Featured In This Issue
Matt Matthews can remember when he bought one of his very first business books, The Complete Idiot’s Guide to Starting Your Own Business by Ed Paulson, in 1996, just after graduating from college.
“When I bought the book, I remember my wife Beth asking ‘What kind of business?’ At the time, I said, ‘I don’t know.’ Ironically, 10 years later, I was being presented with an opportunity,” he says.
That was when Matthews learned that the major logistics company he worked for was planning to close, and the Ohio native found a reason to put that simple, yet valuable tool to use.
At the time, Matthews was working for Piedmont Interstate, a southeastern-based third party logistics provider. He had been at their Savannah facility for exactly one year, serving as the director of distribution, when he learned the group was closing several facilities in the South, including Savannah, and eventually would be ceasing all operations.
“The company approached me with an offer to stay on board to assist with systematically shutting down several facilities. During this time, they also provided me the opportunity to take an in-depth look at each operation and determine if I would like to take a chance and start my own company.”
Matthews had accumulated 15 years’ experience in logistics—a key part of a supply chain that plans, implements, and controls efficient flow and storage of goods between point of origin and the point of destination—working in the freight, transportation, and/or warehousing business since his high school and college days.
“When the opportunity was first presented to me, I said ‘No thank you.’ Although starting a business had always been a dream of mine, I was afraid of the risk to my family,” says Matthews.
For days after his decision, Matthews says he was plagued with uncertainty. One night on their front porch, his wife Beth approached him and said, “If you want to do this, we will. We will be fine, no matter what happens.”
“I knew then that I needed to act,” remarks Matthews. “The failure wouldn’t be in the result; the failure would be in not taking advantage of the opportunity. It only seemed natural that I try to go out on my own, doing what I had been doing almost my entire working life. Beth’s background in accounting and banking would help tremendously. We figured we would make a good team.”
Beth joined on as CFO with Matthews as president and COO, and together they designed the company from the ground up, including the company’s name, logo and website. “To be honest, I had no idea how to start, but I did have that book I had bought,” he says with a grin.
Elite Logistics, LLC, was incorporated in 2006 and went into full operation in May 2007 with a deal Matthews constructed with Piedmont to take over their Rock Hill facility specializing in outsourced logistics support.
According to a recent study by the Massachusetts Institute of Technology, nearly 75 percent of manufacturers or suppliers are either using or considering using a contract logistics server, and that number is growing.
Matthews says some of his clients use Elite Logistics to simply handle and store material. Others use Elite as their distribution facility, sequencing center or, for their customers, an invisible extension of their business. He adds that his client base consists of many different types of industrial goods, paper products, automotive components, retail goods, and even textile goods.
Ebb and Flow
Although Elite had a very successful startup, after his first 18 months in business, Matthews found himself in a tough spot. The troublemaker? The economic downturn of 2008 and beyond.
“Due to the economy—not us—we lost two valued customers and that represented 75 percent of our revenue,” he says. “That alone should have meant the end of our business.”
“We were entrenched in what some would say was the greatest recession our generation had seen. We were hit hard,” says Matthews. “Through it all, we convinced ourselves, ‘If we can just maintain our position and be here on the backside, when things turn around, we’ll be okay.’ We downsized, renegotiated contracts, and took every remedial measure we could. Most of all, we maintained our belief. That was key.”
Elite Logistics spiraled from 20 employees to five. “I wore all kind of hats, from driving the forklift to cleaning to pulling orders to customer service and billing,” he says. “I felt kind of like the restaurant owner who cooks, waits on tables and checks out diners. But that’s what entrepreneurs do—they do everything and anything they have to do,” says Matthews.
Matthews also turned to networking. He was desperate to find a way to stay in business. None too soon, he met an investor who believed in his potential, and sold a stake in the business to Arwood Holdings of Charlotte in 2008.
“Mr. Arwood believed in me—not just the business. Initially, he took some losses, but he always maintained his belief in me,” Matthews says. “In 2013, Beth and I were able to repurchase the equity, becoming full owners of Elite once more, but more importantly, making good on our intent to repay our benefactor for his faith and belief.”
Also during the recession, as part of that networking, Matthews also began honing in on local Rock Hill and York County businesses, focusing on supplying local manufacturers with outsourced logistical support.
Building a Name
Matthews maintains that staying purpose-driven has allowed Elite Logistics to be fortunate. Beginning in 2010, the company’s logistics business improved, and revenues have since grown by 300 percent. The company has added new clients, expanded operations capacity to 350,000 square feet, and added about 20 full-time positions.
The company now has three facilities. One warehouse features dry storage (a combination of floor and rack storage) with 16 dockside doors and four railside doors served by Norfolk Southern Railroad. A second has 10 dockside doors and six rail-served doors. And in early 2014, the company opened a third facility in Rock Hill.
Elite Logistics is strategically located central to railroad and trucking transportation, less than 2 miles from I-77 and just 15 miles south of Charlotte. Matthews points out, “Once on I-77, connections with I-26, I-85 and I-40 can all be made within 2 hours.”
Although located inland, Elite Logistics works with a partnership to offer drayage solutions from Norfolk, Charleston, Savannah, and Jacksonville, Fla. Matthews points out that the logistics provider has tapped into both regional business and national/global accounts.
“First, we focused on the regional companies. For many of these clients, we serve as an inbound consolidation point and we prepare shipments that feed their local operations,” explains Matthews. “On the flip side, we are a regional or national distribution facility for many national and international companies.
“We have a broad scope of business, but we decided a long time ago, we won’t do everything. And we stick to that, knowing what types of business will best fit into our range of expertise.”
Matthews credits high standards along with Elite Logistics’ durable reputation as the real keys to his success. Remembering back to Piedmont Interstate’s closing, Matthews says he asked the firm’s executive team why they were offering an ownership opportunity to him.
“They said they had always respected how I approached my job, acting as though it were my name on the door. They said they wanted to give me the opportunity to put my name on it.
Like most entrepreneurs, Matthews takes his business very personally and wants every customer to have a successful experience.
“If there is one comment consistently made by our clients,” he says, “it is related to the quality, knowledge and performance of our associates. Knowing we have the right people is very important and knowing our clients feel like they can trust and rely on us—that is huge.
“There are not too many things you can take with you everywhere you go in the world, but the one thing you can take is your name. Integrity is paramount.”
Matthews says he hopes that Elite Logistics will exist far into the future, maybe even with the involvement his two children. His 16-year-old daughter recently began incurring the costs of driving a car, and to help fund this, just signed on as Elite Logistics’ new janitor.
His son pines to be professional soccer player, but recently wrote a paper at school noting that, “I can always go work for my Dad at the family business,” Matthews relates with a laugh.
Matthews sees two essential areas to the logistics group’s future success: keeping stride with technology in the supply chain field, and Charlotte-area growth as a transportation hub.
“We are learning how to further enhance our relationships with our existing clients through the use of technology. With these enhancements, we are also able to attract the interest of a more diverse client base,” explains Matthews.
Technological upgrades in the industry include having greater scanning capabilities, relying more on more electronic data interchange (EDI) than data entry, and syncing with client computers for speed and fewer errors.
“Today, it is all about speed, accuracy and visibility, which is often achieved through technology,” says Matthews.
Matthews, like hundreds of other manufacturing, trucking and warehouse companies in the Charlotte metro area, is also looking to the new 200-acre Norfolk Southern intermodal yard at Charlotte-Douglas International Airport.
The rail yard, operational as of December 2013, has the capacity to move 200,000 cargo containers a year—projected to reach 600,000 in the future, and has parking capacity for nearly 1,400 trucks. That’s in comparison to 130,000 containers a year at the old facility just north of uptown Charlotte.
“This new intermodal facility is state-of-the-art, and in addition to being larger and close by, will offer even better customer service,” says Matthews. “It’s a real sales advantage for us. When our customers set up a facility nearby, a logistics hub will allow for access to rail, proximity to ports, and a good highway-interstate system. Our area will allow it all—at high quality and faster turn-around.”
