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The winter of 2014 was one for the record books in Charlotte and the Carolinas. Thanks to the polar vortex, January 2014 was the coldest January in 37 years and the seventh coldest since record keeping began in 1878.
While the exceptionally frigid weather and icy conditions may have hindered our day-to-day activities, it didn’t daunt Piedmont Natural Gas, the energy services company that serves over a million customers in portions of North Carolina, South Carolina, and Tennessee. As a matter of fact, on January 7, the company set a single-day record for natural gas volume at 30 percent greater than its previous daily record set in 2010.
While keeping us all warm may be the most visible role Piedmont Natural Gas plays in the Carolinas, the products and services they provide are also becoming increasingly important to our region’s competitiveness in the global economy.
Natural gas is proving to be one of North America’s most abundant and affordable energy sources, one that has great potential to boost economic growth, help our balance of trade, and reduce the geopolitical risk that is often associated with energy-related products.
Over the last decade, America has seen natural gas emerge as a leading source of domestic energy. Technological advances such as 3D seismic technology have allowed geologic formations to be examined with greater accuracy, reducing the frequency of dry wells. Advances in horizontal directional drilling and hydraulic fracturing, (commonly called fracking) have allowed new supplies of natural gas to be extracted from shale formations deep underground.
Ten years ago, shale accounted for less than 5 percent of America’s 50 billion cubic feet per day (bcfd) of natural gas production. But now, shale represents a full 40 percent of today’s 65 bcfd domestic gas production. As a result of these new resources, the cost of natural gas has declined significantly in the U.S., giving America a competitive advantage over economies in Europe and Asia.
“This game-changing era of natural gas abundance has transpired at a time when our country and our economy really needed some infusion,” says Thomas E. Skains, chairman, president, and CEO of Piedmont Natural Gas. “This abundance of supply has lowered the price of natural gas from, conservatively speaking, $7.50 per million BTUs prior to the recession, to about $4.50 per million BTUs today. That’s a $3 savings on the 25 trillion cubic feet of natural gas that are consumed annually in the United States, representing $75 billion in energy savings per year.”
Skains goes on to say that it still costs over $10 to buy a million BTUs of natural gas in Europe and over $15 in Asia. As a result, many global companies—particularly chemical companies—now have an economic incentive to move manufacturing back to the United States to take advantage of America’s cheap natural gas.
In years past, energy experts believed the U.S. would need to import foreign natural gas to meet our needs. Now, as a result of shale production, efforts are underway to liquefy U.S. natural gas and sell it abroad as liquefied natural gas (LNG). While the certification and approval process for LNG facilities is long, LNG export has the potential to boost domestic job creation, help the balance of trade, and positively impact global energy security by reducing Europe’s dependence on Russia for its natural gas supplies.
While there is no shale production currently taking place in the Carolinas, preliminary studies indicate that the Sandhills region between Southern Pines, Fayetteville and Raleigh may have the right geology for shale production. Work is currently underway by the N.C. Energy and Mining Commission to evaluate an appropriate regulatory framework for possible shale development in North Carolina.
While fracking is controversial because of potential environmental risks—including ground water contamination, air pollution and chemical spills—the natural gas industry believes that hydraulic fracturing is safe when performed in a responsible way and with proper oversight. Skains agrees, and says the economic benefits to our region are significant.
“If we can convert N.C. from an energy-importing state to an energy-producing state, over the long term, we can create lower wholesale energy costs, which would be an added incentive for firms to locate here,” he explains. “The cost of energy at a retail level in N.C. is on average competitive with other regions of the country, but I think we would be even more competitive if we had wholesale supply and production here.”
A Foundation for Transition
In addition to being abundant and cheap, natural gas combustion is highly efficient and emits less carbon dioxide and pollutants compared to other fossil fuels. Burning natural gas emits about half of the carbon dioxide of coal combustion, and natural gas is 30 percent cleaner than oil and 15 percent cleaner than propane. Natural gas is also a very efficient fuel to transport from the source of production to the end consumer, delivering about 90 percent of the energy produced at the source to the customer. By comparison, electricity delivered over wires captures only about 35 percent to 40 percent of the raw energy produced.
One way that natural gas is helping reduce carbon emissions is by helping electric utilities transition their power production away from coal. Historically, coal has represented about 50 percent of the electric power generation in the U.S., with both natural gas and nuclear trailing at about 20 percent each. But with the dramatic drop in natural gas prices over the last decade and the increasing regulatory requirements to clean up old coal plants, natural gas has made huge inroads into coal’s dominance. Today, natural gas serves about 30 percent of the power generation market and coal has declined to about 40 percent.
“If you look at what natural gas has done for our country’s carbon emissions, CO2 emissions peaked in about 2007,” remarks Skains. “By 2012, CO2 had declined back to 1995 levels, with coal to natural gas conversions by power plants being a major contributor to that decline.”
The natural gas industry has also benefitted from increasingly efficient residential energy use, as a result of more energy-efficient homebuilding standards as well as more energy-efficient appliances. In 1970, the U.S. natural gas industry served about 38 million residential customers. By 2010, that number had grown by 70 percent to 65 million customers, but the annual amount of natural gas consumed by those 65 million customers—about 5 trillion cubic feet—was the same amount that 38 million customers consumed in 1970. That’s a 40 percent efficiency improvement over 40 years.
Piedmont Natural Gas is converting one out of every three of their 900-vehicle fleet to natural gas and is adding compressed natural gas fueling stations that will be used by the fleet and also made available to the public. Skains says the company foresees a potential role as an infrastructure enabler for the vehicular natural gas market—building, owning and operating fueling stations where and when it makes economic sense to do so.
Skains is quick to add that, while they think the ultimate market potential is huge, they believe the vehicular market will develop slowly because of the infrastructure required and the need for vehicles to come off the assembly line ready to burn natural gas rather than relying on more expensive conversion kits.
Natural gas is often described as a bridge fuel—a cleaner fossil fuel alternative that will help bridge the gap until truly renewable sources such as wind and solar are more widespread and economically viable. But Piedmont’s Skains says that he sees natural gas playing a much larger role in our energy future—heating our homes, generating electricity and running our vehicles—in partnership with renewables for decades to come.
“We think natural gas is actually a foundation fuel, or if it is a bridge, it’s a bridge too long to see the other side,” he suggests. “Natural gas is a long-term foundation for that transition to a lower carbon energy economy. The sun doesn’t always shine and the wind doesn’t always blow, so natural gas generation of power can be the primary backup to fill those valleys. We are very complementary to the renewable effort, but we are an important low carbon primary energy source as well.”
A Real Value Proposition
In its three-state market area, Piedmont Natural Gas owns and operates over 22,000 miles of distribution pipelines and about 3,000 miles of transmission pipelines—the larger diameter, high pressure lines used to transport the gas between main distribution points. The company operates in about two-thirds of North Carolina’s 100 counties; the Anderson, Greenville/Spartanburg, and Gaffney markets in the upstate of South Carolina; and the Nashville, Tennessee, metro area. The company also has a number of joint venture investments in interstate pipeline projects, storage facilities, and other strategic energy-related activities.
Of the company’s one million customers, about 900,000 are residential customers, about 100,000 are commercial customers, and 2,500 are industrial/manufacturing firms. In terms of revenue margin, residential demand contributes about 55 percent, commercial 25 percent, and industrial and power generation markets each contribute about 8 percent to 9 percent.
This new era of abundant, low cost natural gas is also having a profound positive impact on the growth of Piedmont Natural Gas’s business. Despite the recession, the company has enjoyed 4 percent compound earnings per share growth over the last five years, and EPS growth accelerated further to 7 percent in fiscal 2013. They are forecasting annual customer growth of 1.5 percent, or about 15,000 customers, primarily driven by new residential construction.
The fastest growing market in terms of revenue contribution has been power generation. Duke Energy has been actively decommissioning older coal plants and replacing them with new combined cycle natural gas plants generally located on the same site as the old coal plant. Since 2010, Piedmont has invested over half a billion dollars to build infrastructure to support Duke’s new plants. As a result, serving Duke Energy’s needs now comprises almost half of the annual natural gas throughput in the Piedmont Natural Gas system.
In addition to investing to support new residential, commercial, industrial, and power generation markets, Piedmont Natural Gas is also investing to maintain, rehabilitate and modernize their existing pipeline and support infrastructure. They have already replaced or retrofitted over 40 percent of their 3,000 miles of transmission pipelines and have an annual program in place to continue that process for years to come.
As a retail energy service provider, Piedmont Natural Gas has a vested interest in promoting the success of the communities that it serves, believing in the notion that if you help grow the communities in which you operate, you will also grow your company.
“We are joined at the hip with the success of all the communities that we serve, and we actively support those communities’ economic growth and development activities,” affirms Skains. “We want our pipeline facilities to help attract manufacturing investment decisions. We ask what kind of enhancement or expansion would we need to do to serve that new plant, and can we do it economically?”
In the residential market, the company says 90 percent of the new homes being built on or near their gas mains are built as gas-served homes. But Skains says that despite their status as a regulated monopoly energy service provider, there isn’t a single potential customer that has to use their product.
“We have to compete our way into every home, business or manufacturer,” admits Skains. “Natural gas is a discretionary product and the customer has a choice. But when you look at the attributes of our product and our services, we think the choice to go natural gas is compelling.”
“Natural gas is abundant, it’s domestic, it’s clean, it’s efficient, and it is affordable,” he concludes. “Our track record as a service provider is also delivering safe and reliable service. So when you put all of that together, we feel that we offer a real value proposition for our customers.”
A new zeitgeist is growing in Charlotte—a feeling that Charlotte is on the brink of something even larger. And there’s evidence to support that feeling. Things are happening here and around the globe that are and will continue to significantly impact Charlotte as we strive for greater prosperity.
A Global Business Environment
There was a time when being a global company was an exotic idea. Smaller businesses tended to be local; larger ones national. Today, going global is not only a possibility, it is almost a necessity. Consumers, businesses and governments have become accustomed to searching for the best products and services worldwide.
“When you speak about the global competitiveness of the Charlotte region and how we might enhance that going forward, you have to understand we start from a very strong base,” says Michael Almond, CEO of the international business and economic development firm Antaeus Consulting, LLC.
Almond has spent more than 35 years involved in international economic development, most notably as a member of the Council on Foreign Relations from 2007 to 2012 and as president and CEO of the Charlotte Regional Partnership from 1999 to 2005.
“We have a strong manufacturing base, a strong distribution base, energy, banking and finance and health care here,” Almond continues. “Our diversified economy has enabled this region to avoid or be late to join recessions and be quick to recover from them.
