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March 2014

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March 2015

BizProfiles

     It’s not surprising that the roots of paper giant Domtar Corporation link back to trees—lumber, actually, and a special process developed in 1848 in England to protect lumber from decay. The process proved useful to many industries at the time, but especially to railroads that needed to protect miles of wooden railroad ties.

     The company grew on both sides of the Atlantic and in the wake of the outbreak of World War I in 1914, the company, then known as Dominion Tar & Chemical Co., Ltd., decided to move their head office to Montreal, Quebec.

     By the mid-1900s, the company had become one of Canada’s largest, engaging in a wide range of industries including consumer products, chemicals, newsprint, containerboard, packaging, construction materials and kraft and fine papers. To reflect its new business diversity, the company officially became Domtar in 1965.

     As years progressed Domtar divested its other interests to focus on paper. Acquisitions of Ris Paper Co., Inc. and four Georgia-Pacific paper mills, as well as a merger with the fine paper business of Weyerhauser, led to Domtar Corporation’s rise as a leader in the paper industry.

     Today, as a U.S. domiciled company with sales in 2013 of $5.39 billion, Domtar trades on the New York and Toronto stock exchanges under ticker symbol UFS and is the largest integrated manufacturer and marketer in North America, and third largest worldwide of uncoated free sheet paper—the type used in office and business printing for copiers and computer printers, business papers such as envelopes and bills, and writing stationery—with recognized registered brands such as Cougar, Lynx, Husky, First Choice and EarthChoice.

     With a selling capacity of 1.6 million metric tons annually, Domtar is also a leading global producer of papergrade, fluff and specialty pulp and a growing contender in the personal care products industry.

     The company employs roughly 10,000 in its global network including a head office in Montreal, Operations Center in Fort Mill, S.C., and 13 paper and pulp mills throughout the U.S. and Canada.

     But while paper manufacturing has been an established and stable business for centuries, and paper has been a staple in homes and offices for decades, times are changing. Emails have replaced letters and memos, files are now maintained in the digital cloud, and magazine and newspaper content is instantly available with a tap of your mobile device.

     So how does a paper manufacturing giant handle the increasingly “paperlessness” of the new digital age? Answering that question is paramount to Domtar’s President and Chief Executive Officer John D. Williams.

     “In the last six to seven years, we’ve lost about 33 percent of our commodity paper business,” Williams explains. “We’ve maintained our market share, but that part of the business is gone and the volume will continue to gradually decline causing a gradual loss of earnings in that sector. Our job is to find other revenue streams and to position the company so that it creates sustainable value for our customers and shareholders.”

     It’s a large job but Williams has decades of industry expertise to his credit.

     Prior to joining Domtar in 2009, Williams was president of SCA Packaging Europe and has 30 years experience in both consumer products and the packaging industries. He’s also received industry recognition. In 2010, he was named North American CEO of the Year by RISI (a leading information provider for the global forest products industry) and in the same year, Pulp and Paper International recognized him as Global CEO of the Year. PaperAge magazine named Williams as “Executive Papermaker of the Year” for 2012.

     Williams, who works out of the company’s 400-person Fort Mill Operations Center, says that part of the strategy to replace lost business is building out into other businesses.

 

Building Out

     Personal care products such as baby diapers, feminine hygiene and adult incontinence products which use fluff pulp—a material the company already produces—seem a logical expansion.

     In a little over two years Domtar has purchased five companies in the personal care products industry: Attends in both Europe and the U.S.; EAM, which makes absorbent cores used in a range of personal care products, and AHP, the largest manufacturer of private label baby diapers in the U.S. Domtar’s latest acquisition, Indas, is the market leader in the incontinence category in Spain.

     “In personal care, we like the Americas and Europe,” says Williams. “The demographics for growth in those markets are pretty dramatic so when it comes time for acquisitions and putting assets together, you’ll see us focused in those geographies.”

     Williams states the acquisitions will continue. “In order to be a serious player you need to put in place a global product platform and develop those products so you can launch them in the key geographies.

     “We need critical mass. It’s not enough to be a group of little businesses. You have to leverage what you own to get synergies from them. We want to build $300 to $500 million of EBITDA from growth businesses by 2017. That’s our target. We’re making these acquisitions specifically to build out to that $300 to $500 million of EBITDA.”

     Growth of the company’s personal care business is all good news for North Carolina. Williams estimates Domtar has invested over a half billion dollars in the Carolinas since 2010, and that their Attends facility in Greenville, N.C., is expanding to accommodate growth in that business. Domtar has also located its global headquarters for its personal care business in the Raleigh/Durham area, which could result in further benefits for the local economy as the company increases their market share in that industry.