Matthews is confident that the new facility, along with continued growth, will mean significant growth to his industry and for his company.
“New business parks are being developed in this area now, bringing more opportunities to our region as well, and this is exciting,” he continues. “Atlanta has long been seen as, and will probably continue to be, the ‘logistics hub of the Southeast,’ but with the new developments in the Charlotte region, we are certainly going to see Charlotte elevated on the list of potential locations for logistics operations.”
Still, Matthews is pinning his success to Elite Logistics’ long-time slogan, “The strongest link in the supply chain.”
“I tell my employees all the time, ‘All you need are four walls and a forklift, and boom, you’re a warehouse.’ We have to exceed every client’s and every competitor’s expectation,” says Matthews.
“Our true purpose is to be ‘The strongest link in the Supply Chain’ for our clients. This means going above and beyond, continuing to be the dedicated partner we promised to be. As a company, we never focus on ‘how big.’ We focus on getting better and finding new ways to grow, offering new and enhanced services to our existing clients first.”
Copper is the primary element embedded in electronic circuit boards. But when Vic Gondha looks at a board, he sees gold—as in a golden opportunity to build a business, create jobs, feed families and strengthen our domestic and local manufacturing base.
For over two decades, his company, American Circuits, Inc., a full-service electronics contract manufacturer, has been offering design, prototype and printed circuit board fabrication as well as assembly services. As a matter of fact, the minority-owned business is the only manufacturer in North Carolina producing bare boards from start to finish.
“Most companies don’t do both—printed circuit boards with turnkey assembly and bare boards. We are really unique in that aspect,” says Gondha, 66, president of the small business and a native of India.
“And we offer turnkey assembly for smaller quantities from 1 to 10,000 or we can do 50,000 up to 100,000. Offering specialized service is the key to our success at American Circuits.”
Used in even the simplest of electronics, a printed circuit board, or PCB as it’s commonly referred to, mechanically supports and electrically connects electronic components using conductive tracks, pads and other features etched from copper sheets laminated onto a non-conductive substrate, mainly fiberglass.
PCBs can be single-sided, double-sided or multi-layer. Conductors on different layers are connected with plated-through holes. Advanced PCBs may contain components—capacitors, resistors, or other miniature active devices—embedded in the substrate.
American Circuits makes and distributes circuit boards to approximately 400 customers domestically within a wide variety of industries from defense to health care with diverse applications from robotics to LED lighting.
“Customers include General Electric and KEYper Systems in Charlotte, which specializes in security and key control systems,” Gondha lists.
Gondha admits, “We really don’t do a lot of marketing or selling of ourselves—our name and our service really speak for us.”
Gondha is especially proud of his small company’s “Made in the USA” appeal. He grew up very poor in the village of Mervadar, located on a small peninsula in the central western portion of India. There, he learned the basics of running a business by helping out on peanut and cotton farms, and also learned to read and write English.
He hungered for education. After completing seventh grade, he headed to a boarding school 25 miles away for high school, paid for by a community organization. An undergraduate college degree in mechanical engineering followed. “I knew that getting a good education was getting ahead,” says Gondha.
After securing two student loans in India to study abroad, Gondha moved to the United States in 1970—alone, but at his parents’ urging to further his education. He arrived in Kansas and earned a master’s in industrial technology from Pittsburg State University.
In 1972, he began working in Missouri as a process engineer in machining. Then in 1975, he returned to Kansas to oversee the manufacture of circuit boards for King Radio, a manufacturer of general aviation avionics and aviation gauges and indicators.
By that time, Gondha had married his bride in India, become a U.S. citizen thanks to a sponsor employer, and added two children to the mix while in Kansas. Over the following decade, Gondha began a series of engineering and manufacturing jobs, crisscrossing the nation from New York to Texas to Alabama to Massachusetts.
During those years, Gondha sponsored four brothers, a sister and his parents for immigration to the United States. (All brothers currently live in Charlotte as U.S. citizens and all work at American Circuits.)
His entrepreneurial desire was ever-present, so he kept an eye out for opportunities. “I wanted to have my own business, to settle in and improve the lot of my family,” he says. “I wanted my family to have a better life; that was my ultimate goal.”
Making the Connection
In 1990, when he heard of a circuit board company going out of business in Melbourne, Fla., he quit his Massachusetts job and headed for warmer weather. Along with his four brothers as stakeholders, Gondha bought the equipment from the struggling company and began operations as Printed Circuit Technologies that same year.
“I started improving the company and its processes. In a few short years, we were making and distributing circuit boards to about 200 businesses throughout the U.S. and had grown to 22 employees. We were very successful,” he recounts proudly.
“But then a fire occurred and nearly everything was lost,” says Gondha of the 1994 fire that originated in a hydraulic press left running due to a faulty electrical controller. “We were under-insured by about 50 percent—we had grown substantially and added more equipment. It was a big loss to my whole family.”
Despite the fact that the business was ravaged by fire, Gondha made sure that every single customer’s shipping deadline was met. Rather than calling it a force majeur, which would certainly have been acceptable, Gondha felt that meeting customer expectations was paramount, even in the face of severe hardship.
But down was not out. That same year, Gondha, ever the entrepreneur, had learned of an older business with PCB manufacturing equipment for sale in Charlotte. He decided it was the right opportunity, and he and the extended family relocated all operations to the Queen City. He began operations as American Circuits, Inc. and set about slowly building a profitable business again.
“I purposefully chose to come to Charlotte,” says Gondha. “It seemed full of opportunities. You just don’t give up. You work hard and try to always improve the operations continually. It takes time to be financially viable, and that is what we have done to be successful.”
In 1997, the company invested $150,000 to open the 12,500-square-foot Latrobe Drive location to increase manufacturing with automated machines.
American Circuits has continued to pursue acquisitions as a growth strategy. In 2001, it purchased Charlotte-based Excel Electronics, but did not add any employees. That helped the company weather the recession at the time when revenues dropped 15 to 20 percent. As a result, no employees were laid off, but those who left were not replaced.
In 2005, American Circuits bought S.M. Circuits in Asheville as it was going out of business. That resulted in four new hires, and a great deal of more modern equipment.
Smart moves—and rather extraordinary intelligence—appear to run in the family. Gondha’s son, Ket, joined American Circuits in 2012. He comes from a background that couldn’t be more different: he’s a former financial analyst with Lehman Brothers and Standard & Poor’s.
Although born in Kansas and having moved quite a bit with the family, Ket, now 34, attended Sun Valley High School in Union County. There, he earned a Merit Scholarship to the University of North Carolina at Chapel Hill, and then an MBA and law degree from Columbia University in New York City, where he lived for 11 years.
Says Gondha, “I asked him if he would join American Circuits, and he thought long and hard about it, and decided it was for him. The long-term plan is that when I retire in a couple of years he will take over.”
Ket, now vice president, admits he has massive shoes to fill, but thinks his business experience will be key to maximizing the company’s continued success.
“The background I have helps. It will be a challenge having worked for Fortune 500 companies globally since this is a small business with primarily domestic customers,” says Ket. “But I feel more critical to the business and have a greater impact here than in previous employment.”
From Offshoring to Reshoring
Companies that buy circuit boards usually buy them in bulk: hundreds of thousands. And they usually buy them overseas. But selected industries are now looking for circuit board manufacturers that are more localized or can build prototypes or smaller quantities, says Gondha.
In the 2000s, U.S. multinational corporations that employ a fifth of all American workers cut their domestic work forces by 2.9 million, while increasing employment overseas by 2.4 million.
Circumstances of these countries have changed dramatically in recent years resulting in an economic turnabout. Labor costs in China have risen to record highs. Issues with quality control and the inability to quickly implement product design changes are problematic. Last year, a survey by the Boston Consulting Group indicated that 37 percent of large American employers were contemplating transfer of manufacturing from China to the U.S.