“The Charlotte region is a destination market for foreign investment. If you were to combine the gross state product of the two Carolinas and compared that to countries around the globe in terms of GDP, the Carolinas would rank around 15th or 16th in the world.”
Michael Gallis, a transportation and logistics expert and principal of Michael Gallis & Associates, likens our present day attempt to define our future growth to the work 20 years ago by Jerry Orr and others on growing the airport to be an economic force.
“We were maybe third or fourth tier down the line,” says Gallis of the airport’s previous status as a freight center. “We weren’t a global hub, we weren’t a U.S. hub, and we weren’t even really a Southeast hub. We were just a regional hub serving the immediate area.
“‘How does Charlotte get in the game?’ we asked, but we realized the only game to get in was global. Great global hubs around the world are dynamic and successful because they have the greatest access to markets. Trade from around the world passes through them and businesses love them because from them, they get direct access to the world market. Cities like New York, San Francisco, Los Angeles and Atlanta are doing so well because they’re big global access points.”
Ask the Experts
Mark Beattie is a principal with Hickey & Associates, LLC. His firm specializes in global site selection, public incentives and workforce solutions. When evaluating potential business sites, they consider certain key factors fundamental to the search process.
Among them are: availability/cost of land and proximity to major highways, available infrastructure (utilities, sewer/water, power, transportation networks, etc.), site-ready location, cost of doing business, access to raw materials and supply chain, access to logistical support, tax and regulatory environment, availability of labor and wage requirements, location of zone designations that may affect the company, availability of public incentives to offset startup cash and reduce long-term reoccurring costs, and quality of life.
Beattie confirms that Charlotte has many advantages it can use to attract business globally.
“The strength of the businesses that are currently here are a stabilizing influence,” he says. “And Charlotte has grown up. It has greater diversity than ever in terms of its population and business representation. From a global perspective, the more diverse your platform of business and cultural opportunities, the more attractive it is for those considering the area from a foreign direct investment perspective.
“Charlotte also has a good quality of life. People don’t work 24/7 and businesses recognize the importance of an environment where employees feel comfortable and can enjoy their off time. Charlotte is a place of recreation, leisure and cultural engagement. The proximity of the mountains, the sea and other city venues within a two or three hour drive all add to the quality of living here.
“Also the growing visibility and positive reputation of the city is a huge strength in competitiveness,” Beattie continues. “The way that Charlotte handled the Democratic National Convention was very positive and the upcoming soccer match between English Premiere Team League’s Manchester City and Liverpool this August will have the whole world tuning in.
“Our ability to attract world class artists, like when Yo-Yo Ma performed with the Charlotte Symphony a couple of years ago, is recognized in the cultural world. All of these things give Charlotte visibility around the globe.”
His observations are matched with comments for real executives at real businesses choosing to do business from Charlotte.
“I am an advocate for Charlotte. Our relocation from New York City to Charlotte has been nothing short of spectacular,” says Eric Steigerwalt, head of U.S. Retail, a division of Metlife, Inc. which recently moved into new office space in the Ballantyne area of Charlotte. We have been hiring for over 900 positions and we have had over 77,000 applications for these jobs.”
“The numbers work for Charlotte, there is no doubt about that, but what is even more important is the quality of life in Charlotte,” says John Williams, CEO of Domtar, Inc. in nearby Fort Mill. “With its proximity to the mountains and to the shore, and the culture in this community, it is an easy decision.”
How Do We ‘Get in the Game’?
How do we ‘get in the game’? We’re already in it.
A grass roots Charlotte group, dubbed by The Charlotte Observer as the Global Vision Leaders Group, describes the long-term economic vision for the Charlotte region to become “a global hub of international trade”: a great inland port city leveraging its financial, energy, health care, educational, entrepreneurial, manufacturing, and logistical resources to world prominence.
In the ethos Gallis, Tony Zeiss of CPCC and Chase Saunders of the McNair Law Firm, founders of the Global Vision Leaders Group, the Charlotte region will accomplish this through a three-prong initiative: Creating things better than our competitors by adopting entrepreneurialism and innovation as prominent and core values of the region; making things better than our competitors by growing our advanced manufacturing and export base and providing these businesses with world-class employees through exemplary education and training; and moving things faster and cheaper than our competitors through the new Charlotte Regional Intermodal Facility and access to the deep water ports of Charleston and Savannah.
With this vision in place, the Charlotte region enters the global competition. Through this technological disruption of traditional markets how competitive a region’s offerings are across the globe will determine how successful it becomes. Participation in this new marketplace also brings increased competition from around the globe.
Measuring Global Competitiveness
The idea of measuring competitiveness on a global scale may seem daunting, but several respected surveys/reports have come about to do just that—like the Ease of Doing Business Index and the Indices of Economic Freedom—which look at factors affecting economic growth. Neither of these considers as many as the Global Competitiveness Report, which made up of over 110 variables.
The Global Competitiveness Report is an annual report published by the World Economic Forum since 2004. It ranks countries based on the Global Competitiveness Index, which integrates the macroeconomic and the micro/business aspects of competitiveness into a single index.
The report “assesses the ability of countries to provide high levels of prosperity to their citizens. This in turn depends on how productively a country uses available resources. Therefore, the Global Competitiveness Index measures the set of institutions, policies, and factors that set the sustainable current and medium-term levels of economic prosperity.”
The variables evaluated include the following: Institutions, Infrastructure, Macroeconomy, Health and primary education, Higher education and training, Market efficiency, Technological readiness, Business sophistication, and Innovation.
Since 2010, Switzerland has led the ranking as the most competitive economy in the world. The United States, which ranked first for several years, fell to fifth place (behind Switzerland, Singapore, Finland and Germany) due to the consequences of the financial crisis of 2007–2010 and its macroeconomic instability.
Charlotte ranks among the World’s Most Competitive Cities in a report recently released by IBM and Site Selection magazine. Of the top 100 global cities, including many of the larger business meccas: New York, London, Paris, Hong Kong, Singapore, Dubai and like, Charlotte ranks 40th or higher across the board.
In fact, Charlotte was one of only 12 U.S. cities to make the report’s ranking, grouping it among Atlanta, Chicago, Dallas, Detroit, Houston, Los Angeles, Miami, New York, Philadelphia, San Francisco and Washington, D.C.
The analysis replicates the strategic shortlisting process that companies often utilize when making location decisions. It takes qualitative measures such as business environment and quality of life, while also weighing quantitative cost factors.
The study looks at five investment types: international headquarters (35th), shared services (20th), software development (40th), financial services (26th), and life sciences R&D and production (35th), and ranks each city for the different types of business operations based on defined factors. The breakdown enables cities seeking to attract investment to understand their competitive position within each sector and business function.
The report also compared cities “across the board” for overall competitiveness in a cross sector ranking for the qualitative and financial attractiveness. Warning that cross sector scorings possibly hide particular strengths of individual cities, Charlotte weighs in at 74th financially and 33rd in quality. The relative tradeoff is best illustrated by Dhaka, Bangladesh, ranking first financially and last in quality.
For all sectors, the results display a clear tradeoff between quality and cost, with higher quality locations tending to have lower financial attractiveness and vice versa. For cities seeking to attract investment, it is important that they understand their competitive position within each sector and business function, and are able to see how this translates into a particular value proposition to investors within a regional or global context.
A Global Contender
Charlotte has always been at the crossroads of commerce. From its founding in 1768 at the crossing of two Native-American trading paths to its Gold Rush in the early 1800s and the rise of the region’s textile mills and banks, the city is now known as a top U.S. energy hub, the second largest U.S. financial center and third in the nation in world-class health care facilities.
Some of Charlotte’s major advantages are simply because of where it is located. The area east of the Mississippi represents 29 percent of the contiguous land of the U.S., 59 percent of the population, and 60 percent of all manufacturing establishments, and 65 percent of all manufacturing employment. A full 50 percent of all exports come from the eastern U.S. Charlotte business can reach 60 percent of the U.S. population within two hours by air or 24 hours or less by truck or rail.
Fifty-five of the country’s top 100 metropolitan areas are within 650 miles of Charlotte. It is already a major distribution center midway between the Northeast, Midwest and Florida markets. As a global hub, it has easy access to interstates, rail, intermodal and airport, and most importantly, ports.
Of Fortune 500 firms, 264 are represented in Charlotte. And Charlotte is at the epicenter of the Piedmont Atlantic region, the fourth largest concentration of manufacturing in the country and home to 918 foreign-owned businesses.
Beside its pleasant climate and good natural resources including a relatively low cost of energy, the greater Charlotte metropolitan area is home to 2.2 million people and is the second largest city in the Southeast, and its population in a 100-mile radius exceeds that of Birmingham, Jacksonville, Miami, Tampa, Memphis, Nashville or Norfolk.
As far as infrastructure, it’s hard to overestimate the importance of Charlotte Douglas International Airport (CLT) to the economic success and global competitiveness of the city and region. It ranks 6th nationwide in operations, 8th nationwide in passengers and 33rd nationwide in cargo.
The merger of US Airways with American Airlines makes Charlotte the second largest hub for American Airlines, now the world’s largest airline, and significantly expands Charlotte’s access to international flights.
The recent addition of a third parallel runway and the opening of the Charlotte Regional Intermodal Facility there are important parts of the plan to make Charlotte a global freight hub. Much of today’s cargo moves via a combination of modes such as ocean vessel to rail to truck, known in shipping as intermodal transport. Having multiple modes of transport in one common hub facilitates the transfer of freight, saving time and money.
The hub represents a $92 million investment by Norfolk Southern with $15.7 million of federal assistance and will allow the future ability to transfer containers between trucks and trains equal to the current two largest facilities located in Dallas-Fort Worth and Chicago. It is expected to add long-term benefits of 5,000 additional jobs and $7 billion to the area’s economy.
The new intermodal hub also has the added benefit of being strategically located between I-85 and I-77, providing easy access to the interstate system and better exploiting the city’s natural advantage of being a midpoint location for distribution of goods.
Norfolk Southern Railroad’s $2.5 billion expansion of rail and infrastructure enhancement to its Crescent Corridor allowing the high speed movement of freight between the Southeast and Northeast is also a vital improvement.
Easy interstate access also facilitates movement of import and export cargo from the intermodal hub to the southeast seaports of Savannah, Norfolk and Charleston, which, in order, are the second, third and fourth largest in container tonnage of all East Coast ports.
