Featured In This Issue
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.”
Plastics are an important component in thousands of the products that we use everyday. From the alarm clock that wakes us in the morning, our coffee maker and toothbrush, and the container from which we pour the milk for our cereal, to the car we drive and the pump that puts gas in it, the computer and smartphone we use at work, and even the protective wrap around the food we’ll eat for dinner, plastics improve our lives and bring us convenience and efficiency.
Because the flexibility and adaptability of plastics enables them to provide many different solutions in an increasingly complex world, the plastics industry is today the third largest manufacturing industry in the United States. It employs nearly 900,000 workers and contributes more than $380 billion in annual shipments, making a significant impact on the country’s economy.
One of the nation’s largest plastics companies is located in the Charlotte area. Wilbert Plastic Services is headquartered in Belmont with seven manufacturing facilities in five states—North Carolina, South Carolina, Kentucky, Ohio, and Minnesota. It employs over 1,400 workers and manufactures and assembles products in 12 different markets. These markets include automotive, consumer products, commercial equipment, appliances, heavy trucks, health care, aerospace, agriculture and recreation.
“Wilbert Plastic Services is a leading supplier of plastic injection molded and heavy gauge thermoform products and assemblies in North America,” attests Greg M. Botner, president and CEO. “Our ability to produce small to large plastic parts and assemblies to a variety of industries in multiple and strategic locations throughout the country is unique.”
The history of Wilbert Plastic Services goes way back to the middle of the 19th century when a German immigrant, Ferdinand Haase, acquired 55 acres along the Des Plaines River outside Chicago.
In 1874, Ferdinand and his two oldest sons, Emil and Leo, opened Forest Land Cemetery, which included a museum displaying Native American artifacts found on the Haase property. In 1880, Ferdinand’s son Leo founded the L.G. Haase Manufacturing Company and began making concrete burial vaults and covers, as well as cemetery lot markers, benches, tiles and irrigation basins.
In 1902, Leo retired and moved to the West Coast, leaving the Haase company to be run by his nephew Wilbert. When an influenza outbreak spread through the Midwest in 1918 and 1919 causing the death of thousands, the L.G. Haase Company was one of the few companies able to meet the demand for funeral products. In 1919, Wilbert bought L.G. Haase from the family for $19,000 and renamed it American Vault Works.
Wilbert Haase was a worldwide traveler and was fascinated by the preservation techniques of the ancient Egyptians. He was determined to make an airtight, waterproof burial vault and, after two years of trial and error, he succeeded by lining a concrete vault with asphalt. In 1930, he formed the Wilbert H. Haase Company to license the waterproof burial vault technology.
By 1938, the American Vault Works was the world’s largest manufacturer of asphalt-lined concrete burial vaults. In 1955, the company marked its 25th anniversary by producing its one millionth Wilbert burial vault.
In 1948, a group of multiple shareholders bought the W.H. Haase company and introduced a new vault liner to escape the dangerous and superheated use of asphalt. “Plasco,” a hybrid of the words plastic and coating, became the liner of choice for the company’s vaults until the 1960s when the company, now renamed Wilbert, Inc., bought Thermoform Plastics, Inc. and produced a new polystyrene vault liner, which was not only strong, but when bonded with an epoxy formed an airtight seal.
By 1977, Wilbert, Inc. was operating with two distinct divisions, Thermoform Plastics, Inc. and Wilbert Funeral Services.
Over the following decades the company thrived through natural expansion and growth. By the mid-1990s, Thermoform was booming, providing plastic liners for Wilbert’s vaults as well as handling lucrative contracts for a wide range of products in the plastics industry. Through a series of acquisitions, it grew to one of the top five plastics manufacturing companies in the country with sales topping $55 million in 1999.
In 2002, the company acquired Morton Custom Plastics in Harrisburg, N.C. and renamed the Thermoform division to Wilbert Plastic Services.
In 2008, Wilbert Funeral Services was spun off as a separate company, leaving only Wilbert Plastic Services under the operating under the corporation of Wilbert, Inc. Today, the companies operate as independent entities with no corporate relationship.