“We have faced a lot of headwinds in outsourcing in this industry,” comments Ket. “A lot of business in recent years has gone to China. Globalization and low-cost manufacturing have hurt circuit board manufacturers, but we are now seeing some reshoring—and that’s been very good.”
Gondha attributes American Circuits’ viability in the wake of the outsourcing trend to the company’s ability to make highly specialized PCBs, combined with close attention to quality control. He says that many regional and national companies turn to the boutique firm when they need small-to-medium amounts of PCBs with specialized customer service.
“Companies have started to realize that the savings from outsourcing are not all they’re cracked up to be,” Gondha says. “And if they want changes to or have problems with circuit boards—or any manufacturing—it often takes a long time to correct the problem.”
Ket also attributes the company’s sustainability to short lead times, ease of freight, local and regional customer service, reduced costs, low customer returns and attentiveness to high quality. “People do business with us because we are local and regional, and we have an excellent engineering team,” he affirms.
Smart (and Safe) Manufacturing
American Circuits’ highly personalized orders often move between their two manufacturing locations. The company operates out of two buildings totaling 27,000 square feet. Their primary building on West 24th Street is home to bare board and thru-hole board assembly as well at the company’s engineering department and corporate offices.
The other building on Latrobe Drive is dedicated to surface mount board assembly and has a faster, more automated line for PCBs. The surface mount equipment is also more accurate and able to surmount greater technological hurdles.
Both locations incorporate their customized service—from design to shipping. At the uptown location, employees are engaged in various production processes. One dips sheets of PCBs in tin or copper baths, followed by a specialized cleaning solution. Another sits before a microscopic lens, tediously soldering parts on boards—board by board. Another meticulously adds U-shaped pins to pre-drilled holes in a long line of green fiberglass circuit boards.
The PCB manufacturing process involves a number of special chemicals and materials, and these chemicals are cleaned from the wastewater and spent solution to form clean water and solid waste that is recycled. Because of this, the uptown location focuses heavily on being environmentally friendly. Water purification and clean compressed air systems share space with an intricate vacuum structure.
For 11 years in a row now, the company has been awarded the Charlotte-Mecklenburg Environmental Excellence Award for keeping pollution out of the local water systems. Gondha and Ket are especially proud of that valuable accomplishment.
At American Circuits’ Latrobe site, visitors are greeted by large machines in a large white room that “screen-print” a thin film of solder paste at the start of the assembly line with even larger machines automatically attaching additional components in harmony. The boards are later reflowed in a large, slow oven.
Travis George, an American Circuits engineer, describes it as “a big pizza oven to melt all the solder and components in place. We can process 6,000 or 7,000 components per hour. Then we send the boards back over to the other location for quality control and shipping.”
Quality is what is stressed at American Circuits every step of the way, says Gondha. Despite the manufacturing increases of automated machines, Gondha says that no matter how tedious assembly-by-hand may seem, he believes it’s been the road to American Circuits’ success and will continue so.
Gondha likes creating his specialty boards with care, proudly overseeing excellence in the manufacturing process. He has even been known to travel to a customer’s plant to pick up PCB samples.
Ket assures that in the future they will continue to be focused on the process-driven approach: “It’s important to make sure the quality is there—what we really want is a consistent and careful process throughout manufacturing. That really ensures quality for us every step of the way.
“Circuit boards will only become more pervasive as technology continues to progress. It is a highly competitive business,” acknowledges Ket.
“Our competitors could go anywhere domestically. But they don’t. They come to us, and there is a big reason for that. We don’t want to stray too far from our roots.”
Even if you haven’t heard of Burke Communications, Inc., chances are you’ve seen their work. It’s in ads in magazines, in commercials on TV and radio, in websites visited by thousands, in brochures handed out at trade shows, in videos shown in company meetings, in annual reports mailed to shareholders, on billboards dotting the interstate, and even on trucks that drive those interstates.
With a “client-centric” philosophy and a full suite of services, Burke Communications is one of Charlotte’s leading marketing and design agencies providing innovative solutions in branding, web design, interactive and video production. It’s all about the creative process according to Burke Communications’ founder and the force behind the company’s evolution, CEO and President Jack Burke.
Much has changed in the 23 years since Burke started the company known first as Burke Computer Designs, but creativity has been a constant theme in the company, in Burke’s life, and as the spark that started and sustains the company.
Originally from New England, Burke was recruited out of high school to play varsity tennis at UNC Charlotte. His plan was to study architecture but a conflict between studio time for the school of architecture and the tennis team’s practice sessions forced Burke to change course.
“Tennis was paying for a portion of my education,” says Burke, “so I had to make that a priority. I continued some architecture classes but I ended up pursuing a Bachelor of Creative Arts degree in visual communications and design.
“My mother is very creative and my father is an interior designer who designs furniture and accessories so I knew I was going to do something creative but I didn’t want to be the proverbial ‘starving artist.’ The question was how to make a viable career being creative?
“UNC Charlotte had just started their computer graphics so I was in the very first class. I knew the computer could bridge the gap between being an artist and making a living. I could make a career in video production or at an advertising agency doing computer graphics and animation.”
Burke first attempted to bridge the gap with his senior year assignment to create an art show. “Instead of a traditional art show, I made a video about my life at school. I presented all my artwork on the TV screen. I wrote it, used fraternity friends as actors, shot it, edited and put it on VHS. I even sold tickets and presented it at McKnight Hall on campus.”
The video Burke titled Videmations became a tool in his job search. “I sent out about 40 VHS tapes of the video to ad companies and animation companies that were looking for designers,” he says.
An Entrepreneurial Start
An offer came in while he was still in school and after graduation Burke started with an Atlanta company called Imagic where he learned how to make graphics for companies like Oldsmobile using a quarter of a million dollar software system.
Burke followed Imagic from Atlanta back to Charlotte but when Imagic closed its doors four months later, Burke set his sights on another Charlotte video production company, Southland Video Productions; but Southland’s president, Joe Morgan needed some convincing.
“Joe’s now a close friends and a mentor of mine,” says Burke, “but when I first met him I told him I needed a job or I was going back to Boston to be a teaching tennis pro. I ended up sitting in his office for a week before he finally said yes.
“At that time graphics were done on very expensive systems but I told Joe I would prove to him that I could do it on a PC so Joe bought a few PCs, paid me a $15,000 salary and I started the video and graphics for Southland and even designed a new company logo.”
Burke worked 100 hour weeks, reading books and teaching himself computer animation, eventually submitting work to major publications and ending up providing the front covers for Auto Age, AV Video and Post, among others.
“I became known in the business as the computer illustration guy,” explains Burke, “and I was only 23.”
But when Southland ran into financial difficulties, Morgan urged Burke to go out on his own, even helping Burke write up a business plan. “I took all my magazine covers to the banks looking for a $35,000 loan,” Burke explains, “but they all said no, so I used my Sears credit card to get a cell phone and I rented a space on Eighth Street. I had a typewriter, a fax machine, a computer, a TV and an address.
“I had just opened my doors when I got an offer from IBM in Atlanta for a six month contract making $50,000. It was really hard to turn the offer down but I had so much energy focused in starting the company that I said no.
“That first year I made about $19,000. I lived off a lot of pizza but I learned how to sell and I made some good relationships with a lot of the ad agencies around town. I was able to work with John Deere. I created opening graphics for TNN (The Nashville Network), On Pit Road, Homelite, and Raycom. Additional animations included Sports South, IBM, Canteen Corporation and the station packages for FOX 57 and WSOC Channel 9.
“I even did the opening for the Panthers in coordination with WSOC. I was the first one to get the logo from the NFL, so I animated it and had the Panther jump out of the city for the big opening.”
By 1992, Burke Design Group (as it was named at the time) was growing in capabilities and staff. Then came of the biggest transitions for the company in 1995, when they picked up another client—not another company this time, but a country.