The convergence of these factors with the $5.25 billion expansion of the Panama Canal, expected to be completed by December 2015, could substantially impact Charlotte’s global competitiveness. Historically, the bulk of the Charlotte region’s trade with Asia has moved across the Pacific through the mega port of Los Angeles-Long Beach and by rail or truck to Charlotte. When the larger capacity post-Panamax container ships are able to transit the Panama Canal, it will provide large capacity container ships an all-water route between Asian and East Coast ports and an alternative to movement via the West Coast.
This could mean much higher cargo volumes for East Coast ports and the inland port of Charlotte could be a strategic logistical link for much of that cargo. Our growing profile as an international freight hub could mean greater international visibility and attractiveness to foreign and domestic companies looking for a location with an infrastructure that supports trade.
“In West Coast ports, trade flow is about 98 percent Asian and two percent European,” comments Gallis. “For Atlantic Coast ports, cargo from Asia and Europe are about equal, but East Coast ports also get a large trade flow out of Latin America. We get trade cargo from Africa, the Middle East and the Indian subcontinent too, so literally all six trading blocs of the world flow through the East Coast.
“We can have access to every one of those trading blocs if we have a global marketing strategy to tell the world that Charlotte is the most efficient place on the East Coast to ship goods.”
How Do We Become an Alpha City/Region?
How do we become an alpha city/region? And how can you participate?
Be aware. First and foremost, it is important to be aware of just how well-positioned Charlotte is to become a hub of global commerce—ultimately leading to increased job growth and prosperity. Being aware of its advantageous position will enhance your decision-making as you operate your business and enable you to better evaluate proposed initiatives in the public sector as well.
Stay informed. Know Charlotte’s strengths and potential and keep abreast of developments and global thinking. Visit www.cltglobal.com for a compilation of great resources; attend the “Discover Global Markets: The Americas” program being held by the U.S. Commercial Service here in Charlotte October 29th through the 31st.
Become a participant. Join in the global thinking and discussion about how Charlotte resources can be put to better and more synergistic use.
Take advantage. Take advantage of opportunities to move your own business forward globally—maybe investigate international trade opportunities, partner with companies already doing business in other parts of the world, investigate the logistics of transporting your products overseas, look for reps overseas to sell your products, revisit your website to evaluate how well it displays your products/services and whether it accepts foreign currencies, or simply learn another language.
As Chase Saunders says, “Think big. Think how far we’ve come and where we are headed.
“Practically all human knowledge is available to all people on the planet 24/7—think Google. The digital and Internet revolution has erased distance from the access to knowledge—think Apple, Google, Samsung. It is now in the process of erasing time from the access to supply—think 3D printing.
“Mass is being digitized. Products are being designed, prototyped, tested, modeled, and transmitted to production sites for one-off production.
“Think about Amazon and the end of inventory with the just-in-time delivery of things your want. The key to erasing distance from these things are the key locations where things can be made and distributed faster than other places. In the U.S., there are seven of those places and we are at the center of one of them; the world is being divided into other locations as new trade routes are being set up for the next 50 years.
“Charlotte is poised to be the leader in manufacturing and distribution for the entire East Coast with its incredible, new, and huge, inland, intermodal freight and passenger port. There is an old saying that reads, ‘May you live in interesting times.’ Charlotte is on the threshold of a dramatically interesting time.”
Nearly four years ago, Mike Guggenheimer knew that sales at RSC Chemicals, an Indian Trail manufacturer of hands-on household consumer lubricant and cleaning products including Liquid Wrench and GUNK, were optimal.
But what if the company pushed the envelope, capitalizing on the same basic technology RSC Chemicals had been using for 90 years, and formed a sustainable solutions platform aimed at big industry: deep sea oil rigs, waste management, underwater construction and dredging?
What if a new business could produce safe absorbent technology to clean oil spills? Or produce high-performing readily biodegradable industrial lubricants to keep high-risk businesses safer from the start?
“It made perfect sense to combine current technology developed by parent company Radiator Specialty Company and sister company RSC Chemical Solutions, look to acquire and invest in similar bio-based partners, and form RSC Bio Solutions,” says Guggenheimer, who is CEO of the newer company.
Extending Their Reach
“Radiator Specialty Company has a long-standing strength in formulating and manufacturing lubricants and cleaners, so the investments that led to RSC Bio Solutions are a natural extension of this core capability,” states Guggenheimer, 40. “And, Radiator Specialty Company has used bio-based ingredients for many years in its products.”
Thus began a journey of substantial growth for Radiator Specialty Company and a series of acquisitions and partnerships, including Ohio-based Terresolve Technologies’ ENVIROLOGIC line of industrial lubricants.
Guggenheimer and other company executives began working with Radiator Specialty Company owners Alan, Philip and Samuel Blumenthal to create RSC Bio Solutions. All three privately held companies are owned by the Blumenthals, a Charlotte family well known for their civic and philanthropic contributions including the N.C. Blumenthal Performing Arts Center, the Blumenthal Cancer Center at Carolinas Medical Center, and Shalom Park.
Radiator Specialty Company (RSC), RSC Bio Solutions’ founding company, was created by traveling salesman I.D. Blumenthal, great uncle to the current owners, in 1924 after a chance encounter on a Charlotte business trip led him to find a new way to plug a radiator leak. Solder Seal was the first of many products of RSC.
I.D.’s brother Herman joined the company in the ’30s, and when I.D. died, Herman took the helm eventually passing on the responsibility to his eldest son Alan in 1978, who served as president and CEO for 22 years. Currently, John Huber serves as president and CEO of RSC. Owners Alan, Philip and Sam, all brothers, are no longer involved in the day-to-day operations of the three RSC companies, but are “active and engaged owners,” describes Guggenheimer.
In 2010, RSC adopted the name RSC Chemical Solutions to better reflect its range of products, which include lubricants, oils, hydraulic fluids, fuel additives, degreasers, cleaners and sealers.
Guggenheimer describes RSC Bio Solutions as a separate but connected platform to RSC and RSC Chemical Solutions, a longtime name of trusted brands found in stores from Wal-Mart to Auto Zone. The difference? Bigger applications and entrance into a world of biochemistry where sustainability is key.
RSC Bio Solutions manufactures and distributes safer bio-based readily biodegradable cleaning, degreasing and lubricating products for risky business—oil spills, hazardous waste mishaps, etc.—and oversees partners that do both. “Think large cargo container ships or even the simplest of turf lawnmowers used in commercial applications…that’s RSC Bio Solutions’ target audience,” says Guggenheimer.
“The company’s founding story really embodies what we are all about, using chemical tools to solve a problem,” says Guggenheimer. “It ties into the ethos, the spirit of reliance, the ability to fix problems by your own hands. It really is who we are today.”
In 1941, the popular Liquid Wrench product became part of RSC’s line, while automotive chemical, plumbing and hardware products were added after World War II. Rubber production for the retail line was moved from California to Charlotte in 1949. GUNK Laboratories was acquired in 1959, resulting in the addition of an entire line of degreasers, and in 1964 a new office was opened in Charlotte.
In 2007, the company combined its entire work force at what is now 500,000-square-foot plant in Indian Trail where most manufacturing and distribution for all three companies takes place..
Investment in Emerging Tech
RSC Bio Solutions is in close control of procuring raw materials and research and development for its industrial lubricants—hydraulic fluids and gear oils, predominantly—but uses a mix of its own blending facilities and outside manufacturing partners throughout the world.”
Guggenheimer attributes RSC Bio Solutions’ rapid growth to identifying an “unmet” need in their search for other markets: “The key was finding industrial companies that were looking for safer technology without having to trade off cost or performance,” he asserts.
And pushing RSC’s eco-friendly lean was key from the start. “For RSC as a whole, we are committed to running an organization that is sustainable—from an environmental and social standpoint, but also from an economic standpoint,” says Guggenheimer. “We are working to ensure the next 90 years are just as successful as the first 90 years and we see the economic value that safer, readily-biodegradable technology can deliver to our customers.”
For several years, RSC had been researching and planning for its expansion into bio-based fluids while Guggenheimer took the lead in 2010 by negotiating deals with three partners.
Through a partnership with Gemtek, RSC Bio Solutions is now the exclusive North American licensee of SAFECARE technology for cleaners, degreasers and solvents in the industrial market. A partnership with Sorbent Green and exclusive distribution rights to GREENSORB, an absorbent for solvents, oils, hydraulic and functional fluids, followed.
Next came a partnership with Terresolve, involving an investment of growth capital and a minority ownership in the company (which has since become a majority ownership). In addition, the Terresolve ENVIROLOGIC brand of industrial lubricants is now available to RSC customers. “Now there is one company that offers a full array of high-performing, readily biodegradable alternatives to petroleum-based lubricating and cleaning products,” says Guggenheimer.
RSC Bio Solutions also capitalizes on the two retail bestsellers produced by RSC Chemicals. RSC Bio Solutions provides ready-to-use, safer, GUNK Powered by SAFECARE and Liquid Wrench Powered by ENVIROLOGIC products formulated for industrial applications.
Guggenheimer says this means that RSC and both divisions offer a one-stop shop for advanced, readily biodegradable lubricating, cleaning and degreasing chemicals in the industry “These powerful chemicals deliver an enhanced level of safety and business efficiency, reducing workplace hazards and costs across a wide spectrum of applications ranging from waste management and utility fleets to offshore marine and golf course maintenance,” he explains.
Before joining RSC, Guggenheimer was an operating partner for Blackstreet Capital Management, a private equity firm based in Maryland, and previously held a number of general management positions for chemical and textile manufacturer Milliken & Company, headquartered in Spartanburg, S.C.
Competition and Position
Customers of RSC Bio Solutions heavy-duty degreasers, bio-based surfactant blends and solvents, and lubricants go across the spectrum from construction and excavation companies to manufacturing firms with assembly lines.
“The case studies on our website speak volumes,” says Guggenheimer. “Once users decide to try our products, they are sold on RSC Bio Solutions. We also have a long history of approvals from equipment manufacturers,” says Guggenheimer.
There are many customers in the waste management industry. “Perhaps you have garbage trucks being used in a residential neighborhood, and a hydraulic fluid line breaks—you’ve got a real mess on your hands,” says Guggenheimer. “We have to prove that the technology is safer and it works without damage to your trucks. Our products are often better than petroleum-based lubricants; vegetable oils can offer superior lubricity.”
Currently, the company’s best sellers are ENVIROLOGIC products—mainly driven by EPA regulations in the marine industry and lubricants used in large ships and other vessels. “Our products are used by big equipment in sensitive places,” says Guggenheimer.