“Not many companies in the plastics industry have the deep roots and longevity of Wilbert Plastic Services,” says Botner, who began working with the company in 2004 during a period of financial change. As president and CEO—a tenure that began in 2008—he guided the company through another reorganization and set in motion a number of operational adjustments.
Botner was an ideal choice to take the plastics company into the new millennium. Growing up in Michigan, he was no stranger to the manufacturing industry. After attending Wayne State and Oakland Universities, he landed a job with an autoparts company. He soon began a 30-year career in the plastics industry with manufacturing companies serving various markets throughout North America, Europe and Asia.
Immediately prior to joining Wilbert Plastic Services, Botner served as president and CEO of Titan Plastics Group, a private equity-sponsored plastics processing company headquartered in Portage, Michigan.
When Botner joined Wilbert Plastic Services, it was still calling Chicago “home.” In 2010, Wilbert executives decided the company’s headquarters should be in the Southeast and moved to Belmont, N.C. The Gaston County location offered all the right elements—sufficient space for a headquarters building, a professional labor force, a good business community and quick access to the airport.
“Our major share of business was in the South and Southeast,” explains Botner. “And we already had a manufacturing facility in Belmont, so it just made sense to locate here.”
Today, Wilbert Plastic Services supplies 12 major industrial markets with seven manufacturing facilities, totally over 1,300,000 square feet. Its annual sales volume is approximately $260,000,000. It makes everything from washing machine agitators for Whirlpool, fenders for BMW, and hoods for John Deere, to the cowling for GE Medical Systems’ MRI machine.
With automotive products making up 39 percent of its production, along with another 6 percent in the heavy truck market, Wilbert’s customers include BMW, Hyundai, Ford, Volvo, GM, KIA and Daimler trucks. It makes covers for Mercury boat engines, child car seats for Britax, and service station pumps for Gilbarco Inc., a Greenville, S.C., company.
“We’re an American company with American-made products. We don’t have operations outside of the U.S.,” says Botner. “We believe the manufacturing capabilities here are the best in the world and we’re investing heavily in that.”
Wilbert Plastic Services has also positioned itself to create products for the aerospace industry by acquiring the mandatory AS9100C certification in the fall of 2013. This certification establishes an international quality management standard for the aerospace industry. The certification demonstrates a manufacturer’s ability to meet various regulatory requirements, including legal and safety standards.
“The AS9100C expands our manufacturing capabilities within the plastics industry,” explains Botner. “It also offers aerospace customers a new option, one with more than 50 years of plastics experience, to choose when considering plastic products. We’re ready to explore these avenues and move into this industry.”
Botner observes that the plastics industry has evolved dramatically over the last several decades, moving from a substitute for other materials in a product to a material that many designs revolve around. Consequently Wilbert has added more engineers to its staff, currently employing around 50, and expanding the services it provides to customers.
“As the demand for our plastic products increases, so does the demand for design and engineering support,” says Botner. “We can manage our customer’s product from concept through production, if desired. We have the capability to take the design intent and provide all of the product.”
While many of its competitors went out of business during the economic recession of 2008-09, Wilbert Plastic Services has survived and is now growing again. Botner suggests that the reason Wilbert survived was that it was already in trouble before the recession impacted the national economy. In 2005-06, the company had lost 20 to 25 percent of its sales volume. Botner was charged with turning things around.
Botner worked on reducing the company’s debt, by closing several manufacturing plants and making reductions in the number of employees. In 2009, the company had cut down to 830 employees and sales had dropped to about $150 million. When the recession hit, Wilbert was ahead of the curve. It was already retrenching and consolidating.
“We were already in the mode when the recession hit,” explains Botner. “Consequently, we were well positioned to weather the downturn. Now we have turned ourselves around and are benefiting from a recovering marketplace.”
Botner believes that Wilbert has been successful over the past four years by investing in its own business growth through careful acquisitions, putting capital into new facilities and new technology, and increasing the levels of productivity. The company has grown to 1,450 employees and Botner expects sales to reach $320 million in 2015.
“I hope we’ve learned our lesson,” cautions Botner, speaking for both his company and the industry. “The answer to success in manufacturing goods is not the pursuit of cheap labor, but rather an investment in the workforce.”
He points out that the Southeast region of the county has always been a center for manufacturing and even though the products may have changed from the traditional textiles and furniture, he believes that the region will continue to dominate the industry for the foreseeable future.