Burke Design Group became the sub agency for ICEP Portugal in their work promoting investment, trade and tourism. “We made a lot of videos about Portuguese products: shoes, wine, molds, stone and tile,” Burke explains.
“We did brochures for trade shows and ads for Wine Spectator magazine. I traveled to Portugal to shoot about 14 times. They gave me a lot of creative freedom. I was 25 or 26 and I had no idea what a big opportunity it was. The first website we ever did was Portugal.org. I had to hire a person to do it but when they said they needed it, I told them that we would make it happen.”
Jack of All Trades
Through that experience, Burke learned about a diverse group of industries and it influenced his company philosophy. “I realized I never wanted to be pigeon-holed into doing one sector,” Burke explains. “I did some NASCAR but I stopped after awhile because I didn’t want to get branded as only working in NASCAR or in the automotive industry.
“I’ve made it a point to never have too much in any one sector. That got us through the economic downturn. The downturn even spurred us to diversify more.”
Today Burke Communications represents some 70 clients in industries as far ranging as banking, software, health care, industrial, tourism, homebuilding, automotive, food service, retail, education and nonprofit.
Many clients, like The Corner Pub, Friendship Missionary Baptist Church and CMC Rx Pharmacy, are well known in the local area. But some clients, like Ingersoll Rand, SSI Schaeffer and Doosan, have a national or even international presence.
And many client relationships are enduring, several going back even to the company’s founding. “I’ve done the marketing and branding for UNC Charlotte’s athletic foundation business since the day I graduated,” says Burke. “We’re in the 10th year of doing their annual report and we did the 3D virtual reality video for what became UNC Charlotte’s James H. Barnhardt Student Activity Center.”
And while Burke can handle a project as small as designing a logo, some clients—like Anthony & Sylvan Pools—take advantage of Burke’s depth of services.
“This is our third year working with Anthony & Sylvan Pools,” says Burke. “We’re handling their media, their new marketing message, their events and their VIP Referral program. We worked with them to develop a creative brief that ensures that their message is clear, consistent and on target. We like to see ourselves as connectors; we help them build relationships with their customers.”
“We’re a national company,” explains Anthony & Sylvan Pools Vice President and CFO Martin Iles, “and historically we’ve had our advertising and promotional activities run on a centralized basis. Our big push was to get more local with our advertising activity and we felt that an agency like Burke would be well equipped to help us with that.
“In the past when we needed to run an ad, we would run one but it was different from the last one. Burke Communications makes sure our ads are consistent.
“Marketing is a building exercise. You’ve got to keep building on what you put in place. Burke Communications has worked hard to get us away from a haphazard approach to advertising. The consistent message they’ve provided for us has been very effective.”
“Burke Communications’ services are added based on client needs,” explains Burke. “For example, we set up websites and can improve a client’s SEO (search engine optimization). We can also help a client start their social media. Usually we’ll set it up and get it going and then coach someone internally to manage it but if that doesn’t work, we’ll step in and do it. Right now, we’re managing the social media for eight of our clients.”
The growing spectrum of services led to the company’s last rebranding to Burke Communications in 2007. “We’re doing so much more now,” explains Burke. “I’ve brought on art directors and video editors and a marketing director. We’re a full creative agency group. We still do our own in-house video editing. We might be the only agency left in town that still has that capability in-house.”
Vice President, Director of Account Services Amy Dusseault, with the company for five years, oversees and manages the agency’s accounts. “We’ve really started to come out creatively in the past couple of years,” she says. “We’ve received some industry recognition with the ADDYs, Marcoms and Tellys we’ve won recently.”
ADDY awards celebrate excellence in advertising and are awarded annually in a competition sponsored by the American Advertising Federation. In 2012 and 2013 Burke Communications won three Charlotte ADDYs: one for its web design for The Corner Pub, another for its work on Doosan’s Infracore Portable Power Video and a third for the company’s print advertising for the Carolinas Poison Center.
The Carolinas Poison Control ad campaign “Sharing Pills Can Kill” is indicative of Burke Communications’ community involvement and holds a special personal significance for Burke. “My son was 14 when we worked on it and I was shocked to learn that the misuse of prescription drugs is a growing cause of death among kids his age. It was a personal message that felt true to my heart,” he says.
Burke Communications has also been recognized with the prestigious American Graphic Design Award in website design for their Domtar Cougar Paper Community website. And in 2012 The Charlotte Business Journal ranked Burke Communications in its top five web design firms in the Charlotte area.
Community involvement is a big theme for Burke Communications. In 2007, Burke established a 501(c)(3) nonprofit called a Big Heart Foundation which supports children’s causes in the region. The foundation’s logo was drawn by Burke’s daughter, now age nine, and to date the foundation has raised more than $130,000 for the local Toys for Tots program through its annual golf tournament and other efforts.
As far as the future of the company, Burke predicts further evolution into a creative boutique agency. “I’m trying to refocus, develop our new company vision and maximize our internal creative talents led by my art director of 10 years, Mariana Rojas. We want to do more specialty advertising, branding and messaging with measurable results. We like going on a journey with our clients. We want to tell a client’s story with a unique twist.
“The way we differentiate ourselves is our expertise, our talented employees and our technology—but mostly it’s our imagination and creativity as a team,” Burke explains. “All I ever wanted was the ability to be creative and do my artwork. That’s why I started the agency.”
The Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH, the German Society for International Cooperation or GIZ, is an impressive name for an impressive German non-profit organization operating in many fields across the globe and employing tens of thousands worldwide.
GIZ primarily works with national governments, state agencies, and the private sector to bring customized solutions to bridge skills gaps while supporting larger goals relating to international cooperation for sustainable development and educational work. Its headquarters are located in Bonn and Eschborn, Germany.
Charlotte is GIZ’s first foray into the United States. Considering the fact that there are hundreds of German-based companies located in the Charlotte region, it made sense for GIZ to open a U.S. office in the Queen City.
In June of last year they co-located at the offices of Charlotte Works, the workforce development board for Charlotte and Mecklenburg County. This arrangement allows for a collegial environment and networking potential.
Although there is a high tech renaissance in advanced manufacturing and high technology currently underway in the Charlotte region, the most common problem experienced by these companies is a shrinking skilled workforce.
“German companies tell us the biggest challenge is workforce skills between high school and the university,” says Minister Peter Fischer of the German Embassy.
“The more complex jobs are, the more complex it gets to create tailor-made education,” avers GIZ Director Oliver Auge.
A recent study by the Boston Consulting Group shows Charlotte as one of five of the nation’s 50 largest manufacturing centers with a significant or severe “mid-skills training gap.”
GIZ helps to tailor the needs of companies to provide vocational training at community colleges and other training institutions throughout the Charlotte Region. Their German Model offers dual-track training through work experience and education.
Global Workforce Development Success
GIZ may be new to Charlotte, but the company brings a wealth of knowledge and decades of international experience in technical and vocational education and training (TVET) to the city.
Although technically established in Germany in 2011, it is the amalgamation of the long-standing expertise of the Deutscher Entwicklungsdienst (DED) gGmbH (German Development Service), the Deutsche Gesellschaft für Technische Zusammenarbeit (GTZ) GmbH (German technical cooperation) and InWEnt—Capacity Building International.
Peter Wunsch (pronounced “Vunsch”) serves as senior business developer for the Charlotte operation. Wunsch, 46, a German native, graduated from college in 1989, and obtained an MBA in 1993. He has worked in various posts with GIZ predecessors for most of the last 10 years in Germany, Eastern Europe, Laos, Georgia, Russia, Ukraine and Serbia.
“Our primary mission is to reinforce local and regional efforts to close the mid-skills training gap by leveraging our many years of global workforce development experience,” states Wunsch, who is joined in the Charlotte office by Heike Hoess, TVET and Labor Market Specialist. The new U.S. branch office will initially focus on the Carolinas.
GIZ is a non-profit enterprise which is wholly owned by the Federal Republic of Germany (FRG). “GIZ is organized as a private sector company but is established for the not-for-profit purpose of supporting FRG’s goals related to international cooperation for sustainable development and international education work,” explains Wunsch.