Airports and other aeronautical-related businesses tend to purchase the company’s cleaners, degreasers and solvents. “There are times when you don’t want chemical exposure to employees, and our safety benefits add real value,” explains Guggenheimer. “Oftentimes cleaners with water cannot be used in an airport hanger, for example. SAFECARE and GREENSORB draw oils out of the hanger, absorbing that oil and encapsulating it for safe disposal.”
Guggenheimer is especially proud of one Charlotte customer, Jacobsen, which designs and builds advanced turf maintenance equipment—big lawn mower fleets. “When a turf mower breaks down on the 18th green of the golf course and has a spill, and we can provide a safe solution that has real value to the client,” he states.
“We are very focused on and dedicated to environmental and alternative industries. We understand alternative technology. We are balancing breadth and scope with tailored customer service,” he says. “We cannot be everything to everybody, but we get to know our customers and their industries very well, as well as the application of our products to their needs.”
Guggenheimer adds that other companies make misleading claims about bio-based products—or simply offer products that don’t work—and that does more harm than good to RSC Bio Solutions. “It’s more difficult to overcome a less than satisfactory prior experience,” he says. “And truthfully, some competitors’ products don’t work.”
As a matter of fact, Guggenheimer says the Blumenthal family wanted to move RSC in a bio-based direction for many years but was wary of “greenwashing.” RSC needed to be sure that offering an environmentally friendly line of products meant more than just slapping a specialized logo on a plastic container. The bio-based products had to be as strong as their petroleum-based counterparts, according to Guggenheimer, to maintain the company’s reputation for quality.
Asked about competitive products, Guggenheimer responds, “We don’t focus too much on the competition because we think we can help build a new marketplace where a number of players can be successful. We worry more about bad competitors who mislead customers and make it harder to build the market than we do about good competitors. I hope we see more strong products from others. We actually have a big oil company as a customer now, and are helping them to address the need with their customers.”
RSC Bio Solutions looks to be positioned well as a thought leader in the ever-evolving world of eco-friendly functional fluids. Guggenheimer is on a mission to educate. He recently spoke at two bio-based chemical conferences, meeting with companies invested in being environmentally safer.
“My vision for RSC Bio Solutions is to be a global force for change in markets using big equipment in sensitive environments. Some of these market areas have been historically very reluctant to change, but I believe we can show them how our products actually reduce risk,” he asserts. “I expect our thought leadership and investments in this space to develop opportunities for RSC and address a looming sustainability challenge we all face.”
RSC Bio Solutions hopes to see significant growth on this platform. Guggenheimer says RSC also has plans for aggressive growth in their traditional consumer products such as GUNK and Liquid Wrench, as well as MotorMedic (maintenance chemicals for vehicles) and TiteSeal (leak repair products). He is quick to credit his colleagues and coworkers in bringing the company together in a “It takes a village” kind of way.
“Although RSC Bio Solutions is fairly small now relative to the full RSC enterprise, it stands as a greater percentage of total sales in the future,” he says. “At the same time, bio-based ingredients have played a role in the core business for many years and we expect the use of these materials to accelerate across the board.”
Self-help gurus assure us that we don’t need a title to be a leader or a million dollars to retire well. But some needs seem to have a natural partner. A city, for example, should have an ocean or at least a major river to call itself a port. Norfolk, Va.; Wilmington, N.C.; Charleston, S.C.; and Savannah, Ga., qualify. They have easy access to the Atlantic Ocean. St. Louis and Memphis are inland ports on the Mississippi River.
How about Charlotte? In 1984, Charlotte was named an “inland port” for North Carolina. Are we transporting goods to market by raft on the Catawba?
Charlotte along with Greer, SC., Front Royal, Va., and Cordele, Ga., are prime examples of what the United Nations calls a dry port. Dry ports are often hundreds of miles from the ocean or a navigable river. They provide a synergistic hub for trains, trucks, storage yards and cranes that save time, reduce expenses, decrease congestion around the real port and close gaps in America’s transportation system.
Charlotte Inland Terminal (CIT) General Manager Robert Dawson explains. Consider imports. When goods travel from port to port and not from port to the customer’s door, Dawson’s staff can arrange for trucks to finish the trip. It is a service CIT provides once a week for a freight-forwarding client.
CIT also enables customers to move their product to ocean terminals for export. Area timber companies like Weyerhaeuser are typical. Its headquarters books space on a container ship traveling to overseas ports, but Weyerhaeuser relies on CIT to get its product to the dock on time.
Dawson has a network of trucking companies he calls for just such a need. “Today I have to get lumber to the Port of Wilmington by 4:00 p.m.” says Dawson. If the trucks miss the deadline, they find themselves in the same bind as late-arriving tourists. Like no shows at the Hampton Inn, the shipping company offers the space to someone else.
CIT’s headquarters in northwest Charlotte is a storage site for 300 shipping containers, the ingenious 20 ft. by 8 ft. by 8 ft. boxes pioneered by North Carolina native Malcolm McLean. Containers coming into Charlotte by rail from ports around the country are picked up by area truckers at the CSX rail yard or at the new Norfolk Southern Charlotte Regional Intermodal Facility at Charlotte Douglas International Airport. The truckers deliver the containers to a customer and bring the empties to CIT for cleaning, storage and reuse.
“Ninety-five percent of our shipping containers are empty,” says Dawson. “Basically my facility is nine acres of asphalt with two machines that lift containers off or onto truck chassis. Anyone who needs containers lifted comes here. And it is easier for exporters to get an empty container here than to go to Wilmington.”
Wilmington: N.C. Deep Sea Port
In the mid to late 1980s, containers came to Charlotte from the Port of Wilmington by truck and rail. The old Seaboard line moved 300 containers a month by rail to the Queen City. North Carolina State Ports Authority (NCSPA) paid the rail line $1 million annually for the service.
In 1989, three years after the merger that formed CSX, rail container shipments to Charlotte ended. CSX claimed there was not enough volume at Wilmington to justify continued rail service and that major hub ports like Savannah, Charleston and Norfolk were better able to handle container shipments inland by rail.
“We have been in conversation with CSX about resuming that service,” says Tom Guthrie, director of liner services at NCSPA. “But we’ve not been successful yet.” There are two sides to CSX, explains Guthrie: CSX-I, the intermodal container division, and CSX-T, the boxcar division. CSX-T trains leave Wilmington every day. “We are trying to get CSX to add containers to that train a couple of times a week.”
North Carolina has been in the import and export business long before 1984 when Charlotte became an inland port. In 1945, the General Assembly created the State Ports Authority to develop and improve the harbors and seaports at three ports: Wilmington, Morehead City and Southport.
In his book, Waterways to the World, historian Walter Turner explains the unintended consequences of that political decision. “In retrospect it would have been wiser to begin with a clear understanding to make Wilmington the major port, with Morehead City as a secondary port. One of the key reasons the state ports authorities of Virginia, South Carolina, and Georgia have been successful is that each had a mandate to build one major state port.”
Today containers and bulk cargo like dry cement dominate the 284-acre Port of Wilmington. Grains, chemicals, fertilizers, ores, minerals and cement are Wilmington’s chief imports. Forest products like lumber, paper and forage for livestock lead the list of exports with woodchips and wood pulp close behind.
Before the invention of the forklift, bales, barrels, bags and lumber were considered bulk cargo. They now go by the moniker break bulk. North Carolina’s break bulk lumber market has declined significantly since 2006 with the collapse of the housing market attributed much of the blame.
The cargo is quite different at the Port of Morehead City. No container ships dock there. Bulk cargo rules the import and export sides of the 128-acre port. Sulphur products, rubber, scrap metal, potash and ores are its chief imports. Phosphate and phosphate products are by far the terminal’s leading export. PCS Phosphate is the largest player at the Morehead City port. Its phosphate mine in Aurora, N.C., is one of the richest in the world.
Southport is a different story. After spending $30 million in 2006 for 600 acres north of Southport, North Carolina State Ports Authority had dreams of a port that would rival Savannah and Charleston. New super-sized ocean-going transports that would easily maneuver through an expanded Panama Canal were the prime customers for the North Carolina International Port. By 2011, the dream evaporated. There were already enough deep East Coast ports for post-Pamamax vessels that are expected in 2015.
Ports are considered post-Panamax-ready when their channel is 50 feet deep, their cranes are capable of loading and unloading the larger and wider ships, and their docks are engineered to handle the new and larger cranes. Southport was too shallow, too remote, and too late to play in U.S.A.’s major league. Development is officially on hold and there is talk of converting the area to a state park, not a port.
Though North Carolina States Port Authority’s mission is to enhance the state’s economy, it only benefits a few instate companies. In Waterways to the World, Walter Turner estimates that 75 to 80 percent of North Carolina’s businesses that engage in international trade utilize ports outside the state.
Savannah: Ga. Deep Sea Port
Savannah pops up on the radar screen of many importers and exporters. For the past 15 years, it has been the United States’ fastest growing port. The Journal of Commerce reports that among the 41 East Coast ports, Savannah ranks second for container tonnage after New York/New Jersey. Their second place standing covers both imports and exports. After Savannah, Norfolk comes in at No. 3 with Charleston at No. 4. The North Carolina’s ports at Wilmington and Morehead City are at the bottom of both lists.
Savannah is now in the construction phase of SHEP—the Savannah Harbor Expansion Project. It has taken 15-years of plans, studies, applications, postponements, environmental discussions, comment periods, permits and Acts of Congress to get to this point. Construction will take four years and result in a 47-foot deep harbor and a 49-foot entrance channel for 36 miles of the Savannah River.
The project includes developing connector roads from the port to I-95 and I-16. The result will be a single, massive container terminal on a 1,200-acre footprint. “That allows the kinds of efficiencies you don’t find at the typical American port,” says Robert Morris, senior director of corporate communications at GPA. “Cargo traveling by rail or truck goes to one facility to drop off or pick up loads. It presents a great opportunity for businesses to increase speed and efficiency and reduce cost.”
Georgia Ports Authority (GPA) manages two seaports: Savannah and Brunswick port, 80 miles to the south. Georgia’s imports mirror what the average American thinks we bring to our shores. Leading the list is furniture, the product North Carolina lost to overseas manufacturers in the late 1990s. Next are retail consumer goods, machinery, appliances, electronics, automotive, hardware and houseware goods. Mooresville’s Lowes, the country’s second largest hardware chain, and Charlotte-based Electrolux are among Savannah’s major importers.
Food ranks second after wood pulp as GPA’s leading export. And poultry is a major player in the food big leagues. By year’s end, GPA will be well into the second phase of its new 200,000 square-foot Nordic Cold Storage facility. When completed, Nordic will blast or shock freeze more that 10 million pounds of poultry and produce each week. The Port of Savannah already handles nearly 40 percent of the nation’s containerized poultry exports.
