion dollars on investments in U.S. companies over the last 18 months. These investments include sports merchandiser Fanatics, search engine Quixey, instant messaging service TangoMe, ride sharing and delivery service Lyft, luxury e-commerce 1stdibs, and online retail marketplace ShopRunner.
“His goal for M&A in China has been to increase his success and his profitability, but in the U.S. his goal for M&A has been to learn,” explains Tompkins. “When he’s made acquisitions in the U.S., he’s always asked for board seats to learn about the U.S.”
“Jack Ma practices martial arts, so he follows one of the key principals of Kung Fu, which is he should take your strength and turn it into his strength,” continues Tompkins. “His big competitors are the big American retailers, most of whom are mass merchants. So what does Jack do with his first true American site? He opens 11 Main, which is just the opposite of mass merchandising. It is designed as a personal relationship between a merchant and a customer. You have to request an invitation to join.
“The vision of a Chinese Internet company coming to the United States and being successful is a huge barrier because Americans are just a bit uncomfortable about learning entrepreneurship from a Chinese guy. They view China as a Communist country, so he faces some huge barriers. What he is doing is very Kung Fu.”
But Tompkins believes that 11 Main is just the first step in Alibaba’s American strategy. He says the next step could be the real game changer.
“I think there is also going to be a big marketplace that will not be just unique products,” he says. “In that marketplace he will have stores for office products, stores for toys, stores for women’s merchandise, stores for men’s merchandise, drug stores, grocery stores, and more. I don’t know what he will call it, but I think it will be up and operating before the 2015 holiday season.
“That is the site American retailers have to fear—especially American retailers that do not have a unique product offering. If I am a large department store and I sell Coach and Gucci and Ralph Lauren, I will have a problem, because why would you want to shop with me when you can shop at Jack’s store that has all of those things and is going to give you a really good price.”
But haven’t Amazon, eBay, and other online retailers both big and small been doing quite well in the U.S. market over the last 20 years or so? Can Alibaba really change things in the more mature U.S. online marketplace? Tompkins thinks they can.
“It has to do with being a huge marketplace,” Tompkins suggests. “If you can become big enough to become a destination, you can turn off the other search engines’ spiders because people will come to you first. Merchants will want to be on your site, and then because merchants want to be there, customers want to be there too.
“When more customers do, more and more merchants will as well, and it just snowballs. As the site gets bigger and bigger, merchants have to buy advertising, so they shift their advertising budget away from where it traditionally has been and they give that advertising to Alibaba.
“So the question is how do you get huge? How do you prime the pump? You do that by making your fees very low. The fees for 11 Main are about half or less than they are on the other major U.S. marketplaces that are out there,” Tompkins points out.
“That fee 11 Main charges its merchants is 3.5 percent, but there are three very important exceptions—one is for books, one is for music, and one is for movies. For those, the fee is 0 percent, a strategy that seems aimed squarely at Amazon’s core business,” says Tompkins with emphasis. “That’s Ma’s Kung Fu philosophy in action.”
Fueling the Counteroffensive
If Alibaba is successful in revolutionizing online commerce in the United States, how will that impact the Charlotte region and how should American companies respond? Tompkins says the Charlotte’s region’s retailers, like those anywhere else in America, can’t just play defense, they need to respond with a counteroffensive.
“The first thing is price,” he explains. “Retailers need to reduce operating cost. They need to reduce inventory cost. This will allow them to offer things like free delivery and free returns.
“Second is selection. They need to increase non-stock items as well as stock items. They need to offer a broad selection and they need to own a category.
“Third is convenience. They need to provide the speed of delivery that their customers desire. Most people will not pay for same day or next day delivery. Some people want it quicker, but others are willing to wait.
“Finally is the experience. A merchant needs to offer a personalized and engaging experience. Their customers must feel like they are related to individually.
“A merchant’s supply chain is the fuel for their counteroffensive,” Tompkins continues. “They need to develop a channel strategy, and their channels need to be transparent to their customers. They also need to define their distribution and fulfillment network, something I call ‘Get Local.’ That means they must meet the requirements of the customer from a shipping and logistics point of view.”
Tompkins believes that Charlotte may be well-positioned to take advantage of the need to “Get Local.”
“The Charlotte region is located within a 24 hour drive of 60 percent of the U.S. population,” he explains. “That is very important because if companies are going to ‘Get Local,’ they are going to need to locate in those areas where you can get to locations quickly. So I think that is a big plus for Charlotte.
“Another big plus for the third party logistics providers, and for distribution and warehousing, is where Charlotte is located relative to the east coast ports. Charleston, Savannah, and Wilmington are going to become more important when the Panama Canal widening opens and we find more ships traveling from Asia direct to the east coast as opposed to Asia to the west coast. I see that as a substantial shift.”
While Alibaba may not be a household name here in America just yet, Tompkins says companies need to begin planning their counteroffensive today. “I believe that by the holiday season of 2015, we’re all going to be talking about Alibaba.”