“This is a multi-state community that believes in business,” he asserts. “However, we must continue to attack the cost of doing business here by keeping corporate taxes and utilities low and making sure that the place where we do business is a place where people want to live.”
Another problem that Botner believes the region must attack is a growing skills gap between the labor force and the job demands of the manufacturing industry. Botner says high schools no longer focus on vocational training; instead they put the emphasis on preparing for college. As a result students are coming out of high school without the advanced math and basic programming skills they need to succeed in plastics manufacturing. Many also have a false idea of what the industry is all about.
“Over time manufacturing has gotten a bad reputation,” says Botner “People see it as a shrinking field and one where you have to get your hands dirty working in a factory. They don’t realize that this is a different era of manufacturing. It’s clean work with more use of the head than the hands.”
To help fill the skills gap, Wilbert Plastic Services is initiating its own training programs. In 2013 it launched the B.E.T.T.E.R Workforce Program to provide employees opportunities for training, recognition and a career path within the company. The launch included new training centers and training computers at all of Wilbert’s manufacturing sites.
At the injection molding facilities it installed the Paulson Training System, an interactive computer program which provides employees with a wide range of plastics knowledge from basic safety to advanced problem solving simulation. Injection Molding employees who participate in the Paulson Training lessons not only gain knowledge, they also earn extra pay for the courses completed and receive certificates representing specific job titles.
Wilbert Plastic Services is now working closely with the Paulson Training staff to develop a set of thermoforming courses. It hopes to install this type of training in all its thermoforming sites during 2014.
“We have great employees,” stresses Botner. “The decisions we make affect them everyday. I take that very seriously. When we turned the business around in 2008-09, we were laying off people. That was an awful feeling.”
In addition to the new training programs, Wilbert offers medical insurance and health plans that affect 4,000 people. It provides an opportunity for employees to progress in their careers with the company. And, it encourages all its employees to gain the knowledge necessary to perform their job effectively.
Botner believes these steps will help build a stronger company and a more knowledgeable workforce. “I believe we can recreate the growing middle class,” he says.
Don Rothwell’s flight had been airborne hardly 10 minutes before the toddler seated next to him lost interest in the plastic screwdriver his mother had brought along to serve as his in-flight entertainment. As the child’s restlessness grew, Rothwell quickly produced from his briefcase three zoo animal figurines and presented them to the boy and his mother as a gift.
It worked like a charm. The youngster remained fascinated and occupied right through the landing. The executive vice president of Schleich USA, Inc., Rothwell says, “I never travel anywhere without a few of our signature figurines in my bag. They come in quite handy.” The scenario perfectly exemplifies the company’s registered motto: “Anywhere’s a playground.”
Bringing Their Playground to Charlotte
Schleich was founded in Germany by Friedrich Schleich in 1935. The company started as a supplier to the plastics industry, but shortly thereafter Schleich invented the process for manufacturing those classic bendable-wire rubber toy characters (think Gumby and Pokey). As a result, the world-famous Schleich figurines first came on the market in the 1950s.
Today the toys’ intricate design and painstaking hand-painting process—over 100 steps—has made them a favorite of both children and collectors in more than 50 countries around the world. As a global player with Swabian roots, the company is headquartered in Schwäbisch Gmünd, Germany; managing directors include Dr. Thomas van Kaldenkerken and Erich Schefold.
In the 1980s, Schleich introduced their wildly popular animal figurines. Intended to be a realistic reflection of nature on a smaller scale, the quality and attention to detail is so striking that to label them toys seems somehow diminishing. Void of battery power or adjustable parts, these figurines rely on their uncanny realism to lure children into using their imaginations to create wonderful worlds of play with unlimited possibilities. The formula is clearly working as Schleich produces more than 50 million figurines a year.
“Safety and quality control are our top priorities,” explains Rothwell. “We do everything in-house at our German headquarters from the design to the creation of special manufacturing tools.” The actual production process takes place in Germany, Moldavia, Tunisia and China, but Rothwell says it’s certainly not off the table to have at least some of the manufacturing in the United States one day.