The Colonel’s Island Terminal at Brunswick is GPA’s automobile export and import center. It is currently the second busiest auto terminal in the United States with double-digit growth in the past three years, says Morris. Automobiles exported include KIA, BMW and Toyota. Mercedes-Benz automobiles assembled in Vance, Ala., are shipped from Brunswick to Germany, the fatherland of this iconic brand.
Charleston: S.C. Deep Sea Port
Add Greer, S.C., to America’s short list of dry inland ports. The 40-acre site opened in October 2013 as part of the South Carolina State Ports Authority (SCPA). Unlike Charlotte’s inland port, rail traffic provides a vital link to the sea.
“Ten trains run weekly,” says Erin Pabst, public relations manager for SCPA. Five import and five export trains run overnight between Greer and Charleston. Rail traffic to and from Greer by Norfolk-Southern has removed an estimated 25,000 containers traveling by truck along I-26. SCPA expects containers to and from their inland port to eventually reach 100,000.
While CSX trains may not travel between Charlotte and Wilmington, there is good rail connectivity from Charlotte to Greer and Charlotte and Charleston provided by Norfolk-Southern. That fact plus its size, efficiency and productivity gives the Port of Charleston a competitive advantage over Wilmington for Charlotte’s business.
Even North Carolina’s highways favor Charleston. Interstate travel from Charlotte to Charleston is almost 100 miles shorter than the I-77, I-85, I-40 trip from Charlotte to Wilmington. No wonder Pabst says, “Charlotte is one of our largest import and export markets.”
Among the larger North Carolina companies connecting to South Carolina ports are Siemens, Continental Tire, Deere-Hitachi, Husqvarna and S&D Coffee. Looking at the bigger picture, much of our furniture, lumber, machinery parts, chemicals, textiles and recyclable materials such as PET plastics and paper is exported from Charleston. Even our frozen turkeys head to the Palmetto City. “Poultry is a growing market for the SCPA,” says Pabst.
Two New S.C. Deep Sea Ports?
There are two new Southern ports are on the drawing board.
South Carolina Ports is well into Phase 1 demolition, site clearing and construction of the 280-acre Navy Base Terminal. This three-birth SCPA-funded terminal is located on the south end of the former Charleston Naval Shipyard. The federal government closed the ship-building and repair facility in 1996.
Navy Base Terminal is expected to increase container capacity of the Port of Charleston by 50 percent when it commences operations in 2019. Since 2005, the area north of the new terminal has undergone revitalization as a mixed-use urban hub and historic district for the city of North Charleston.
Prospects for a new terminal in Jasper County, S.C., do not seem as rosy. Putting aside a rivalry that extends beyond football, South Carolina and Georgia signed an agreement in 2007 to collaborate on the development of the Jasper Ocean Terminal. That key piece of land sits on the Savannah River south of Hilton Head Island.
Last year a consulting firm estimated that it would take 13 years to obtain the necessary permits to build the new 1,500-acre terminal, the country’s largest contiguous port. Jasper Ocean Terminal Board Chair Dave Posek apparently wants to delay construction even further. He prefers waiting until the ports at Charleston and Savannah near capacity in about 17 years.
Are Southern ports ready for the big changes that lie ahead once an expanded Panama Canal opens in 2015? Charleston and Norfolk are ready. Savannah will be ready by 2018, the completion date for its often delayed expansion. The Port at Wilmington will not be able to accept the largest post-Panamax ships, but that is not necessarily a disadvantage.
Senior Director for External Affairs for NCSPA Laura Blair explains: “There is not one post-Panamax vessel, but a wide variety. We are talking with our customers and asking what they think we need to do to meet their needs.”
The ports at Wilmington, Charleston, Savannah and Norfolk are the South’s gateway to global trade. They are job-creating magnets for international trade and investment. In what many are calling the post-Panamax decade, these great economic engines will provide Charlotte businesses with an array of opportunities for new markets, more sources of raw materials and greater profits.
Sea Express America Corporation, or more familiarly S.E.A. Corp., is an international logistics company providing ocean transportation services to its clients. It strives to be a turnkey operation, analyzing each client’s needs, knowledge and country requirements to successfully export products from door to door.
“We operate like a travel agency for freight,” quips S.E.A. Corp. President Myra Heavner. “We connect manufacturers and corporate clients with shipping lines to move goods.”
S.E.A. Port offers its clients complete supply chain management. Services include: warehousing, loading of containers, building customized crates, palletizing cartons, labeling cartons and negotiating specialized pricing. It also offers break bulk services, roll-on/roll -off services for tractors, trucks or anything with wheels, open top equipment, flat rack equipment, refrigerated containers, and airfreight.
Although Heavner says she inherited her entrepreneurial spirit from her parents, she admits that she never planned on running a global logistics company.
“I always wanted to be a TV reporter and be on the news,” she laughs.
A native of Lincoln County, Heavner graduated from West Lincoln High School and then Gardner-Webb University with a business degree. She began her career in Cherryville, working for Carolina Freight Carriers International Division. When her division was sold in the late 1990s and her job relocated out of state, Heavner and a partner saw an opportunity for a new career and started S.E.A. Corp. in 1998.
Eventually Heavner bought out her partner. She credits the company’s 14 years of consecutive growth, from $3.7 million in 1999 to $18.6 million in 2012, to core values and a strong mission. S.E.A. Corp.’s core values are to operate the business with simplicity, efficiency, accountability, caring, professionalism, trust, integrity, urgency, and timeliness.
“Our mission,” says Heavner, “is to build long-term, mutually profitable partnerships by exceeding our clients’ expectations, while creating an environment of excellence in which every individual is valued.”
And those values and mission are meeting the test; S.E.A. Corp. grew 30 percent from 2011 to 2012. Since 2011, employment has doubled to 14 full-time and six part-time employees, and the company has doubled the size of its facility in uptown Lincolnton.
“When we first started out, a representative from the North Carolina State Port Authority heard of a new company in Lincolnton and visited our office,” remembers Heavner. “She didn’t seem to think we would never last or be taken seriously.” Today, that person covers the country as a sales agent for S.E.A. Corp.
Over the years, S.E.A. Corp. has had its share of challenges to overcome in order to compete with larger Non-Vessel Operated Common Carriers (NVOCCs). It has continually invested in new technology, hired additional employees, and expanded its office capacity to accommodate the growth in business.
For the first eight years, S.E.A. Corp. didn’t have a contract with a major shipping line. Instead, Heavner piggybacked on competitor’s contracts. She chased a direct contract by making regular phone calls and traveling to New York to make personal contacts.
“I had to prove that someone in Lincolnton, N.C., had enough business to warrant a contract with a global steamship company,” she says.
Finally, one firm gave her a contract and S.E.A. Corp. fulfilled it. That was just the foot-in-the-door Heavner needed. Today S.E.A. Corp. has a vast network of dependable steamship lines and worldwide agents at its disposal. It utilizes over 200 agents in over 166 countries, ensuring its transportation services can reach the most remote areas of the world.
Heavner describes the team at S.E.A. Corp. as working in a collaborative role as they assist customers with analyzing, identifying, and setting up an efficient cost effective supply chain in six continents.
“Our customers rely on us to be experts in our field of logistics,” asserts Heavner. “They rely on us to provide them with all requirements to avoid having any delays in the supply chain.”
In addition, S.E.A. Corp. directs clients within S.E.A. Corp.’s professional network for assistance with ancillary services such as letters of credit; USDA and FDA certifications; processing of car title clearances for automobiles, boats and motorcycles leaving the U.S.; preparation of certificates of origin; legalization of documents and pro forma invoices; and individualized customs compliance and training as needed for new exporters.
“When our booking team makes new bookings for our customers, we advise them of documentation requirements needed at the destination,” says Heavner. “In some cases we go out and help them obtain these documents.”
For example, S.E.A. Corp. had to obtain a B-13 number for freight being exported out of Canada. This number had to be on the bill of lading before the freight could be loaded on the exporting vessel.
In another situation, a small furniture warehouse in North Carolina has monthly exports to Central America. This warehouse is a consolidator of multiple furniture suppliers. Due to the complexity of this account, the S.E.A. Corp. documentation team has taken extra steps to obtain all of their suppliers’ pertinent information to prepare the shipper’s export declaration to obtain the Automated Export System Number required on every bill of lading.
S.EA Corp. also prepares ocean bills of lading from commercial invoices; it is a long and in-depth process, but it is ultimately cost-effective and eliminates any delays when the freight arrives at its destination.
Heavner has a passion for educating and assisting entrepreneurs interested in opening their own export business. In 2001, after the terrorist attacks on September 11, the textile markets locally and internationally began to decline. When a freight forwarding client who specialized in textiles lost her job, she called Heavner for advice.
Heavner encouraged her to use her experience and knowledge to continue helping exporters in the U.S. by applying for a Federal Maritime Commission License (FMC). Heavner walked her through the application process to obtain a license and open her own minority, woman-owned business. Heavner introduced her to tariff filing requirements and educated her on the rules and regulations of the FMC. Heavner also recommended companies she could work with to secure her bond to meet the FMC’s requirements.
Eleven years later that woman is still devoted to textiles with 15 employees, and has diversified into exporting furniture for schools and hotels, pharmaceuticals, and aircraft parts from the U.S. She has also hired a customs broker and is involved with imports.
That former client turned to Heavner at S.E.A Corp. “because of the dedication and quality of service their team displayed at my previous company; I knew I could count on them. The foundation we built has turned into a lifelong partnership.”
Heavner also helped and encouraged another friend in the organization and startup of trading services to match U.S. exporters with international buyers. That person attests, “Without the assistance and experience of S.E.A. Corp., I would never have considered starting my own company. S.E.A. Corp. opened the door and assisted me with the startup.”
Heavner has also focused on helping exporters increase their exports and expanding the growth of U.S. products and trade in various parts of the world. In one case, S.E.A. Corp. worked closely with Caudill Seed, a seed producer in Granite, Okla. Caudill began working with Asian cattle ranchers on cultivating rye seed for the Asian geographics and climate. Caudill was successful in developing a hybrid seed in the U.S. that needed to be exported to Busan in South Korea and delivered within a six-week period.
S.E.A. Corp. worked with Caudill Seed to position empty containers from the farms in Granite to Busan. Once the items were loaded and cleared by USDA for export, S.E.A. Corp. returned the loaded containers to the port of Houston. It prepared all of the export documentation and tracked and traced the containers to ensure the product arrived at its destination on time and within the terms of the letter of credit.