     But Domtar hasn’t limited their acquisitions to just personal care businesses. In 2013, the company purchased the U.S. and Canadian paper and print media products business of Xerox.

     Adding on to their paper business in a declining market seems counterintuitive but Williams explains it as an opportunity. “Xerox has an amazing brand loyalty. It’s remarkable,” he says. “We think there’s an ability to focus on the brand and manage and build it. In a declining market, we believe there’s value in branding.

     “In our paper business, we’re always looking for new applications. We make the paper for point of sale machines and cash registers that people use every day. In our technical and specialty paper, we’re always looking to develop new grades.”

     New applications also apply to the company’s cadre of capital-intensive paper mills. Domtar is looking to refit or repurpose some existing mills to better align with its new business model. Their mill in Plymouth, N.C., is a good example of a successful transition.

 

Repurposing and Sustainability

     “The large mill we have in Plymouth used to make paper,” Williams explains. “It no longer makes paper. It now makes the soft pulp—the type of pulp that goes into baby diapers and adult incontinence and feminine hygiene products. We knew we had the skill and we already had product in the market so we spent $85 million to repurpose that mill. That’s a way we’ve forward integrated an existing facility into this new business we’re building.”

     Domtar is also finding new applications for an old product they’ve used internally for years.

     “Wood is two things—cellulose and lignin,” Williams explains. “Historically, in papermaking you want the cellulose but not the lignin, so we’ve been burning lignin in recovery boilers and generating power for the paper mills. But lignin has other applications. It can be processed to be a binding agent in a whole range of applications from asphalt to wood pellets used in power stations, or because it’s natural, even as a binder in animal feed.

     “We trademarked it BioChoice lignin—that’s our brand name. We haven’t been producing it for very long, probably seven or eight months. Right now, it’s not transformational for the company earnings, but it’s enabling us to develop new markets and we’re excited about that. The product has recently earned recognition from the U.S. Department of Agriculture as a 100 percent organic, BioPreferred product.

     “Clearly, finding new applications for renewable resources—what we refer to as bio-refining—is an attractive proposition in a world of limited natural resources.”

     Protecting natural resources has been a core company value for many years. An early adopter of sustainability principles, Domtar believes so strongly in the practice that it brands itself “The Sustainable Paper Company.”

     The company was also first in the industry to embrace certification by the Forest Stewardship Council (FSC), a third party certification for managing and harvesting forests sustainably, and it also partners with the Rainforest Alliance and the World Wildlife Fund, even co-branding with them on FSC certified paper sold under the company’s EarthChoice brand.

     “We sell a lot of FSC-certified product both in printing papers and cut size papers, the kind you find in a Staples or Office Depot,” says Williams. “All of us as consumers these days want to know how our beef is processed and where our eggs come from. Quite rightly, we care about these things.

     “It’s meaningful to a lot of people that the paper they use at home or in their office is sustainably harvested. Many companies, especially large institutions, want to make sure that they’re buying paper that was sustainably produced. It matters to consumers and to business buying.

     “But it’s not just a marketing issue; it’s also a behavioral issue. We have to make sure we behave in a sustainable manner.”

 

Meaningful Strategies

     To assist in that goal, Domtar develops long-term sustainability strategies and conducts regular evaluations of its sustainability performance. Goals from a recent evaluation include: working toward procuring 100 percent of their wood fiber from FSC-certified forests, setting greenhouse gas reduction targets, reducing water and waste in their mills and seeking carbon efficiency opportunities in their supply chain.

     “But sustainability isn’t just about the environment,” Williams insists. “It’s also about how you recruit people and how you manage your strategy to make sure that an enterprise which has already had a good long life continues to have a good long life.

     “We have three core values: agility, caring and innovation. Part of our caring value is involvement in the community.”

     Companywide, Domtar partners with First Book, a nonprofit that provides new books to children in need across North America, some 100,000 last year alone. The company’s EarthChoice Ambassador program also encourages employees to get involved in their communities.

     Locally, employees from their Fort Mill Operations Center joined with the Student Conservation Association on a restoration project at Andrew Jackson State Park. And the company’s annual charity golf event raises money for local causes. Last year’s outing raised $150,000 for A Child’s Place, which helps homeless children in Mecklenburg County. Previous events benefitted Classroom Central, a nonprofit, providing students with school supplies. Employees also donated time to build hiking trails in the nearby Ann Spring Close Greenway.