Charlotte became a big part of the Schleich story last year when the company relocated their North American headquarters from Ottawa in Ontario, Canada, to the Queen City. “The lion’s share of our business—about 85 percent—comes from the U.S., so it made sense to relocate here,” notes Rothwell.
“During our site selection process we looked at multiple cities including Chicago, Los Angeles and Memphis, but ultimately there were several key factors that led to Charlotte being chosen as our new North American home.” One of those key factors was North Carolina’s reputation for being what Rothwell characterized as a “very business-friendly state.”
As Schleich is a German company, it didn’t hurt that Charlotte is coincidentally home to more than 200 German-owned businesses which collectively make up the largest foreign investment group in the region. Also in the city’s favor was its close proximity to a large percentage of the Schleich customer base; the easy access to the I-77, I-85 and I-40 corridors; proximity to major ports like Wilmington and Charleston; and the regional intermodal freight transport facility at Charlotte Douglas International Airport.
Still, it was more than Charlotte’s business edge that attracted Schleich: “Just as important to us was the quality-of-life factor as well as the cost of housing, median incomes, schools, safety and the various amenities like football, basketball, baseball, NASCAR, the arts programs and museums found here,” explains Rothwell.
“We knew Charlotte gave us the business advantages we were looking for, but we also wanted a city that was a great place to put down roots and raise a family—one that could attract and provide high-caliber employees. And the people are just so amazingly friendly here. The entire package made it very attractive to be in Charlotte.”
Rothwell recounts a recent experience taking a group of New York colleagues to dine at the Mimosa Grill uptown and how “shocked” his guests were at what they considered the epic-friendliness of the wait staff—a level of service unheard of “back home.” Rothwell would know. Having transplanted here from New York 16 years ago, he now considers himself a proper Charlottean.
With over 60 employees now entrenched in the new 125,000-square-foot headquarters on Twin Lakes Parkway in north Charlotte, Schleich is understandably eager about its next big venture. Having recently licensed the rights to the world-famous Peanuts characters, the company is gearing up to launch a new line of figurines featuring Snoopy, Charlie Brown, Linus, Lucy and the entire Peanuts gang. It won’t hurt that a new CGI computer-animated Peanuts 3D movie is due out in late 2015 to coincide with the 65th anniversary of the comic strip.
“What’s most exciting about Peanuts is they have 99 percent consumer brand awareness,” marvels Rothwell. “It’s an iconic brand and fits in perfectly with our initiative to augment our already well-established Schleich products with other evergreen properties—ones that are not only here today, but are going to be here for years and years to come.”
While further expansion into the licensing space is a high priority for Schleich, they won’t be travelling in unchartered waters. They’ve actually held the licensing rights for the recently revived Smurfs for more than 50 years—a fait accompli Rothwell says is unheard of in the licensing industry.
Still ahead, Schleich has also entered into a global partnership with Warner Bros. Consumer Products and the DC Comics pantheon of Super Heroes. Those products are slated to launch in January 2015 and will include the iconic characters Batman, Superman, Green Lantern, Flash and others.
“People don’t realize how deep the DC Comics line really is,” notes Rothwell. “There are hundreds of characters there. The Batman storyline alone includes Robin, Catwoman, The Joker, The Riddler, The Penguin and so many more.”
The admiration appears to be mutual as Karen McTier, executive vice president of domestic licensing and worldwide marketing for Warner Bros. Consumer Products stated, “We are thrilled to partner with Schleich and excited to incorporate them into the DC Comics universe to bring their artistic detail and creativity to the devoted fans of the DC Comics Super Heroes.”
Schleich takes the development and manufacturing of their toys very seriously and assumes a genuine responsibility towards parents and children. They rely on the assistance of both, as well as educators, in the design and approach to their creations. Always aiming for products that are as realistic and naturalistic as possible, these figurines may be as close as many children get to actually seeing domestic farm animals, wild jungle animals and oceanic creatures.
When choosing licensing products, special attention is paid to the character and message they carry. Outranking even the allure of sales potential is the educational element which is viewed as the most vital part of the process. To that end Schleich recently added accessories like castles, barns, stables and various “scenery packs” in which their characters and figurines live and play. “That was one of the challenges our customers came to us with,” explains Rothwell. “We were hearing, ‘We love it, now give us the playworld.’”