As a result of the collaboration with S.E.A. Corp., Caudill Seed has expanded to cover South Korea, Italy, and Durban, South Africa. Caudill is now anticipating an expansion involving Brazil, Asia, Europe and South Africa.
S.E.A. Corp. also worked with Indiv, a company located in Springfield, Mo., that sells products associated with the poultry raising and processing industry. Its clients are third world countries in need of economical solutions to provide their populations with adequate protein diets.
Beginning in 2008, S.E.A. Corp. began assisting Indiv on opening up markets in Guatemala, Venezuela, and Honduras. Through constant communication with steamship lines, S.E.A. Corp. worked to secure competitive pricing and provided Indiv with the necessary documentation required to open doors for new opportunities. Their expertise was needed to ship goods and clear customs without delays.
S.E.A. Corp. was also able to assist Indiv in expanding its business to Russia. A meat processing company in Novorossiysk wanted Indiv to help turn barns into poultry houses. Indiv turned to S.E.A. Corp. to coordinate all of the logistical aspects of the project and to provide the required documentation. The project was successful and projects for 2014 include new markets in Kenya, Asia, Managua, Nicaragua and Trinidad.
“The key to our success is our employees,” says Heavner. “We only hire dedicated employees who care about providing excellence for our clients and who are willing to go the extra mile. The customer is the most important person in our business, and we only hire people that understand and treat the customer as the lifeblood of the business.”
As Heavner looks ahead, she sees the growth S.E.A. Corp. has enjoyed during the past decade continuing. Although the growth in U.S. exports has slowed down during the past two years as a result of a changing global economy, Heavner says that is expected to change. She says U.S. exports are expected to gradually pick up through 2017. In order for S.E.A. Corp. to keep up with the growing demand, the company’s five-year plan is to strengthen the company’s infrastructure.
“Global logistics can be handled in New York, Long Beach, Asia or Lincolnton, N.C.,” asserts Heavner. “A company’s customer service center can be located anywhere in the world that has the technological resources of the 21st century.”
Heavner keeps her pulse on the market trends of her industry, including new regulations and related issues. Members of the S.E.A. Corp. team attend global networking conferences throughout the year. These conferences, such as the TPM Conference in Long Beach, Calif., are attended by the world’s most senior international logistics experts. They offer speeches, panel discussions and roundtables to address the major challenges faced by the industry.
Heavner, herself, spoke at the International Logistics Network in Vancouver, Canada, in 2013. The conference was attended by 1,700 members from 166 countries. Heavner spoke on pulling resources from each member to develop a seamless supply chain management that would benefit organizations exporting from the U.S.
These conferences also provide the S.E.A. Corp. team members an opportunity to meet and get to know personally the leaders in the logistics industry.
Heavner attributes the success she has achieved as a woman business owner to the parents who taught her to work hard, and she has no intention of relaxing anytime soon.
“Hard work and a never-give-up attitude are the two key components to my success,” she asserts. “I believe in going the extra mile, treating others as you want to be treated and setting the bar high. These qualities will lead S.E.A. Corp. to continued success.”
Stainless Valve Co.’s story begins with diamonds. Super-hard diamond particles are used on cutting tools, affixed with bonding material for very high grinding efficiency, quality and—above all—finite precision. They are the darlings of the machining industry.
“Actually I was on the poor end of the diamond business,” Dirk Lindenbeck says with a laugh. The 70-year-old retired chairman of Stainless Valve and super-sharp engineer from Germany earned his start in the tool manufacturing industry at De Beers in South Africa.
With Lindenbeck’s relocations from Germany to South Africa to Brazil and to the U.S., B+E and Stainless Valve, located in Monroe, have rich history in creative design, engineering and manufacturing, fueled by Lindenbeck’s dream of owning his own business. They now provide a comfortable, stable niche for his two sons: Axel, 33, president of Stainless Valve, and Michael, 32, president of B+E Manufacturing Co, Inc., the parent company of Stainless. Combined, the two companies employ 19.
After years in the diamond tool industry, B+E, a machining shop, was Lindenbeck’s first acquisition in the Charlotte area, manufacturing a variety of tools to specification. But after purchasing Stainless Valve Co. in 1990, the company turned its attention to a “real moneymaker,” as Michael says, manufacturing specialty industrial valves—some which cost nearly $400,000 a piece. The company’s clients come from pulp and paper, mining, food, petrochemical, chemical, power, and biomass energy businesses.
So how did a man who grew up in a very tiny German village wind up running a very specialized valve design and manufacturing business in Monroe, nearly 4,000 miles across the globe?
Honing His Skills
Lindenbeck grew up in northern Germany. He attended the Bismarck School during his earlier years and spent his young adulthood at what is known today as Leibniz University, both in Hannover where his family had moved after World War II.
At age 27 with a Ph.D. in engineering, the fresh-faced Lindenbeck left for South Africa to work for De Beers for three years. “I did some research on the grinding process using diamonds and cubic boron nitride and was promoted to the head of a department that manufactured tools,” he says.
In 1974, Lindenbeck moved back to Germany for one year to begin work for Ernst Winter und Sohn, one of the world’s largest diamond tool manufacturers.
“During that time, we were working on designing a new diamond tool manufacturing plant in Brazil,” he recalls. “It was a beautiful location on the outskirts of Sao Paulo.’”
In mid-1975, the plant began production of resin bonded diamond tools to grind tungsten carbide. Later, metal bonded products were manufactured to cut stone, concrete and glass. Industrial use of diamonds has historically been associated with their hardness, which makes diamond the ideal material for cutting and grinding tools.
As the hardest known naturally occurring material, diamond can be used to polish, cut, or wear away any material, including other diamonds. Common industrial applications of this property include diamond-tipped drill bits and saws, and the use of diamond powder as an abrasive. Today, over 80 percent of the industrial diamonds are synthetic diamonds replacing natural diamonds.
Brazil brought other changes for the young engineer. He married his Brazilian wife and both Michael and Axel were born there, learning Portuguese, English and German as they grew up. Today they speak German, English and Spanish. They learned Spanish from school and traveling in Spanish speaking countries where they lived with friends, who also visited them in the U.S., a Rotary-Youth-Exchange program.
In 1979, Ernst Winter und Sohn began planning for another diamond tool manufacturing plant in the town near Greenville, S.C., that would produce galvanic bonded tools with very tight tolerances. The young family moved to Traveler’s Rest, S.C., in 1982, when manufacturing commenced.
Tool and Component Manufacture
In 1987, Lindenbeck moved his family, including a new daughter, to south Charlotte when he purchased B+E Manufacturing Co., Inc., a small job shop with six employees. The established machine shop was located in Mint Hill and owned by Arthur Culbertson of Charlotte.
“The time was right to have my own business,” says Lindenbeck. “It started to look like there was a company to purchase, and I felt like I knew how to run a plant.”
The elder Lindenbeck says that he liked the idea of buying an existing company rather than financing a startup from scratch. “Here in the United States, it’s much more of the culture than in Germany to start your own business. It’s easer to get money to start up a business or acquire one.”
B+E currently works with milling, turning, drilling, reaming, boring, tapping on almost any material, and supplies machined components, especially custom designed machine parts, assemblies and automation controls. B+E’s machinists build tools, fixtures, equipment and machinery, using milling, grinding, welding, and assembly.
B+E’s job shop work is far flung and touches a variety of industries—both locally and globally. “We do tooling for airports and airplanes, parts for machines that dispense medication, and even make brackets that hold night vision goggles on helicopter pilot helmets for the military,” Michael says.
Though first trained in drawing designs on manual drawing machines, then learning two-dimension AutoCAD computer software , the traditional, elder Lindenbeck is the first to admit that technology has led the way in building and growing the engineering design businesses for manufacturers, especially “job shops.”
“Without computer-aided design we simply could not be so efficient, so complete, fast and so accurate,” says Lindenbeck. “In the past, we had to literally draw every single item to make sure it fit.”
He is quick to show off Solid Works, the mechanical 3D computer-assisted design program that both companies use daily.
“My father bought the 3D program when I was a freshman at UNC Charlotte,” says Michael, “and told me during my early years, ‘Here, figure out how it works—that’s your job.’”
The company continued to manufacture tools and other components, but soon turned its attention to bigger fish when it acquired Culbertson’s other business, also in Mint Hill.
Little did the family know that the jump from a job shop for third-party manufacturing to manufacturing complicated valves for the process industry would spell a move to Monroe, more employees, and, ultimately, more business through focused sales.
Moving Into Valves
In 1990, Lindenbeck decided to expand the business and purchased Stainless Valve Co., again from Culbertson.
The ongoing growth of the business prompted the company to expand. A new larger location in Union County was found, followed by a $500,000 expansion adding four jobs to the company’s 16-employee workforce. On its current six acres off U.S. Highway 74, the company added 7,500 square feet to its building, bringing it upwards of 22,500, while investing $350,000 in additional machinery.
Stainless Valve’s operations were redirected to focus primarily on developing new designs and manufacturing custom designed specialty valves, including large diameter and custom gate valves and other valve designs built to specific application requirements.
According to Axel, they serve clients mainly in the pulp and paper, mining, petrochemical, chemical, power, and biomass energy industries. They also supply to the food, oil and gas, waste incineration industries. Valve customers include International Paper, Georgia Pacific, Irving Pulp and Paper, Westinghouse, Abengoa Bioenergy, GE, BP, DuPont, Exxon, Andritz, Norilsk and Rio Tinto.
There are four “Big” products in the Stainless Valve product catalog which form the basis of all the custom valves they create. The Stargate-O-Port-Valve AS that was developed in 1995 allows use in applications where scale formation and sticky substances can prevent standard commodity valves from performing properly.
The Big Blow valve is manufactured to withstand almost any problem related to batch pulp digesters in the pulp and paper industry. For manufacturers who battle with unplanned shutdowns, continuously halting production, take flanges loose, and manually replacing screens, Stainless Valve created the Big Screen, which allows screens be automatically replaced without stopping production just by pressing a button.
The Big Knife valve is designed to allow solids to accumulate in the bottom of the valve, when a small percentage of solid exist in the flow media, as the valve is being closed. The bottom of the valve can be flushed out in order to prevent compaction of material.
“We have customers tell us that we saved them money in two weeks,” says Lindenbeck. “That’s because they no longer have to shut down and lose money.”
Following in Father’s Footsteps
Axel became head of Stainless Valve Company after studying paper science and engineering at N.C. State, then taking on two master’s degrees at Pfeiffer University—in business administration and in organizational change and leadership.
The older brother worked elsewhere fresh from grad school but was looking for something “more challenging.” His father made him an offer: Work for Stainless Valve for six months while looking for another job.