     Williams, who sits on the Palisades Episcopal School Board and is president of the Montreal Chamber Orchestra, believes that in addition to giving money to local organizations, it’s also “very important to really get involved.”

     The Domtar strategy appears to be working. In an earnings conference call in early February, the company reported that its net earnings had more than doubled during the fourth quarter of 2013 and quarterly sales were nearly $1.4 billion—up 2.4 percent—as compared to the same period in 2012.

     Of the period, Williams commented, “The strong fourth quarter capped off a year of achievements for Domtar. We announced several strategic initiatives and continued to execute on our commitment to transition our earnings profile.

     “I can say with confidence that the Domtar growth story is set firmly in its path, the foundation of which will be a high-performing pulp and paper business and fast-growing personal care business.

     “In summary, we had a milestone quarter for Domtar in our quest to become a stronger business that creates sustainable value for our customers and our shareholders.”

     When you shop at your local Wal-Mart, have you ever thought about what it takes to get all those products, from factories all over America and the rest of the world, onto the shelves in your neighborhood store?

     Thousands of different products, from thousands of different manufacturers, all have to find their way to thousands of stores all over America. The process by which it all happens is a matter of logistics—the management of the flow of goods between the point of origin and the point of consumption.

     Distribution Technology is a leader in logistics, offering public warehousing, contract warehousing management, third-party distribution, cross docking, freight consolidation, transportation management, rail and intermodal transloading, and logistics consulting.

     Its clients come from a wide variety of industries including retail, consumer products, food and beverage, furniture and home furnishings, raw materials, industrial materials, automotive aftermarket, hardware, and packaged goods.

 

Keeping Pace with the Times

     Distribution Technology was founded in 1969 with seven employees and 100,000 square feet of warehouse space serving the Piedmont region. Rock Miralia, a member of that initial management team, assumed majority ownership of the company in 1974. In 1988, Rock’s two sons—Tom and Mark—joined the company.

     Tom graduated from N.C. State with a degree in nuclear engineering and had spent four years as a reactor engineer for Duke Energy at their McGuire Nuclear Station. But after earning his MBA at Queens University, he decided that he wanted to join the family business, coming on board as staff industrial engineer.

     Tom’s younger brother, Mark, went off to college at Appalachian State intending to come back and work at his father’s company. But after graduation, he decided to go to work for a similar company in Atlanta, just to make sure that was the career he really wanted. After a year in Atlanta, he had his answer and moved back to Charlotte to join Distribution Technology as warehouse supervisor.

     In 2005, Tom was named president and CEO and Mark became vice president of sales. Mark is also president of Record Storage Systems, a subsidiary that provides document storage, record management, digital imaging, document protection and security, indexing, cataloging, document destruction and delivery services in the Charlotte area.

     Up until the late ’80s, the food and beverage/grocery products channel was the bread and butter for Distribution Technology. The big food product companies needed to house local inventory for the Piedmont market, so the Miralias’ company provided those services for a diverse set of brands like Heinz ketchup, Gatorade, Van Camp, Nestle, Gallo wines, Mickey’s Moon Pies, Arm & Hammer, and Proctor & Gamble, among others.

     Trucks and rail cars of grocery products—canned goods, jars of mayonnaise, corn syrup—were unloaded at the warehouses and ultimately shipped out to grocery retailers in the Piedmont region and beyond.

     “In one two-week period, we shipped a million cases of Gatorade,” remembers Tom. “We were shipping orders where other distribution centers were at capacity, couldn’t get transportation, or couldn’t get a handle on their inventory. We were shipping all the way up into Pennsylvania and other places outside of our natural region.”

     But as the large food products companies began buying up multiple brands, they found it more efficient to consolidate all of their brands and business lines together. A large food company could collapse what might have been 15 or 20 distribution centers into a much smaller number of larger centers. They could fill up an entire truck with their multiple product lines for transport direct to a grocer’s distribution center, eliminating the need for contract consolidators like Distribution Technology.

     At the same time, technology was rapidly evolving as ordering moved from snail mail-based paper purchase orders, to fax, email, and now electronic data interchange (EDI) and file transfer protocol (FTP). Orders that used to be sent five days or more in advance now arrive electronically in the morning or early afternoon for shipping that same day.

     Over the years, Distribution Technology has kept pace, developing new relationships with industrial product companies and local manufacturers, and transitioning to support the retail flow of merchandise from suppliers to stores and distribution center networks.

     Along the way, Distribution Technology also has become proficient in processing information for clients, providing a host of electronic data flows to support the movement of goods.