Smiles Around the World
Demonstrating a genuine commitment to be an active supporter of the community and not just a resident, Schleich recently formed a partnership with Levine Children’s Hospital and gave an initial donation of 500 toys to the facility—something Rothwell describes as particularly “meaningful and rewarding for our staff.” Multiple events with additional donations are planned with the hospital including providing a supply of the new Peanuts characters when they become available later this year.
“Anyone who’s ever visited the Levine Children’s Hospital knows those kids need hope,” comments Rothwell. “They need spirits lifted and all the fun they can get. We are so happy to bring some smiles to those brave kids and help in the healing process.”
Last December Schleich also partnered with the USO which had an astounding 25,000 service people come through Charlotte. As a veteran of the U.S. Marine Corps. and USO runner-up for Serviceman of the Year in Japan, the cause is near and dear to Rothwell’s heart.
“Our idea was to create thank-you packages for the USO service men and women, so we reached out to a handful of other companies including NASCAR, Verbatim and Diverse Marketing to donate items to go along with our Schleich toys,” explains Rothwell, who then asked for staff volunteers who would be willing to assemble what became more than 1,500 packages.
“The response from our folks was overwhelming and I was so proud to see so much being done to support our service men and women. The project was so successful that we’re planning on doing it again in mid-2014.”
The company is also interested in opportunities to utilize their toys for formal education purposes and is looking into partnering with area schools and mentoring programs. “We get a lot of requests from teachers—in particular for our animal figurines,” says Rothwell. “They may not have the resources to take their students to an actual zoo, or are teaching about animals from a specific region and like to use our products for teaching purposes.”
While donations to schools have been made, Schleich doesn’t currently have a formalized process to meet all of those requests, so Rothwell is exploring ways to introduce the products into pre-K and elementary schools.
As the date for their first anniversary in Charlotte approaches, Rothwell says the company couldn’t be happier with their decision. “Quality is at the core of everything we design and produce. It’s a theme central to everything Schleich stands for. It’s only fitting that our North American headquarters has relocated to such a quality city,” says Rothwell with a smile.
And why shouldn’t he be? The man gets to make toys for a living! He adds, “At the end of the day, toys bring smiles. Whether you’re a child playing in his room, a serviceman going overseas, or a child in a hospital, people love toys. We’re just lucky enough to be in a business that’s so much fun.”
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.”
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.”
Company owners, managers, bankers, and investors often talk about profits or income when discussing the financial performance of a business, but each may focus on very different numbers. As a continuation of last month’s article, we will now look at two other earnings ratios: net profits and margins and EBITDA.
We will define each term by using two sample companies in the coffee roasting business (see chart). Either company can be viewed as the better performing firm based on the earnings ratio that is selected.
Net Income is operating income less interest expense and taxes. Some company owners focus on this figure because they feel it reflects the final amount of money that the business earned. Unfortunately, income and cash flow does not always match, so owners can have positive net profits, but a negative cash flow. Positive net income should later generate a positive cash flow, but the company must successfully convert its working capital (accounts receivable plus inventory minus accounts payable) to cash at the levels reflected on the financial statements.
Net Margin is calculated by dividing net income by revenue. Company A’s net income and net margin are higher than Company B’s. Since both paid the same taxes, Company B’s higher interest expense is a significant difference.
EBITDA is Earnings Before Interest, Taxes, Depreciation and Amortization, and while it may not appear in a company’s financial statement, this figure is often used by bankers and investors. EBITDA removes the effects of financing costs (interest expense) and location costs (taxes) from earnings and adds back “non-cash” deductions to income (depreciation and amortization).
EBITDA gives an indication of a company’s future cash flows from operations while removing the effects of financing costs and taxes that may vary by location or company structure. Looking at the components that make up EBITDA is also helpful. For example, Company B had higher interest expense. Is this because Company B is more risky from a credit standpoint, or has it financed additional or newer equipment that might later make it more efficient?
EBITDA / Revenue: EBITDA is dividing by revenue to compare different sized firms. While Company A’s net income and net margin was greater, Company B performs better from an EBITDA perspective.