Active in more than 130 countries, GIZ employs approximately 18,000 staff members worldwide helping to train more than 140,000 students. Staff is assigned to organized topics, or sectors, which include water management, agriculture, government, post-conflict, health and energy.
“Private sector development is a big topic,” emphasizes Wunsch. “We work on both sides of the same coin. We support private sector business but also support vocational education to prepare the people as career employees.”
There are currently 150 training and education projects underway in more than 60 countries. 800 experts are engaged in these projects which total to an impressive overall contract value of $700 million USD.
GIZ touts a stellar success rate. In 2012, 80 percent of people trained in projects that were managed by GIZ, and that did tracking of students, found a job. Still, Wunsch insists that the company is not here simply to transplant German strategies into an American paradigm.
“When we come on board, it’s not about replicating our system someplace else,” he explains. “We’ve tried this in past years and it doesn’t work. Every country, even state, has to develop its own solution.
“To have a successful and efficient method of vocational training that meets the needs of the private sector, there must be developed public/private partnerships. Neither sector can do it on its own. This is the challenge for every country.”
According to Wunsch, “Private sector companies are in desperate need of a qualified workforce, especially small and medium-sized companies which don’t have the capacity to work directly with community colleges and are not ready to design and operate their own, in-house training programs. A conduit is needed to bring sectors together to make training accessible and customized to fit the specific requirements of the company involved.
“Someone must teach the teachers,” Wunsch continues. “It’s really not that easy to teach somebody what to do, and therefore so-called ‘Train the Trainer’ programs are vital to success. You need well-trained trainers and instructors in both schools and companies, and we believe that GIZ US can make a significant contribution in this field here in the U.S.”
Wunsch says there is also need for a kind of core structure—regulations, possible legislation regarding standards and quality control that bring aspects of universality to a field.
Says Wunsch, “Particularly in the U.S., workers tend to be very mobile. Accordingly, a person trained and certified as a welder by a community college in the Charlotte region should expect to have his or her qualifications recognized and respected when applying for a similar job in Ohio; and the employer, in turn, should be able to rely on these qualifications and experience in making a confident hiring decision.”
“We’re not here to compete with existing workforce development efforts,” says Wunsch. “There are so many well-qualified agencies and community colleges that are important players, especially in North Carolina which is excelling in vocational training. What is often missing is a link between these dots. That’s where GIZ can have a role. We want to create new, and strengthen existing, links.”
Vocational Education and Training
Part of GIZ’s goal is to change the traditional and historical negative perception of advanced manufacturing being simply dirty, grunt work. For example, there is energy giant Siemens.
“Siemens is so clean and quiet you can eat from the floor there, that’s great! So many young people don’t have an idea about that,” says Wunsch.
Modern vocational education and training focuses on advanced manufacturing. One necessary goal is to change common perception of what the manufacturing environment is like. Conventional wisdom still considers manufacturing to be dirty, greasy work carried out in dark and dank places; a far cry from the reality of gleaming, laboratory-like facilities equipped with the latest in industrial and computer technology.
“Plus, we’re no longer teaching people how to push a button 10,000 times. Rather, workers in manufacturing can be part of the production process and enjoy high-tech careers,” says Wunsch.
“For a lot of people, vocational education is not the first choice,” says Wunsch. “Many prefer their children to enter university or a high-end school but it’s the same in all of the countries—not everyone is ready to become a chief executive officer or film star or lawyer. Some are better suited to working with their hands; some with their brains. Our training programs resolve to combine the two.” In fact, GIZ training programs are often constructed with vocational, pedagogic and language aspects.
Charlotte’s robust training infrastructure and strong advanced manufacturing sector were important factors in the company’s decision to locate here. GIZ also plans to intensify its engagement in the German Embassy’s Skills Initiative, an ongoing, nationwide push by the Embassy to bring American and German businesses and training providers together to focus on closing the middle-skills gap and thereby providing the trained workers needed by these companies to grow and expand.
Coincidence also played a part. Through a serendipitous meeting in Washington, D.C., GIZ representatives became acquainted with Michael Almond, former partner with Charlotte-based Parker Poe and recognized leader in economic development. Almond led the firm’s international practice before serving as president and CEO of the Charlotte Regional Partnership from 1999-2005.
In 2005, Almond was awarded the Knight’s Cross of the Order of Merit of the Federal Republic of Germany (FRG) for outstanding commitment in fostering relations between the United States and the FRG. Almond’s consultation was more than helpful in bringing GIZ to Charlotte.
In the years since 2011, the FRG has issued a mandate to GIZ to step up its work and engagement with industrialized countries such as those in the European Union, Asia and the United States. Acting on this mandate, GIZ began look into promising opportunities for expanding its activities in the U.S.
Wunsch describes that it soon became evident that the most pressing need was in the field of workforce development and training, and that Charlotte had become the “gold standard” in the U.S. for adaptation and integration of German-style training models and best practices. Further evaluation and strategizing led to the opening of the first ever U.S. GIZ branch office in Charlotte with a focus on workforce development.
“Working in Charlotte and the Carolinas is our entry point,” says Wunsch. “We know there is demand in other parts of the U.S. We already have workforce development contacts in other states.”
GIZ’s objectives are to foster strong partnerships between educators, employers, and workforce development partners and to promote employment in advanced manufacturing as a lifelong sustainable career path. Its services encompass all phases of workforce development by increasing enrollment, aligning skills training with private sector and labor market demand and supporting students in the transition to employment.
Utilizing the unique German dual-track training system, GIZ facilitates opportunities for students to learn both in school and in the workplace, allowing them to gain substantial relevant work experience. By providing training opportunities with an emphasis on employer-identified competencies, GIZ ensures that students are well qualified to meet the needs of the regional labor market. The development of internships and apprenticeships gives students on-the-job training.
The majority of GIZ clients are non-industrialized countries which have agreements with the FRG. It is often necessary to train the instructors before training the students. In some cases, schools are established so that trained instructors will have a place to work.
Another source for clients is multinational corporations and huge organizations such as the European Union, the World Bank or other international players. Foundations make up a third category of clients. Many private sector clients pursue social responsibility strategies and sustainable ways to produce their products.
Work with most countries is carried out through bilateral agreements between the country’s government and the FRG but, essentially, the FRG is furthering the goals of the individual government. “They tell us what they need; what to do,” says Wunsch. “Here, we have to determine what kind of product or program we can offer to benefit each client.
Part of doing so requires understanding the culture. “When we go into countries such as Kazakhstan, Georgia or Saudi Arabia, we know there are major differences in the culture and codes of communication. With the United States, because we have so much in common, it’s harder to discern the differences and the cultural nuances. I’m still trying to understand it and I learn everyday,” says Wunsch.
For now, GIZ plans to keep its focus in the U.S. on workforce development. “We’re new on the market,” says Wunsch. “We want to be more established and ready to get involved with other goals but I can imagine exploring other sectors as well.” In particular, Wunsch cites energy as a likely sector in the Charlotte region.
“Charlotte is now our home in America,” says Wunsch. “We believe that we can leverage our platform in Charlotte to make a substantial contribution to regional workforce development and training efforts that will, in turn, further support economic development, growth, and employment in the region.
“This ‘proof of concept’ project model here in Charlotte will then enable us to expand our footprint and outreach to other issues of importance to German-American relations in the future. We will therefore continue to expand our networks and contacts here in the Charlotte region, where we have been welcomed with open arms, and we look forward to working in and with the community here.”
The Norfolk Southern Railway is one of 11 Class I railroads in the United States. With headquarters in Norfolk, Virginia, the company operates over 20,000 route miles in 22 states and the District of Columbia and is a major transporter of coal, automotive and industrial products.
Norfolk Southern serves every major container port in the eastern United States and provides efficient connections to other rail carriers, operating the most extensive intermodal network in the East. As part of the Norfolk Southern Crescent Corridor expansion program running between Louisiana and New Jersey, the terminal at Charlotte-Douglas International Airport has become one the company’s newest major intermodal facilities.