 

Keeping It Moving

     Distribution Technology currently operates and manages about 1.2 million square feet of warehousing operations in the Charlotte region and employs more than 250 people. That warehouse space is split among eight facilities, most of which are located in the Westinghouse Boulevard/Carowinds Boulevard area.

     The vast majority of the shipments handled by the company pass through one of their cross-docking facilities that support their retail industry customers. A cross-dock is a building with loading docks on both the front and rear of the building. Shipments arrive by truck from suppliers on one side of the building, are unloaded, reprocessed into outbound shipments, and then loaded onto trucks parked on the other side that will be bound for another destination. The cross-dock operations consist of both consolidation centers and pool distribution centers.

     The warehouse facility the company operates in Concord for Wal-Mart stores is a consolidation center. In that facility, merchandise of Wal-Mart suppliers in this region is picked up by Wal-Mart fleet and brought to the Concord warehouse. There, the products are combined with products from other regional suppliers or importers and split out to be loaded onto outbound trucks going to any of the 42 distribution centers across the country that directly service Wal-Mart stores.

     The company operates a pool distribution facility serving Bed Bath & Beyond adjoining the company’s corporate offices in the Westinghouse area. There, products arrive from a variety of suppliers, importers, or other warehouse consolidation points, all destined for Bed Bath & Beyond stores in the region. The incoming products are offloaded and palletized with other products going to the same destination and placed on trucks for delivery.

     Distribution Technology also provides a similar pool distribution service for Sam’s Club stores. Together, Wal-Mart/Sam’s Club is their biggest client and they are the top logistics operator in the nation according to Sam’s Club operating metrics this year and Wal-Mart statistics last year.

     While cross-docking represents the vast majority of their volume, those activities take up a small percentage of Distribution Technology’s 1.2 million square feet of warehouse space, because the merchandise is not stored for long periods of time. In many cases, the shipments are in and out in the same day.

     The vast majority of their physical space is devoted to merchandise warehousing—providing an inventory distribution center for a variety of clients. They store a wide array of items from “lunch meats to specialty chemicals,” according to Mark. But the company still tends to focus on items that move in and out as opposed to long-term passive storage.

     “A large portion of our square footage is devoted to multi-user distribution centers where we manage inventory for our clients,” explains Mark. “We promote service and activity with those clients, because we understand there is little value in inventory that just turns once a year. That doesn’t really leverage any of our expertise.”

     “Our greatest strength shows when we have daily activity—daily inbound and daily outbound, whether it be in retail, manufacturing or supplier channels,” adds Tom. “We are extremely good at high volume with high service requirements. That means flowing information in a timely fashion, flowing it accurately, staying on top of the details, staying out front, and controlling costs. That’s our niche and it’s a great fit.”

     In addition to the basic provision of warehousing and distribution services, Distribution Technology also can help companies develop an integrated logistics program where they handle not only warehouse management, but also transportation management. They say it is ideal for small- to medium-sized clients who can leverage the company’s logistics expertise to deliver best practices, allowing them to focus on their core business rather than distribution.

     “The combination of warehousing services and transportation services is where we can add a lot of value for our clients,” says Mark. “We can do the storage and handling in the warehouse and then we can design a transportation network for them. We have a small fleet of our own trucks that serve our immediate region and then we can contract out to truckload carriers and less-than-truckload carriers to supplement that and for national coverage.”

 

Keeping It Up to Speed

     As Distribution Technology has evolved, they have continued to look for new markets, including importers/exporters with local offices. While the majority of food products are manufactured domestically, the reality is more and more consumer products come from offshore. With the company’s client mix shifting away from food over the past 20 years, embracing the consumer products import market has become increasingly important.

     Distribution Technology serves as the operator of Charlotte’s Foreign Trade Zone #57 and has about a half million square feet of warehouse space that can be activated as a Foreign Trade Zone whenever the need arises.

     Because of Charlotte’s proximity to ports in Charleston and Savannah, and location alongside or near three major north-south/east-west Interstate highways—I-77, I-85, and I-40—Charlotte is an ideal inland import processing center. Trucks leaving Charlotte can service markets as far north as Pennsylvania and New Jersey, and as far south as Alabama and northern Florida, same day. By contrast, a distribution location in Atlanta can’t service the population centers of the northeast same day because Atlanta is too far south.

     The Miralias believe that Norfolk Southern’s new Charlotte Regional Intermodal Facility at Charlotte-Douglas International Airport is a positive for the region. They are also hopeful that the expansion of the Panama Canal will be a positive if that helps bring larger ships into Charleston, Savannah, and other east coast container ports.