“I made him an offer to continue working here based on his excellent performance,” says Lindenbeck, “and he made me wait for two weeks before he let me know! It was good that he decided to work for us.”
“My intention was to work outside the family business for seven to10 years and then come back to the family business,” says Axel. “However, after three months in the family business, I found that I was really enjoying the work and helping my father run the business.”
Michael joined B+E in 2008 as president. The Providence High School graduate earned a civil engineering degree in 2004 from UNC Charlotte, and thought he’d find himself working in planning. After two years with the N.C. Department of Transportation, he worked briefly with land development, designing infrastructures for neighborhoods.
And just as the nation saw real estate suffer in the economic downturn of 2008, “Dad came to me and wanted me to run the shop,” says Michael. “Needless to say, I’m doing nothing with civil engineering and doing mechanical engineering now. I’ve learned so much.”
Lindenbeck, although “retired” for five years, still serves as a consultant and attends Monday morning staff meetings. His wife attends to the company’s financial side, and works from home.
“I think I absolutely made the right decision to bring my sons on board,” says Lindenbeck. “They are dong a very good job running the business. And it’s good that they can do it at such an early stage of their life.”
Both brothers married German natives, and are still fluent in two or more languages. Their own children will be multi-lingual, too. They plan to call the Charlotte area home for years to come. And B+E and Stainless Valve will be passed on again one day, it seems.
Michael hopes to see both businesses grow significantly. “We plan to be spending more time to improve our efficiency, increase our volume and see more product go out the doors,” he says. “I’d like to see the B+E side fill in the void when we aren’t working on valve orders. We need to grow that side and most of that would be local companies.”
Axel sees future construction and growth in more countries worldwide. “My goal for the business is to diversify into more industries in more countries,” he says. “Currently, Stainless Valves are installed in 18 countries and I hope we can double that in 10 years,” he says. “I want Stainless Valve to be the name that the maintenance manager or reliability engineer thinks about when he has a valve problem that needs to be solved.”
Michael mentions that the company has an additional plot of land on which to expand and add additional manufacturing facilities—hopefully within the next five years.
“Growth will be organic through the result of a superior product coupled with superior service in a severe service market. We also aim to develop our workforce in both capability and capacity,” he says.
“I am part of the second generation in this company and the goal is to build something that may eventually be passed on to the third generation. That is quite a ways off and there are many roads to travel to get there,” Axel acknowledges.
When you shop at your local Wal-Mart, have you ever thought about what it takes to get all those products, from factories all over America and the rest of the world, onto the shelves in your neighborhood store?
Thousands of different products, from thousands of different manufacturers, all have to find their way to thousands of stores all over America. The process by which it all happens is a matter of logistics—the management of the flow of goods between the point of origin and the point of consumption.
Distribution Technology is a leader in logistics, offering public warehousing, contract warehousing management, third-party distribution, cross docking, freight consolidation, transportation management, rail and intermodal transloading, and logistics consulting.
Its clients come from a wide variety of industries including retail, consumer products, food and beverage, furniture and home furnishings, raw materials, industrial materials, automotive aftermarket, hardware, and packaged goods.
Keeping Pace with the Times
Distribution Technology was founded in 1969 with seven employees and 100,000 square feet of warehouse space serving the Piedmont region. Rock Miralia, a member of that initial management team, assumed majority ownership of the company in 1974. In 1988, Rock’s two sons—Tom and Mark—joined the company.
Tom graduated from N.C. State with a degree in nuclear engineering and had spent four years as a reactor engineer for Duke Energy at their McGuire Nuclear Station. But after earning his MBA at Queens University, he decided that he wanted to join the family business, coming on board as staff industrial engineer.
Tom’s younger brother, Mark, went off to college at Appalachian State intending to come back and work at his father’s company. But after graduation, he decided to go to work for a similar company in Atlanta, just to make sure that was the career he really wanted. After a year in Atlanta, he had his answer and moved back to Charlotte to join Distribution Technology as warehouse supervisor.
In 2005, Tom was named president and CEO and Mark became vice president of sales. Mark is also president of Record Storage Systems, a subsidiary that provides document storage, record management, digital imaging, document protection and security, indexing, cataloging, document destruction and delivery services in the Charlotte area.
Up until the late ’80s, the food and beverage/grocery products channel was the bread and butter for Distribution Technology. The big food product companies needed to house local inventory for the Piedmont market, so the Miralias’ company provided those services for a diverse set of brands like Heinz ketchup, Gatorade, Van Camp, Nestle, Gallo wines, Mickey’s Moon Pies, Arm & Hammer, and Proctor & Gamble, among others.
Trucks and rail cars of grocery products—canned goods, jars of mayonnaise, corn syrup—were unloaded at the warehouses and ultimately shipped out to grocery retailers in the Piedmont region and beyond.
“In one two-week period, we shipped a million cases of Gatorade,” remembers Tom. “We were shipping orders where other distribution centers were at capacity, couldn’t get transportation, or couldn’t get a handle on their inventory. We were shipping all the way up into Pennsylvania and other places outside of our natural region.”
But as the large food products companies began buying up multiple brands, they found it more efficient to consolidate all of their brands and business lines together. A large food company could collapse what might have been 15 or 20 distribution centers into a much smaller number of larger centers. They could fill up an entire truck with their multiple product lines for transport direct to a grocer’s distribution center, eliminating the need for contract consolidators like Distribution Technology.
At the same time, technology was rapidly evolving as ordering moved from snail mail-based paper purchase orders, to fax, email, and now electronic data interchange (EDI) and file transfer protocol (FTP). Orders that used to be sent five days or more in advance now arrive electronically in the morning or early afternoon for shipping that same day.
Over the years, Distribution Technology has kept pace, developing new relationships with industrial product companies and local manufacturers, and transitioning to support the retail flow of merchandise from suppliers to stores and distribution center networks.
Along the way, Distribution Technology also has become proficient in processing information for clients, providing a host of electronic data flows to support the movement of goods.
Keeping It Moving
Distribution Technology currently operates and manages about 1.2 million square feet of warehousing operations in the Charlotte region and employs more than 250 people. That warehouse space is split among eight facilities, most of which are located in the Westinghouse Boulevard/Carowinds Boulevard area.
The vast majority of the shipments handled by the company pass through one of their cross-docking facilities that support their retail industry customers. A cross-dock is a building with loading docks on both the front and rear of the building. Shipments arrive by truck from suppliers on one side of the building, are unloaded, reprocessed into outbound shipments, and then loaded onto trucks parked on the other side that will be bound for another destination. The cross-dock operations consist of both consolidation centers and pool distribution centers.
The warehouse facility the company operates in Concord for Wal-Mart stores is a consolidation center. In that facility, merchandise of Wal-Mart suppliers in this region is picked up by Wal-Mart fleet and brought to the Concord warehouse. There, the products are combined with products from other regional suppliers or importers and split out to be loaded onto outbound trucks going to any of the 42 distribution centers across the country that directly service Wal-Mart stores.
The company operates a pool distribution facility serving Bed Bath & Beyond adjoining the company’s corporate offices in the Westinghouse area. There, products arrive from a variety of suppliers, importers, or other warehouse consolidation points, all destined for Bed Bath & Beyond stores in the region. The incoming products are offloaded and palletized with other products going to the same destination and placed on trucks for delivery.
Distribution Technology also provides a similar pool distribution service for Sam’s Club stores. Together, Wal-Mart/Sam’s Club is their biggest client and they are the top logistics operator in the nation according to Sam’s Club operating metrics this year and Wal-Mart statistics last year.
While cross-docking represents the vast majority of their volume, those activities take up a small percentage of Distribution Technology’s 1.2 million square feet of warehouse space, because the merchandise is not stored for long periods of time. In many cases, the shipments are in and out in the same day.
The vast majority of their physical space is devoted to merchandise warehousing—providing an inventory distribution center for a variety of clients. They store a wide array of items from “lunch meats to specialty chemicals,” according to Mark. But the company still tends to focus on items that move in and out as opposed to long-term passive storage.
“A large portion of our square footage is devoted to multi-user distribution centers where we manage inventory for our clients,” explains Mark. “We promote service and activity with those clients, because we understand there is little value in inventory that just turns once a year. That doesn’t really leverage any of our expertise.”
“Our greatest strength shows when we have daily activity—daily inbound and daily outbound, whether it be in retail, manufacturing or supplier channels,” adds Tom. “We are extremely good at high volume with high service requirements. That means flowing information in a timely fashion, flowing it accurately, staying on top of the details, staying out front, and controlling costs. That’s our niche and it’s a great fit.”
In addition to the basic provision of warehousing and distribution services, Distribution Technology also can help companies develop an integrated logistics program where they handle not only warehouse management, but also transportation management. They say it is ideal for small- to medium-sized clients who can leverage the company’s logistics expertise to deliver best practices, allowing them to focus on their core business rather than distribution.
“The combination of warehousing services and transportation services is where we can add a lot of value for our clients,” says Mark. “We can do the storage and handling in the warehouse and then we can design a transportation network for them. We have a small fleet of our own trucks that serve our immediate region and then we can contract out to truckload carriers and less-than-truckload carriers to supplement that and for national coverage.”
Keeping It Up to Speed
As Distribution Technology has evolved, they have continued to look for new markets, including importers/exporters with local offices. While the majority of food products are manufactured domestically, the reality is more and more consumer products come from offshore. With the company’s client mix shifting away from food over the past 20 years, embracing the consumer products import market has become increasingly important.
Distribution Technology serves as the operator of Charlotte’s Foreign Trade Zone #57 and has about a half million square feet of warehouse space that can be activated as a Foreign Trade Zone whenever the need arises.
Because of Charlotte’s proximity to ports in Charleston and Savannah, and location alongside or near three major north-south/east-west Interstate highways—I-77, I-85, and I-40—Charlotte is an ideal inland import processing center. Trucks leaving Charlotte can service markets as far north as Pennsylvania and New Jersey, and as far south as Alabama and northern Florida, same day. By contrast, a distribution location in Atlanta can’t service the population centers of the northeast same day because Atlanta is too far south.
The Miralias believe that Norfolk Southern’s new Charlotte Regional Intermodal Facility at Charlotte-Douglas International Airport is a positive for the region. They are also hopeful that the expansion of the Panama Canal will be a positive if that helps bring larger ships into Charleston, Savannah, and other east coast container ports.
“The bottom line is the new intermodal center should be more efficient because it was designed from a blank sheet of paper and seems to be the perfect layout for what they want to do there,” offers Tom. “And if the new Panama Canal makes it more attractive to run some less time-sensitive freight by water all the way to the east coast instead of landing it in L.A., we could see a little bump from that, too.”