The current Norfolk Southern system was formed in 1982, essentially a combination of the Southern Railway in 1990 and Norfolk & Western Railway in 1997. In 1999, the system grew substantially with the acquisition of over half of Conrail.
Norfolk Southern’s predecessor railroads date to the early 19th century. The three main branches of the current corporate family tree were systems for many years themselves: Norfolk & Western, formed in 1881; Southern Railway System, formed in 1894; and Conrail, formed in 1976 from the Penn Central Railroad (1968–1976). Penn Central itself was created by merging three venerable rivals—the Pennsylvania Railroad (PRR, 1846), the New York Central Railroad (NYC, 1831), and the New York, New Haven & Hartford Railroad (NYNH&H, 1872)—as well as some smaller competitors.
Norfolk Southern’s Strategic Planning
There is no doubt that America is facing a transportation infrastructure crisis; roads and bridges cannot handle all the traffic forecasted. The U.S. Department of Transportation predicts that demand for freight transportation will increase by 92 percent by 2035.
One solution is to shift some of this freight from the roads to the rails. Shipping by rail is a safe, clean, fuel-efficient, green alternative to building new highways. One train can transport the same amount of freight as nearly 300 trucks. And railroads are three or more times more fuel efficient than trucks—on average moving a ton of freight 436 miles per gallon of fuel.
In 2007, Norfolk Southern launched a major strategic initiative in that regard—a $2.5 billion railroad expansion and infrastructure improvement program spanning 2,500 miles of track across 11 states to create a high-speed intermodal freight route between the Southeast and Northeast that is competitive with all-highway freight transportation.
Called the Crescent Corridor, it is one of the single biggest additions of new freight capacity in America since the creation of the Interstate Highway System. Norfolk Southern is straightening curves, adding nearly 400 miles of new passing track and double track, improving signal systems, and expanding terminal capacity in 11 markets.
The continued growth of intermodal has caused Norfolk Southern to look to increase capacity in key markets. The company now operates a total of 52 intermodal facilities throughout their 22-state operating area in the eastern United States. While the Charlotte terminal is their newest, they have also recently opened new or expanded facilities in Birmingham, Ala., Memphis, Tenn., and Greencastle, Pa.
When the Crescent Corridor initiative is fully implemented, Norfolk Southern expects that 1.3 million truckloads of freight will be absorbed from the highways to the rails annually, saving 169 million gallons of fuel per year, reducing carbon emissions by 1.9 million tons, and generating a projected 73,000 jobs by 2030—47,000 of those being created by 2020. The Corridor started handling traffic in 2012, and, according to Norfolk Southern, with shared investment, could reach full capacity by 2021.
The Crescent Corridor is expected to bring substantial safety, environmental and economic benefits to North Carolina, including the creation or retention of 7,060 green jobs by 2030.
According to Norfolk Southern, each year, the Crescent Corridor will help divert more than 392,000 long-haul trucks from North Carolina’s highways, especially along Interstates 77 and 85. Annually, this should conserve 6.2 million gallons of fuel and reduce CO2 emissions into the atmosphere by 69,000 tons.
At the same time, it is expected to save $21 million in congestion-related costs and $5.3 million from reduced accidents and fatalities and eliminate $4.2 million in annual highway maintenance costs.
The Crescent Corridor will strengthen North Carolina’s transportation network with improved rail connections and faster transit times for goods moving in and out of the state and provide shippers and receivers with a new high-speed intermodal freight option that could reduce annual logistics costs by as much as $81 million.
Company officials point out that development of a new intermodal facility at the Charlotte Douglas International Airport has created employment opportunities and will increase the economic competitiveness of the state.
Charlotte’s Strategic Planning
This past December, over 15 years of planning finally came to fruition when Norfolk Southern opened its new regional intermodal facility at Charlotte-Douglas International Airport. The 200-acre facility replaces an outdated 40-acre site located between North Davidson and North Brevard streets near uptown Charlotte.
The term “intermodal” refers to the movement of freight via one or more modes of conveyance. In this case, it refers to 20, 40, 45, or 53-foot containers that can travel by ship, train or truck. The Norfolk Southern intermodal facility transfers these shipping containers between trains and trucks, while also providing easy access to southeastern U.S. ports and the air cargo facilities at Charlotte-Douglas.
Because the new Charlotte intermodal hub links rail, truck, air, and major eastern seaports, Charlotte-area leaders hope it will become a catalyst for economic development as manufacturers and distributors realize the benefits of locating close to a facility that allows freight to move efficiently to multiple modes of transportation.
Interestingly, Charlotte leaders envisioned an intermodal center at the airport as far back as 1997, when it was put forth as a part of the airport’s Strategic Development Plan. Consultant Michael Gallis worked with airport and city officials to develop a unique way for Charlotte to differentiate itself and compete with other major freight hubs.
“We realized that the way to out-compete these other cities was to develop a new kind of freight hub—one where all the different transportation modes would be located at a single center,” explains Gallis. “That concept gave rise to the idea of building a rail yard at the airport between the runways.”
As it so happened, intermodal traffic on the Norfolk Southern system was growing at a rapid pace, and they had outgrown their facility near uptown. The old intermodal facility had become landlocked due to residential development, and parking space for containers was limited. Remote satellite parking areas were being employed to supplement the main facility, but that had a negative impact on the efficiency of the transfer operations.
An airport location offered Norfolk Southern more than just growth space and the obvious access to the air cargo facilities. Area streets and nearby Interstate 485 provided easy access to Interstates 77 and 85, and the Norfolk Southern main line ran just north of the airport, minimizing the amount of new track that would have to be laid to get trains to an airport-located facility.
Then a few years ago, when the airport needed 10 million cubic yards of dirt to build a third parallel north-south runway, the cheapest most environmentally friendly place to get that dirt was right next to that runway. So after that dirt was moved, they were left with a big, flat graded area that was at the same elevation as the Norfolk Southern main line. It all fit together perfectly, and Norfolk Southern began construction in 2012.
The tracks now extend for over a mile along the airfield between the two western-most north-south runways. The intermodal transfer facility itself is located on the south side and is 40 feet underneath two taxiway bridges that connect the rest of the airport with the far western runway.
The intermodal facility has an initial capacity of 200,000 lifts per year, transferring containers between trucks and trains. Ultimately, it is designed to handle 600,000 containers, equal to the two largest U.S. centers in Dallas-Fort Worth and Chicago. There is also room to expand the parking area to add a finished automobile parking area, so that if Charlotte were to become a destination for the automobile business, they will have the footprint to add that on the same piece of property.
The total cost of the new facility was $92 million, paid for by Norfolk Southern with $15.7 million of federal assistance. The city and state funded other improvements, including $9.7 million for public road infrastructure. The new roads included relocation of West Boulevard to provide the road connection to the facility as well as a new interchange at West Boulevard and Interstate 485.
The new facility opened in December last year, and after a short phase-in period, all train service ended in uptown Charlotte and moved to the airport. The City of Charlotte has an option to purchase part of the vacated land at the uptown location, and Norfolk Southern retains the option to use part of the site for other types of freight operations.
Intermodal Growth Strategy
The new Charlotte intermodal facility is just one part of what has become the fastest growing business line within Norfolk Southern. Intermodal traffic now makes up almost half of the total volume of shipments at Norfolk Southern, and by contributing 20 percent of annual revenue, intermodal is now about the same size as the company’s legacy coal transportation business. Norfolk Southern’s remaining revenue is split between finished automobiles, steel, agricultural products, chemicals, and forest products.
Much of the growth in intermodal shipping has come from domestic shippers as big companies that need to move goods have been converting more and more of their business from moving over the highway by truck to intermodal. Five years ago, international and domestic traffic each represented about 50 percent of the total intermodal activity, but today, between 60 to 70 percent of the traffic is domestic.