     “The bottom line is the new intermodal center should be more efficient because it was designed from a blank sheet of paper and seems to be the perfect layout for what they want to do there,” offers Tom. “And if the new Panama Canal makes it more attractive to run some less time-sensitive freight by water all the way to the east coast instead of landing it in L.A., we could see a little bump from that, too.”   

     One limiting factor, Tom explains, may be the lack of integration between the railroads, N.C. and S.C. governments, and the Charleston port itself. For instance, the Wando container terminal does not have direct rail access, meaning that all the containers have to initially be moved by truck. Also, the lack of the main rail line out of Charleston that runs straight through to Charlotte. An alternative route through Columbia gets considerably less use.

     Whether it’s import/export or domestic logistics support, the Miralias say their focus will always be on the client’s needs and adapting their offerings to those needs. Growing companies often choose to outsource distribution so they can focus on their core business and preserve capital. Tom and Mark assure their seasoned team of professionals offer a level of expertise that can make a difference for those clients.

     “We want to help our clients grow their relationships with their own customers,” says Tom. “When we do a good job, they can make more sales and gain market share. When they grow that way, we grow along with them.”

     “Our service values are what our father has driven into us from the very beginning,” attests Mark. “The nature of our business is always changing, so we never want to sit back. We always want to have a challenge in front of us, and we’re very, very good at facing those.”

      Stainless Valve Co.’s story begins with diamonds. Super-hard diamond particles are used on cutting tools, affixed with bonding material for very high grinding efficiency, quality and—above all—finite precision. They are the darlings of the machining industry.

     “Actually I was on the poor end of the diamond business,” Dirk Lindenbeck says with a laugh. The 70-year-old retired chairman of Stainless Valve and super-sharp engineer from Germany earned his start in the tool manufacturing industry at De Beers in South Africa.

     With Lindenbeck’s relocations from Germany to South Africa to Brazil and to the U.S., B+E and Stainless Valve, located in Monroe, have rich history in creative design, engineering and manufacturing, fueled by Lindenbeck’s dream of owning his own business. They now provide a comfortable, stable niche for his two sons: Axel, 33, president of Stainless Valve, and Michael, 32, president of B+E Manufacturing Co, Inc., the parent company of Stainless. Combined, the two companies employ 19.

     After years in the diamond tool industry, B+E, a machining shop, was Lindenbeck’s first acquisition in the Charlotte area, manufacturing a variety of tools to specification. But after purchasing Stainless Valve Co. in 1990, the company turned its attention to a “real moneymaker,” as Michael says, manufacturing specialty industrial valves—some which cost nearly $400,000 a piece. The company’s clients come from pulp and paper, mining, food, petrochemical, chemical, power, and biomass energy businesses.

     So how did a man who grew up in a very tiny German village wind up running a very specialized valve design and manufacturing business in Monroe, nearly 4,000 miles across the globe?

 

Honing His Skills

     Lindenbeck grew up in northern Germany. He attended the Bismarck School during his earlier years and spent his young adulthood at what is known today as Leibniz University, both in Hannover where his family had moved after World War II.

     At age 27 with a Ph.D. in engineering, the fresh-faced Lindenbeck left for South Africa to work for De Beers for three years. “I did some research on the grinding process using diamonds and cubic boron nitride and was promoted to the head of a department that manufactured tools,” he says.

     In 1974, Lindenbeck moved back to Germany for one year to begin work for Ernst Winter und Sohn, one of the world’s largest diamond tool manufacturers.

     “During that time, we were working on designing a new diamond tool manufacturing plant in Brazil,” he recalls. “It was a beautiful location on the outskirts of Sao Paulo.’”

     In mid-1975, the plant began production of resin bonded diamond tools to grind tungsten carbide. Later, metal bonded products were manufactured to cut stone, concrete and glass. Industrial use of diamonds has historically been associated with their hardness, which makes diamond the ideal material for cutting and grinding tools.

     As the hardest known naturally occurring material, diamond can be used to polish, cut, or wear away any material, including other diamonds. Common industrial applications of this property include diamond-tipped drill bits and saws, and the use of diamond powder as an abrasive. Today, over 80 percent of the industrial diamonds are synthetic diamonds replacing natural diamonds.

     Brazil brought other changes for the young engineer. He married his Brazilian wife and both Michael and Axel were born there, learning Portuguese, English and German as they grew up. Today they speak German, English and Spanish. They learned Spanish from school and traveling in Spanish speaking countries where they lived with friends, who also visited them in the U.S., a Rotary-Youth-Exchange program.