One limiting factor, Tom explains, may be the lack of integration between the railroads, N.C. and S.C. governments, and the Charleston port itself. For instance, the Wando container terminal does not have direct rail access, meaning that all the containers have to initially be moved by truck. Also, the lack of the main rail line out of Charleston that runs straight through to Charlotte. An alternative route through Columbia gets considerably less use.
Whether it’s import/export or domestic logistics support, the Miralias say their focus will always be on the client’s needs and adapting their offerings to those needs. Growing companies often choose to outsource distribution so they can focus on their core business and preserve capital. Tom and Mark assure their seasoned team of professionals offer a level of expertise that can make a difference for those clients.
“We want to help our clients grow their relationships with their own customers,” says Tom. “When we do a good job, they can make more sales and gain market share. When they grow that way, we grow along with them.”
“Our service values are what our father has driven into us from the very beginning,” attests Mark. “The nature of our business is always changing, so we never want to sit back. We always want to have a challenge in front of us, and we’re very, very good at facing those.”
It’s not surprising that the roots of paper giant Domtar Corporation link back to trees—lumber, actually, and a special process developed in 1848 in England to protect lumber from decay. The process proved useful to many industries at the time, but especially to railroads that needed to protect miles of wooden railroad ties.
The company grew on both sides of the Atlantic and in the wake of the outbreak of World War I in 1914, the company, then known as Dominion Tar & Chemical Co., Ltd., decided to move their head office to Montreal, Quebec.
By the mid-1900s, the company had become one of Canada’s largest, engaging in a wide range of industries including consumer products, chemicals, newsprint, containerboard, packaging, construction materials and kraft and fine papers. To reflect its new business diversity, the company officially became Domtar in 1965.
As years progressed Domtar divested its other interests to focus on paper. Acquisitions of Ris Paper Co., Inc. and four Georgia-Pacific paper mills, as well as a merger with the fine paper business of Weyerhauser, led to Domtar Corporation’s rise as a leader in the paper industry.
Today, as a U.S. domiciled company with sales in 2013 of $5.39 billion, Domtar trades on the New York and Toronto stock exchanges under ticker symbol UFS and is the largest integrated manufacturer and marketer in North America, and third largest worldwide of uncoated free sheet paper—the type used in office and business printing for copiers and computer printers, business papers such as envelopes and bills, and writing stationery—with recognized registered brands such as Cougar, Lynx, Husky, First Choice and EarthChoice.
With a selling capacity of 1.6 million metric tons annually, Domtar is also a leading global producer of papergrade, fluff and specialty pulp and a growing contender in the personal care products industry.
The company employs roughly 10,000 in its global network including a head office in Montreal, Operations Center in Fort Mill, S.C., and 13 paper and pulp mills throughout the U.S. and Canada.
But while paper manufacturing has been an established and stable business for centuries, and paper has been a staple in homes and offices for decades, times are changing. Emails have replaced letters and memos, files are now maintained in the digital cloud, and magazine and newspaper content is instantly available with a tap of your mobile device.
So how does a paper manufacturing giant handle the increasingly “paperlessness” of the new digital age? Answering that question is paramount to Domtar’s President and Chief Executive Officer John D. Williams.
“In the last six to seven years, we’ve lost about 33 percent of our commodity paper business,” Williams explains. “We’ve maintained our market share, but that part of the business is gone and the volume will continue to gradually decline causing a gradual loss of earnings in that sector. Our job is to find other revenue streams and to position the company so that it creates sustainable value for our customers and shareholders.”
It’s a large job but Williams has decades of industry expertise to his credit.
Prior to joining Domtar in 2009, Williams was president of SCA Packaging Europe and has 30 years experience in both consumer products and the packaging industries. He’s also received industry recognition. In 2010, he was named North American CEO of the Year by RISI (a leading information provider for the global forest products industry) and in the same year, Pulp and Paper International recognized him as Global CEO of the Year. PaperAge magazine named Williams as “Executive Papermaker of the Year” for 2012.
Williams, who works out of the company’s 400-person Fort Mill Operations Center, says that part of the strategy to replace lost business is building out into other businesses.
Personal care products such as baby diapers, feminine hygiene and adult incontinence products which use fluff pulp—a material the company already produces—seem a logical expansion.
In a little over two years Domtar has purchased five companies in the personal care products industry: Attends in both Europe and the U.S.; EAM, which makes absorbent cores used in a range of personal care products, and AHP, the largest manufacturer of private label baby diapers in the U.S. Domtar’s latest acquisition, Indas, is the market leader in the incontinence category in Spain.
“In personal care, we like the Americas and Europe,” says Williams. “The demographics for growth in those markets are pretty dramatic so when it comes time for acquisitions and putting assets together, you’ll see us focused in those geographies.”
Williams states the acquisitions will continue. “In order to be a serious player you need to put in place a global product platform and develop those products so you can launch them in the key geographies.
“We need critical mass. It’s not enough to be a group of little businesses. You have to leverage what you own to get synergies from them. We want to build $300 to $500 million of EBITDA from growth businesses by 2017. That’s our target. We’re making these acquisitions specifically to build out to that $300 to $500 million of EBITDA.”
Growth of the company’s personal care business is all good news for North Carolina. Williams estimates Domtar has invested over a half billion dollars in the Carolinas since 2010, and that their Attends facility in Greenville, N.C., is expanding to accommodate growth in that business. Domtar has also located its global headquarters for its personal care business in the Raleigh/Durham area, which could result in further benefits for the local economy as the company increases their market share in that industry.
But Domtar hasn’t limited their acquisitions to just personal care businesses. In 2013, the company purchased the U.S. and Canadian paper and print media products business of Xerox.
Adding on to their paper business in a declining market seems counterintuitive but Williams explains it as an opportunity. “Xerox has an amazing brand loyalty. It’s remarkable,” he says. “We think there’s an ability to focus on the brand and manage and build it. In a declining market, we believe there’s value in branding.
“In our paper business, we’re always looking for new applications. We make the paper for point of sale machines and cash registers that people use every day. In our technical and specialty paper, we’re always looking to develop new grades.”
New applications also apply to the company’s cadre of capital-intensive paper mills. Domtar is looking to refit or repurpose some existing mills to better align with its new business model. Their mill in Plymouth, N.C., is a good example of a successful transition.
Repurposing and Sustainability
“The large mill we have in Plymouth used to make paper,” Williams explains. “It no longer makes paper. It now makes the soft pulp—the type of pulp that goes into baby diapers and adult incontinence and feminine hygiene products. We knew we had the skill and we already had product in the market so we spent $85 million to repurpose that mill. That’s a way we’ve forward integrated an existing facility into this new business we’re building.”
Domtar is also finding new applications for an old product they’ve used internally for years.
“Wood is two things—cellulose and lignin,” Williams explains. “Historically, in papermaking you want the cellulose but not the lignin, so we’ve been burning lignin in recovery boilers and generating power for the paper mills. But lignin has other applications. It can be processed to be a binding agent in a whole range of applications from asphalt to wood pellets used in power stations, or because it’s natural, even as a binder in animal feed.
“We trademarked it BioChoice lignin—that’s our brand name. We haven’t been producing it for very long, probably seven or eight months. Right now, it’s not transformational for the company earnings, but it’s enabling us to develop new markets and we’re excited about that. The product has recently earned recognition from the U.S. Department of Agriculture as a 100 percent organic, BioPreferred product.
“Clearly, finding new applications for renewable resources—what we refer to as bio-refining—is an attractive proposition in a world of limited natural resources.”
Protecting natural resources has been a core company value for many years. An early adopter of sustainability principles, Domtar believes so strongly in the practice that it brands itself “The Sustainable Paper Company.”
The company was also first in the industry to embrace certification by the Forest Stewardship Council (FSC), a third party certification for managing and harvesting forests sustainably, and it also partners with the Rainforest Alliance and the World Wildlife Fund, even co-branding with them on FSC certified paper sold under the company’s EarthChoice brand.
“We sell a lot of FSC-certified product both in printing papers and cut size papers, the kind you find in a Staples or Office Depot,” says Williams. “All of us as consumers these days want to know how our beef is processed and where our eggs come from. Quite rightly, we care about these things.
“It’s meaningful to a lot of people that the paper they use at home or in their office is sustainably harvested. Many companies, especially large institutions, want to make sure that they’re buying paper that was sustainably produced. It matters to consumers and to business buying.
“But it’s not just a marketing issue; it’s also a behavioral issue. We have to make sure we behave in a sustainable manner.”
To assist in that goal, Domtar develops long-term sustainability strategies and conducts regular evaluations of its sustainability performance. Goals from a recent evaluation include: working toward procuring 100 percent of their wood fiber from FSC-certified forests, setting greenhouse gas reduction targets, reducing water and waste in their mills and seeking carbon efficiency opportunities in their supply chain.
“But sustainability isn’t just about the environment,” Williams insists. “It’s also about how you recruit people and how you manage your strategy to make sure that an enterprise which has already had a good long life continues to have a good long life.
“We have three core values: agility, caring and innovation. Part of our caring value is involvement in the community.”
Companywide, Domtar partners with First Book, a nonprofit that provides new books to children in need across North America, some 100,000 last year alone. The company’s EarthChoice Ambassador program also encourages employees to get involved in their communities.
Locally, employees from their Fort Mill Operations Center joined with the Student Conservation Association on a restoration project at Andrew Jackson State Park. And the company’s annual charity golf event raises money for local causes. Last year’s outing raised $150,000 for A Child’s Place, which helps homeless children in Mecklenburg County. Previous events benefitted Classroom Central, a nonprofit, providing students with school supplies. Employees also donated time to build hiking trails in the nearby Ann Spring Close Greenway.
Williams, who sits on the Palisades Episcopal School Board and is president of the Montreal Chamber Orchestra, believes that in addition to giving money to local organizations, it’s also “very important to really get involved.”
The Domtar strategy appears to be working. In an earnings conference call in early February, the company reported that its net earnings had more than doubled during the fourth quarter of 2013 and quarterly sales were nearly $1.4 billion—up 2.4 percent—as compared to the same period in 2012.
Of the period, Williams commented, “The strong fourth quarter capped off a year of achievements for Domtar. We announced several strategic initiatives and continued to execute on our commitment to transition our earnings profile.
“I can say with confidence that the Domtar growth story is set firmly in its path, the foundation of which will be a high-performing pulp and paper business and fast-growing personal care business.
“In summary, we had a milestone quarter for Domtar in our quest to become a stronger business that creates sustainable value for our customers and our shareholders.”