“The Great Recession disproportionately impacted international,” explains Jeffrey S. Heller, vice president intermodal and automotive marketing for Norfolk Southern. “But the domestic business continued to grow despite the economy because most freight in the United States moves by truck. Companies were converting to intermodal at a very rapid pace during that period; so as a result, the domestic business took over as the leader in terms of share in our network.
“One reason intermodal is growing so rapidly is the amount of congestion we have today on our interstate highways. By shifting freight traffic from roads to rails, traffic congestion is reduced, less fuel is used, and fewer emissions are put into our atmosphere. One train with two locomotives can take almost 300 trucks off the highway, and railroads are three or more times more fuel efficient than trucks.”
The growing shortage of licensed long-haul truck drivers is also helping to boost intermodal growth. According to the American Trucking Association, there are about 25,000 unfilled truck driver jobs nationwide as younger workers are being drawn to careers that don’t involve so much time away from home.
“If you are a big mover of freight, you don’t want to have all of your eggs in one basket and have to rely wholly on moving with motor carriers,” says Heller. “Companies are trying to hedge a little bit because of driver shortages and capacity issues, and also as good corporate citizens, they are contributing to less congestion, less emissions, and less use of fuel. Plus, intermodal generally costs less than shipping by truck.”
By providing rail access to major ports, the Norfolk Southern intermodal facility will also connect Charlotte to the world, allowing the facility to serve as an “inland port.” Inbound cargo is transferred directly from a ship to rail cars for transport to an inland port location away from the more congested seaport. Freight arriving in ports like Charleston or Savannah can thus easily travel by rail to Charlotte for transfer to other trains or to trucks to reach their final destination.
“We really have three ports that serve Charlotte directly—Los Angeles/Long Beach, Savannah, and Charleston,” says Norfolk Southern’s Heller. “The fastest route from Asia to Charlotte still happens to be through the ports in Southern California, and then by rail into Charlotte. That’s the premium route. But with the Panama Canal’s expansion coming, we are going to see more and bigger ships coming to the east coast and freight moving directly to Charlotte from those east coast ports.”
Heller says the reason a shipper would want to come direct to an east coast port despite the west coast’s speed advantage is mainly cost-related. To the extent containers are kept onboard for more of the distance traveled, shippers don’t have to pay for inland transportation 3,000 miles or so across the country.
“By rail from Los Angeles to Charlotte we can run it in about 5 days,” Heller explains. “But it takes an extra week for a ship to get through the Panama Canal to Charleston or Savannah. Then you still have another day or two for offloading and transportation up to Charlotte. So it’s really a tradeoff of time versus cost.”
The Inland Port
Increasingly, inbound cargo is transferred directly from an ocean vessel to railcars and then transported to an inland location, away from the more congested port itself, for further processing and distribution. These inland locations, or intermodal centers, serve as “inland ports,” with some handling as much cargo volumes as their coastal counterparts. Charlotte is already on the relatively short list of current areas widely recognized as full-fledged inland ports.
Though the inland port concept is not new, these locations are becoming increasingly critical to the global supply chain, affecting logistics decisions ranging from shipping routes to warehouse locations.
Gallis describes the strategy in developing the airport: “We began to realize that freight centers attracted enormous amounts of business,” Gallis says. “With the way the world was going with e-commerce, companies were looking for efficiencies. The world trade lanes were shifting and we wanted them to come through Charlotte.
“If the world recognized Charlotte as a freight center, then businesses connected with the movement of goods would all be attracted to the airport area.
“We had a great opportunity to do something that other metropolitan areas could not—to build a connection point for rail, for trucking and for air at a single location.”
He points out that the intermodal center also makes Charlotte attractive to the international supply chain.
Heller agrees that while a lot of freight moves between ships, trains, and trucks, there is not a lot of interaction between rail and air. Air cargo tends to be made up of items that need to move very quickly, reducing the consolidation of freight between the two modes. He says the intermodal location at the airport was thus driven more by land availability, proximity to the main line and major roads, plus the ability to create synergy that goes beyond freight transfer.
“A company is not going to air freight parts for an automotive plant from Frankfurt to Charlotte only to put it on a train and have it take another day or two to get somewhere else,” explains Heller. “We don’t feed off each other, but we do cohabitate well with the airport because no one is going to complain about our lights and noise at an airport. Proximity to highway access is also important to both airports and intermodal facilities.”
Even though there is little direct freight transfer between rail and air, having multiple transportation modes concentrated at one location creates a global-trade hub that can move goods a multitude of ways. The hope is the rail yard will attract truck terminals that can serve both the rail yard and the airport, and because all three modes will be located at the same place, transfer times will be reduced, as will the cost.
This global-trade hub will offer the opportunity to elevate Charlotte’s status internationally, making the city more attractive to companies as a distribution or manufacturing location. By providing close, convenient access to all three modes of transport, which, in turn, link the region to ocean ports and the rest of the world, Charlotte has the potential to truly become a global city.
“We’re confident that more and more business will continue to move by intermodal—both domestically and internationally,” concludes Heller.
“We also believe that when a company looks at where they want to locate a new warehouse or a manufacturing facility, on their checklist of things they look for will be transportation infrastructure.
“We think our new Charlotte intermodal facility will rank high on their list.”
The IRS released final regulations dealing with when taxpayers are required to capitalize and when they can deduct expenses for acquiring, maintaining, repairing and replacing tangible property. All businesses that own fixed assets will be affected in some manner and are required to comply with these new regulations as of January 1, 2014.
There are four basic areas which are impacted by the new regulations: (1) materials and supplies; (2) repairs and maintenance; (3) amounts paid for the acquisition or production of tangible property; and (4) amounts paid for the improvement of tangible property.
Materials and Supplies
Materials and supplies are those tangible items used or consumed in the taxpayer’s business operations and are typically expensed when they are consumed. These can include: (1) components acquired to maintain, repair, or improve a unit of property (UOP); (2) fuel, lubricants, water and similar items that are reasonably expected to be consumed in 12 months or less; (3) a UOP that has a useful life of 12 months or less; (4) a UOP with an acquisition or production cost of $200 or less; (5) or an item identified by the IRS in published guidance.
Routine Repairs and Maintenance
Taxpayers often capitalize costs that may be eligible for immediate expensing as repair and maintenance costs. The new regulations make clear that costs of certain routine maintenance need not be capitalized.
Under the routine maintenance “safe harbor,” the amount paid is deductible if it is for recurring repairs and maintenance that the business expects to perform to keep the UOP in its ordinary efficient operating condition.
Repair and maintenance costs are considered routine only if the business expects to perform these activities more than once during the MACRS alternative depreciation system class life of the property. For buildings and their structural components, maintenance can be expensed only if the taxpayer reasonably expects to perform the maintenance more than once over a 10-year period.
Asset Acquisition or Production
Taxpayers are generally required to capitalize amounts paid to acquire or produce a unit of real or personal property. Under the new regulations, the IRS has provided a de minimis exception to this general rule. Taxpayers with an applicable financial statement (AFS) may deduct up to $5,000 per invoice or item purchased. Taxpayers without an AFS may expense up to $500 per invoice or item purchased. For all taxpayers, amounts paid for property with a useful life of 12 months or less may be expensed. In order to apply this de minimis exception, you must (1) have a written capitalization policy in place as of January 1, 2014; (2) treat these expenses in the same manner on your tax return and financial statement; and (3) elect this treatment annually by including a statement with your tax return.
In general, the new regulations require taxpayers to capitalize amounts paid to improve a UOP. A UOP is considered improved if the amounts paid for activities performed result in a (1) betterment; (2) restoration; or (3) adaptation of the UOP to a new or different use. It is important to consult your tax advisor when making this determination.
The new regulations also include guidance pertaining to casualty losses, asset disposals, and favorable safe harbor rules for small taxpayers.