     In 1979, Ernst Winter und Sohn began planning for another diamond tool manufacturing plant in the town near Greenville, S.C., that would produce galvanic bonded tools with very tight tolerances. The young family moved to Traveler’s Rest, S.C., in 1982, when manufacturing commenced.

 

Tool and Component Manufacture

     In 1987, Lindenbeck moved his family, including a new daughter, to south Charlotte when he purchased B+E Manufacturing Co., Inc., a small job shop with six employees. The established machine shop was located in Mint Hill and owned by Arthur Culbertson of Charlotte.

     “The time was right to have my own business,” says Lindenbeck. “It started to look like there was a company to purchase, and I felt like I knew how to run a plant.”

     The elder Lindenbeck says that he liked the idea of buying an existing company rather than financing a startup from scratch. “Here in the United States, it’s much more of the culture than in Germany to start your own business. It’s easer to get money to start up a business or acquire one.”

     B+E currently works with milling, turning, drilling, reaming, boring, tapping on almost any material, and supplies machined components, especially custom designed machine parts, assemblies and automation controls. B+E’s machinists build tools, fixtures, equipment and machinery, using milling, grinding, welding, and assembly.

     B+E’s job shop work is far flung and touches a variety of industries—both locally and globally. “We do tooling for airports and airplanes, parts for machines that dispense medication, and even make brackets that hold night vision goggles on helicopter pilot helmets for the military,” Michael says.

     Though first trained in drawing designs on manual drawing machines, then learning two-dimension AutoCAD computer software , the traditional, elder Lindenbeck is the first to admit that technology has led the way in building and growing the engineering design businesses for manufacturers, especially “job shops.”

     “Without computer-aided design we simply could not be so efficient, so complete, fast and so accurate,” says Lindenbeck. “In the past, we had to literally draw every single item to make sure it fit.”

     He is quick to show off Solid Works, the mechanical 3D computer-assisted design program that both companies use daily.

     “My father bought the 3D program when I was a freshman at UNC Charlotte,” says Michael, “and told me during my early years, ‘Here, figure out how it works—that’s your job.’”

     The company continued to manufacture tools and other components, but soon turned its attention to bigger fish when it acquired Culbertson’s other business, also in Mint Hill.

     Little did the family know that the jump from a job shop for third-party manufacturing to manufacturing complicated valves for the process industry would spell a move to Monroe, more employees, and, ultimately, more business through focused sales.

 

Moving Into Valves

     In 1990, Lindenbeck decided to expand the business and purchased Stainless Valve Co., again from Culbertson.

     The ongoing growth of the business prompted the company to expand. A new larger location in Union County was found, followed by a $500,000 expansion adding four jobs to the company’s 16-employee workforce. On its current six acres off U.S. Highway 74, the company added 7,500 square feet to its building, bringing it upwards of 22,500, while investing $350,000 in additional machinery.

     Stainless Valve’s operations were redirected to focus primarily on developing new designs and manufacturing custom designed specialty valves, including large diameter and custom gate valves and other valve designs built to specific application requirements.

     According to Axel, they serve clients mainly in the pulp and paper, mining, petrochemical, chemical, power, and biomass energy industries. They also supply to the food, oil and gas, waste incineration industries. Valve customers include International Paper, Georgia Pacific, Irving Pulp and Paper, Westinghouse, Abengoa Bioenergy, GE, BP, DuPont, Exxon, Andritz, Norilsk and Rio Tinto.

     There are four “Big” products in the Stainless Valve product catalog which form the basis of all the custom valves they create. The Stargate-O-Port-Valve AS that was developed in 1995 allows use in applications where scale formation and sticky substances can prevent standard commodity valves from performing properly.

     The Big Blow valve is manufactured to withstand almost any problem related to batch pulp digesters in the pulp and paper industry. For manufacturers who battle with unplanned shutdowns, continuously halting production, take flanges loose, and manually replacing screens, Stainless Valve created the Big Screen, which allows screens be automatically replaced without stopping production just by pressing a button.

     The Big Knife valve is designed to allow solids to accumulate in the bottom of the valve, when a small percentage of solid exist in the flow media, as the valve is being closed. The bottom of the valve can be flushed out in order to prevent compaction of material.

     “We have customers tell us that we saved them money in two weeks,” says Lindenbeck. “That’s because they no longer have to shut down and lose money.”

 

Following in Father’s Footsteps

     Axel became head of Stainless Valve Company after studying paper science and engineering at N.C. State, then taking on two master’s degrees at Pfeiffer University—in business administration and in organizational change and leadership.

     The older brother worked elsewhere fresh from grad school but was looking for something “more challenging.” His father made him an offer: Work for Stainless Valve for six months while looking for another job.