While no single earnings ratio can explain a business’s overall financial performance, gross profit and operating income (discussed last month) and net income do show total dollars earned at various levels of a company’s operation. Gross, operating and net margins, however, are needed to make comparisons between companies with different revenue levels.
In our example, as we moved through each earnings ratio, the most financially profitable company switched from Company A (higher gross margin) to Company B (higher operating margin) to Company A (higher net margin) and finally to Company B (higher EBITDA and EBITDA / sales).
Today, EBITDA is probably most often used when small business earnings are discussed by bankers and investors, because EBITDA gives an indication of the cash flow being generated from a company’s operations.
It also serves as a good ratio for owners and managers to compare themselves against past periods and others in their industry, because non-cash expenses (depreciation and amortization) are added back to earnings and financing costs (interest) and governmental costs (taxes) are subtracted to show net earnings generated by the company.
This article deals with the final aspect of Step 3 of our firm’s six step planning process for helping business owners create an optimum succession plan for their business and exit plan which best meets their business and personal objectives. To recap:
Step 1: Help the business owner identify his/her life objectives including retirement income, manner of disposition of the business, and non-economic life objectives which add significance to the owner’s life;
Step 2: Determine where the owner (and business) is now and what the gap is in terms of meeting the owner’s economic retirement objectives; and
Step 3: Determine what steps the owner should consider to fill the gap by increasing the value (and selling price) of the business.
Last month we discussed key “value drivers” that qualified buyers look for in a business which increases the business’ value by increasing Return (profitability) or lowering Risk.
The value of your business to a potential buyer is directly related to the predictability that historical profitability will continue or increase in the future. Therefore, lowering the Risk that your cash flow will be interrupted (or decreased) in the future increases value.
This month’s article focuses on additional steps a business owner should take to reduce Risk as soon as he/she decides to sell his Company—conducting “due diligence” on his/her own business.
A qualified buyer will not normally buy a company without first learning everything there is to know about that company. That learning process is known as due diligence. During due diligence a buyer, his accountant, his lawyer and any other professional advisor he employs will examine every aspect of every contract, procedure, relationship, plan, legal structure, system, lease, employment policy and manual, tax returns, financial statements, etc.
This process requires an extraordinary amount of time and attention on both the buyer’s and the seller’s parts. That’s why we recommend that owners initiate the due diligence process as soon as they decide to sell their companies and have an indication from a transaction intermediary that the business is salable for sufficient money to meet their financial security wishes and needs.
Starting the due diligence process well before the buyer requests documents gives sellers the opportunity to remove any obstacle (i.e., clean up any messes) that might prevent a buyer from traveling a straight path to closing. Keeping the road to closing free from unnecessary impediments compresses the time between the buyer’s offer and the closing. In a sales transaction, time rarely favors the seller, so owners want to condense the process.
Buyers are looking for the skeletons in your closet and are very skilled at finding them. They are looking for malfeasance or undisclosed material risks. They will look for fraud (on the part of an owner or manager) or any misrepresentations you have made such as improperly recognized revenues or expenses, and any information you have omitted, such as: unpaid taxes, pending or threatened litigation or obsolescent business equipment, processes, products or services.
The buyer is also looking for information that would affect the value of the company and the advisability of purchasing it. Up to the moment due diligence begins, you have controlled the information flowing to the buyer. You give up much of that control during the buyer’s due diligence.
Finally, if the buyer’s search for malfeasance, misrepresentations or information that would affect the company’s value yields no results, the hunt is on for anything that the buyer could use to lower the price or improve its terms. And that ulterior motive—lowering price and improving the buyer’s terms—permeates the entire due diligence process. Is it any wonder that sellers hate (and that is not too strong a word) this process?
And, is it any wonder that we strongly suggest (as we do) that you and your advisors clean up every contract, agreement, stock book, record of corporate actions, manual, lease, or threatened law suit before you take your company to market?
If you have any questions about the extent or value of the due diligence process, please contact an experienced transaction attorney.
Next month we will discuss Step 4 of the six step planning process, who you want the business going to at retirement—a sale to an outside third party or a transfer to insiders?
There’s no doubt about it. South Carolina wants the Port of Charleston to be the preeminent port on the East Coast and the state is investing some $2 billion to make sure that happens, according to Jack Ellenberg, senior vice president for economic development and projects for the S.C Ports Authority.