It is important to take action to comply with these new regulations. Taxpayers should analyze capitalization policies to determine compliance with the new standards, including having an adequate written policy for repairs and determining whether it is advantageous to make certain annual tax elections and/or file accounting method changes to conform to the new rules.
These issues are complex. There is no one-size-fits-all answer for every business. Your trusted tax advisor can provide specific guidance for your industry and your unique business situation.
Last month we discussed the first two steps of our firm’s six step planning process for helping business owners create the optimum succession plan for their business and exit plan for the owners (hereafter “owner” inclusive of group of owners) which best meets their business and personal objectives. These steps were:
Step 1: Helping the business owner identify his/her life objectives including retirement income, manner of disposition of the business and non-economic life objectives (objectives which add significance to the owner’s life); and
Step 2: Where is the owner (and business) now and what is the gap (in terms of meeting the owner’s economic life objectives).
This month’s article focuses on the next step of our planning process:
Step Three: Filling the Gap. What changes in the business’ value (and the owner’s net worth) are necessary in order for the owner to meet his/her economic life objectives?
In order to fill this gap, the owner’s advisors must be able to assist the owner in analyzing the following:
Assuming the owner has chosen an exit strategy of selling his/her business to an outside third party, what would be a reasonable expectation of the after-tax amount the owner would obtain upon a current sale of his/her business, i.e., what is the real market value of the business currently and, if sold at that value, what would be the taxes due upon the sale and what amount would left to be reinvested in marketable securities (or otherwise)?
If reinvested in the market, what amount of retirement income can the owner reasonably rely on? Most financial advisors conservatively will assume somewhere between 4 percent and 6 percent as a reasonable return on investment of the after-tax proceeds. Will this amount meet the owner’s objectives so that the business can be sold now?
If not, what is the gap, i.e., what is the increase in the fair market value (and sales price) of the business necessary for the owner to reach his/her retirement income and other economic objectives?
For example, let’s assume that the business has a current cash flow of $500,000 per year (after add backs and non-recurring expenses), and the business has a current market cash flow multiple of 5. Since the business also has $500,000 in long-term debt, a reasonable market selling price (after paying off the debt) would be approximately $2,000,000 ($500,000 times 5 equals $2,500,000 less $500,000 long-term debt equals $2,000,000).
Assuming taxes upon the sale are 25 percent of the sales price, the taxes would be $500,000. Therefore, the business owner would have $1,500,000 to reinvest after taxes ($2,000,000 minus $500,000).
Let’s further assume that the $1,500,000 can be safely invested at a 5 percent per annum return on investment and that this would produce $75,000 per year income. Assuming the business owner has approximately $100,000 per year of other retirement income from his/her assets other than the business (401(k) plan, Social Security, rental property, etc.), and that his/her objective is to retire with at least $250,000 per year pre-tax for his/her and his/her spouse’s joint lifetimes, he/she is $75,000 per year short of reaching his/her retirement income goals.
How much does the fair market value of the owner’s business have to increase before a sale can occur which will meet the owner’s objectives?
The answer is that the owner’s business needs to grow from a cash flow of $500,000 per year to $900,000 per year. An additional $400,000 per year at a 5 multiple will produce $2,000,000, which after taxes would give the owner another $1,500,000 to invest at an assumed rate of 5 percent per annum ($400,000 times 5 equals $2,000,000 less $500,000 taxes equals $1,500,000, times 5 percent equals $75,000 per year income).
Given the above facts, what steps should the owner take to increase his/her business’ cash flow?
Here is where the assistance of the owner’s advisors is critical. The items, common to all industries, which drive up the value of a business are called “value drivers.” Value drivers are what qualified buyers and investment bankers look for in a business that increases the business’ value.
Value drivers are characteristics of a business that either reduce the risk associated with owning the business (which increases the cash flow multiple which can be obtained in a sale) or enhance the prospects that the business will grow significantly in the future. There are many items that create value, including: proprietary technology, market position, brand name, diverse product lines, patented products, etc.
In next month’s article, we will look at those key value drivers that are common to most businesses.
We are fortunate to have substantial talent and devoted citizens among us here in Charlotte…our own A-Team as it were. Tony Zeiss, Chase Saunders, and Michael Gallis certainly qualify for that honorary title in this community with their ideas and ambitions for the future of the Charlotte region.
They are providing the leadership—with their research, study and action planning efforts—to stimulate long-term economic growth that repositions Charlotte for the next 30 years. There are many others who have and are contributing to these ideas and objectives. I would be hard-pressed to name them all—but they would include Jerry Orr, Michael Almond, Tony Almeida, Bob Morgan and many more.
New ideas are always questioned, easily brushed aside, and often criticized from the very outset. Especially when so many businesses here in Charlotte have been struggling to maintain revenues and simply survive the recession, it has been difficult to focus on new ideas for the future of this region. But thankfully some time has passed and opportunities seem like a possibility again, and it behooves us to look forward in a swifter smarter fashion if we are to thrive in the increasingly competitive and seemingly ruthless realm of world commerce.
The A-Team vision for the Charlotte region’s future is to become a global hub of commerce, a great “inland port” leveraging its financial, energy, health care, educational, entrepreneurial, manufacturing and logistical resources to world prominence, creating greater regional prosperity with more jobs. They began their efforts nearly two years ago. The springboard for the current effort being put forth are built upon those set forth originally in Advantage Carolinas initiative, put forth by another A-Team of the 1990s.
Charlotte’s very existence is because of its intersection of trading paths; today its prominence as a national and international intersection for the corridors of commerce is no less prominent. Charlotte is located at a pivotal global intersection: equidistant to Canada and Mexico, equidistant to the East and Midwest, and, with the Panama Canal expansion, equidistant as an inland port for distribution of goods from the rest of the world.Here, you can create, import, manufacture, export and deliver just-in-time anything, anywhere. And you can do it more economically and with a better margin of profit than anywhere else. Charlotte offers fertile soil in which businesses can grow and prosper. Charlotte has a great track record in attracting international businesses and talent, and is known as a business-friendly city.
The Charlotte region has rich assets including water, energy, air quality, education, finance, health care, roads, an airport second to none and a skilled labor force.
Our economic pillars today include being the #1 energy hub in the United States, being the #2 financial center in the U.S., and having #3 world-class health care facilities and services, and wonderful higher education resources. As the A-Team works to gain support for a global economic vision for Charlotte, they target new economic foundations including entrepreneurialism, advanced manufacturing, improved infrastructure, transportation and logistics, and improved higher education and workforce development.
To achieve that global vision, the A-team is encouraging regional, private and public leaders to collaborate and create opportunities to broaden our economic base to take Charlotte to the international stage. Their plan includes objectives to:
• Create things” better than our competitors by adopting entrepreneurialism and innovation as prominent and core values of the region and provide support for innovation and new business creators.
• Make things” better than our competitors by growing our advanced manufacturing base and providing these businesses with world-class employees through exemplary education and training success.
• “Move things” better than our competitors through the new intermodal centers at and around the Charlotte-Douglas International Airport. From Charlotte, we can move people and goods faster, cheaper and more efficiently through the consolidation of train, truck, air and ship transportation. In the process, we will become a natural leader in logistics and supply-chain management.
The A-Team is encouraging business leaders to take part in the Global Vision. They recommend that you…
Consider how your organization or industry association can benefit from the global vision outlined in this economic plan or strategy.
• Add a global vision to your organization’s strategic plan.
• Take advantage of the opportunities that will result from the intermodal hub at the Charlotte-Douglas International Airport.
• Get involved with a K-12 or college’s workforce development partnership with industry.
The next big event to learn more and to get involved in this Global Vision initiative is the Global Competitiveness Summit III on March 12th, 2014 to be held at the Harris Conference Center.
As a major promoter for the A-Team, I encourage you to attend and to participate in building the future of the Charlotte region so it will truly become the global hub for international trade that it can be. Let’s all get behind the A-Team and work for a dynamic future.
“I love it when a plan comes together,” as was Hannibal’s catch-phrase.