     “I made him an offer to continue working here based on his excellent performance,” says Lindenbeck, “and he made me wait for two weeks before he let me know! It was good that he decided to work for us.”

     “My intention was to work outside the family business for seven to10 years and then come back to the family business,” says Axel. “However, after three months in the family business, I found that I was really enjoying the work and helping my father run the business.”

     Michael joined B+E in 2008 as president. The Providence High School graduate earned a civil engineering degree in 2004 from UNC Charlotte, and thought he’d find himself working in planning. After two years with the N.C. Department of Transportation, he worked briefly with land development, designing infrastructures for neighborhoods.

     And just as the nation saw real estate suffer in the economic downturn of 2008, “Dad came to me and wanted me to run the shop,” says Michael. “Needless to say, I’m doing nothing with civil engineering and doing mechanical engineering now. I’ve learned so much.”

     Lindenbeck, although “retired” for five years, still serves as a consultant and attends Monday morning staff meetings. His wife attends to the company’s financial side, and works from home.

     “I think I absolutely made the right decision to bring my sons on board,” says Lindenbeck. “They are dong a very good job running the business. And it’s good that they can do it at such an early stage of their life.”

     Both brothers married German natives, and are still fluent in two or more languages. Their own children will be multi-lingual, too. They plan to call the Charlotte area home for years to come. And B+E and Stainless Valve will be passed on again one day, it seems.

      Michael hopes to see both businesses grow significantly. “We plan to be spending more time to improve our efficiency, increase our volume and see more product go out the doors,” he says. “I’d like to see the B+E side fill in the void when we aren’t working on valve orders. We need to grow that side and most of that would be local companies.”

     Axel sees future construction and growth in more countries worldwide. “My goal for the business is to diversify into more industries in more countries,” he says. “Currently, Stainless Valves are installed in 18 countries and I hope we can double that in 10 years,” he says. “I want Stainless Valve to be the name that the maintenance manager or reliability engineer thinks about when he has a valve problem that needs to be solved.”

     Michael mentions that the company has an additional plot of land on which to expand and add additional manufacturing facilities—hopefully within the next five years.

     “Growth will be organic through the result of a superior product coupled with superior service in a severe service market. We also aim to develop our workforce in both capability and capacity,” he says.

     “I am part of the second generation in this company and the goal is to build something that may eventually be passed on to the third generation. That is quite a ways off and there are many roads to travel to get there,” Axel acknowledges.

     Sea Express America Corporation, or more familiarly S.E.A. Corp., is an international logistics company providing ocean transportation services to its clients. It strives to be a turnkey operation, analyzing each client’s needs, knowledge and country requirements to successfully export products from door to door.

     “We operate like a travel agency for freight,” quips S.E.A. Corp. President Myra Heavner. “We connect manufacturers and corporate clients with shipping lines to move goods.”

     S.E.A. Port offers its clients complete supply chain management. Services include: warehousing, loading of containers, building customized crates, palletizing cartons, labeling cartons and negotiating specialized pricing. It also offers break bulk services, roll-on/roll -off services for tractors, trucks or anything with wheels, open top equipment, flat rack equipment, refrigerated containers, and airfreight.

     Although Heavner says she inherited her entrepreneurial spirit from her parents, she admits that she never planned on running a global logistics company.

     “I always wanted to be a TV reporter and be on the news,” she laughs.

 

Starting Out

     A native of Lincoln County, Heavner graduated from West Lincoln High School and then Gardner-Webb University with a business degree. She began her career in Cherryville, working for Carolina Freight Carriers International Division. When her division was sold in the late 1990s and her job relocated out of state, Heavner and a partner saw an opportunity for a new career and started S.E.A. Corp. in 1998.

     Eventually Heavner bought out her partner. She credits the company’s 14 years of consecutive growth, from $3.7 million in 1999 to $18.6 million in 2012, to core values and a strong mission. S.E.A. Corp.’s core values are to operate the business with simplicity, efficiency, accountability, caring, professionalism, trust, integrity, urgency, and timeliness.

     “Our mission,” says Heavner, “is to build long-term, mutually profitable partnerships by exceeding our clients’ expectations, while creating an environment of excellence in which every individual is valued.”

     And those values and mission are meeting the test; S.E.A. Corp. grew 30 percent from 2011 to 2012. Since 2011, employment has doubled to 14 full-time and six part-time employees, and the company has doubled the size of its facility in uptown Lincolnton.

     “When we first started out, a representative from the North Carolina State Port Authority heard of a new company in Lincolnton and visited our office,” remembers Heavner. “She didn’t seem to think we would never last or be taken seriously.” Today, that person covers the country as a sales agent for S.E.A. Corp.