In a recent speech to the Charlotte Rotary Club, Ellenberg outlined significant efforts underway in the Palmetto State to distance Charleston from its competition on the eastern seaboard. According to Ellenberg, the ports are the Palmetto state’s most important strategic asset: “It’s all about growth. The key driver for the ports today is the tremendous growth in the size of container vessels and the growth of the ship sharing alliances.”
“Consolidation is driving the urgency for bigger ships that can operate at lower costs. It’s all about economies of scale. There is potential for huge cost savings,” Ellenberg noted.
Current container ships carry 4,800 TEUs (twenty-foot equivalent, meaning about half of a 40-foot trailer). That’s about 2,400 containers at a cost of about $1,250 each. Larger 8,000 TEU ships carry 4,000 containers for 40 percent less, and even larger 14,000 TEU ships now being built that can carry 7,000 containers for 60 percent less.
How big is a 14,000 TEU ship? It’s 1,165 feet long, longer than three football fields. It’s 165 feet wide at the beam. And, according to the folks at Adidas which has its only U.S. distribution center in South Carolina, a vessel that big can hold 70 million pairs of running shoes!
The biggest challenge posed by these behemoths is that they draw 48 feet so harbor channels must be at least 50 feet deep to accommodate them. Charleston has only a few challengers on the east coast with the ability to meet that mark.
The New York/New Jersey port will have a 50-foot channel by 2016 if the construction to raise the Bayonne Bridge stays on schedule. Even then, Ellenberg noted, most of the goods shipped to that port are inbound. Shippers do not like to carry empty containers when they leave. Baltimore also has the requisite channel depth but it’s a long way from the ocean, a real drawback.
Norfolk is a military port, Ellenberg continued, and it will get what it needs from the federal government, but military comes first. Miami and Jacksonville also have the potential to have 50-foot channels but Miami is too far from U.S. and North American markets and Jacksonville’s port is small and downtown.
Charleston, on the other hand, is already a top 10 U.S. container port and among the top 100 globally. It has been the fastest growing port in the country since 2009. Business is up 22 percent from FY2010 to FY2013. In the Southeast which also includes Savannah, Jacksonville and Wilmington, Charleston “earned an amazing 70 percent of the growth that occurred in our port region,” according to Ellenberg.
The Port of Charleston is within 500 miles of 94 million people in the Southeast, the fastest growing region in the country (46 percent between 2000 and 2030). There is strong manufacturing and exporting in the region so ships can unload and load—no empty containers leaving port. And the port, Ellenberg emphasized, is important to North Carolina, noting that 25 percent of Charleston’s usage comes from North Carolina destinations for imports or exports.
South Carolina is making a $2 billion bet on its ports, most especially Charleston, so that by 2018 it will be capable of handling the 14,000 TEUs 24/7 365 days a year. The S.C. Ports Authority owns and operates the ports, but does not receive state funds for operations, so the enterprise needs to be self-sustaining. The state is, however, making investments in infrastructure “to ensure the viability of its biggest economic asset,” he said.
The ports authority is making a $700 million investment in a new container terminal at the old Navy yard. It is also investing $600 million in other infrastructure and IT projects along with a $50 million investment in the state’s inland port in Greer, halfway between Charlotte and Atlanta. The legislature has already put $300 million in the bank to deepen the harbor, even though the federal government is supposed to cover 40 percent of the cost.
“We’re not sure the feds will have the money when we need it,” Ellenberg cautioned. “That’s how serious the state’s bet is. The state will also spend another $225 million on improvements to interstate access roads and $130 million in a new dual access intermodal railhead where containers are off loaded or on loaded to rail cars.”
It would seem that while South Carolina’s goals are ambitious, they are well on their way to being attainable.
As Ellenberg noted, the nation’s success in global trading depends on an ability to move goods rapidly around the world, and South Carolina ports will be a pivotal player for the U.S. moving forward. Similarly, the Port of Charleston will be key for Charlotte’s global competitiveness. These port developments should encourage economic development efforts for the Charlotte region as well.
Many thanks to fellow Rotarian Henry Bostic from Premier, Inc. who authored the summary of Ellenberg’s remarks. I thought it valuable information to share with our readers.