 

Growing Pains

     Over the years, S.E.A. Corp. has had its share of challenges to overcome in order to compete with larger Non-Vessel Operated Common Carriers (NVOCCs). It has continually invested in new technology, hired additional employees, and expanded its office capacity to accommodate the growth in business.

     For the first eight years, S.E.A. Corp. didn’t have a contract with a major shipping line. Instead, Heavner piggybacked on competitor’s contracts. She chased a direct contract by making regular phone calls and traveling to New York to make personal contacts.

     “I had to prove that someone in Lincolnton, N.C., had enough business to warrant a contract with a global steamship company,” she says.

     Finally, one firm gave her a contract and S.E.A. Corp. fulfilled it. That was just the foot-in-the-door Heavner needed. Today S.E.A. Corp. has a vast network of dependable steamship lines and worldwide agents at its disposal. It utilizes over 200 agents in over 166 countries, ensuring its transportation services can reach the most remote areas of the world.

     Heavner describes the team at S.E.A. Corp. as working in a collaborative role as they assist customers with analyzing, identifying, and setting up an efficient cost effective supply chain in six continents.

     “Our customers rely on us to be experts in our field of logistics,” asserts Heavner. “They rely on us to provide them with all requirements to avoid having any delays in the supply chain.”

      In addition, S.E.A. Corp. directs clients within S.E.A. Corp.’s professional network for assistance with ancillary services such as letters of credit; USDA and FDA certifications; processing of car title clearances for automobiles, boats and motorcycles leaving the U.S.; preparation of certificates of origin; legalization of documents and pro forma invoices; and individualized customs compliance and training as needed for new exporters.

     “When our booking team makes new bookings for our customers, we advise them of documentation requirements needed at the destination,” says Heavner. “In some cases we go out and help them obtain these documents.”

     For example, S.E.A. Corp. had to obtain a B-13 number for freight being exported out of Canada. This number had to be on the bill of lading before the freight could be loaded on the exporting vessel.

     In another situation, a small furniture warehouse in North Carolina has monthly exports to Central America. This warehouse is a consolidator of multiple furniture suppliers. Due to the complexity of this account, the S.E.A. Corp. documentation team has taken extra steps to obtain all of their suppliers’ pertinent information to prepare the shipper’s export declaration to obtain the Automated Export System Number required on every bill of lading.

     S.EA Corp. also prepares ocean bills of lading from commercial invoices; it is a long and in-depth process, but it is ultimately cost-effective and eliminates any delays when the freight arrives at its destination.

 

Finding Partners

     Heavner has a passion for educating and assisting entrepreneurs interested in opening their own export business. In 2001, after the terrorist attacks on September 11, the textile markets locally and internationally began to decline. When a freight forwarding client who specialized in textiles lost her job, she called Heavner for advice.

     Heavner encouraged her to use her experience and knowledge to continue helping exporters in the U.S. by applying for a Federal Maritime Commission License (FMC). Heavner walked her through the application process to obtain a license and open her own minority, woman-owned business. Heavner introduced her to tariff filing requirements and educated her on the rules and regulations of the FMC. Heavner also recommended companies she could work with to secure her bond to meet the FMC’s requirements.

     Eleven years later that woman is still devoted to textiles with 15 employees, and has diversified into exporting furniture for schools and hotels, pharmaceuticals, and aircraft parts from the U.S. She has also hired a customs broker and is involved with imports.

     That former client turned to Heavner at S.E.A Corp. “because of the dedication and quality of service their team displayed at my previous company; I knew I could count on them. The foundation we built has turned into a lifelong partnership.”

     Heavner also helped and encouraged another friend in the organization and startup of trading services to match U.S. exporters with international buyers. That person attests, “Without the assistance and experience of S.E.A. Corp., I would never have considered starting my own company. S.E.A. Corp. opened the door and assisted me with the startup.”

 

Planning Ahead

     Heavner has also focused on helping exporters increase their exports and expanding the growth of U.S. products and trade in various parts of the world. In one case, S.E.A. Corp. worked closely with Caudill Seed, a seed producer in Granite, Okla. Caudill began working with Asian cattle ranchers on cultivating rye seed for the Asian geographics and climate. Caudill was successful in developing a hybrid seed in the U.S. that needed to be exported to Busan in South Korea and delivered within a six-week period.

     S.E.A. Corp. worked with Caudill Seed to position empty containers from the farms in Granite to Busan. Once the items were loaded and cleared by USDA for export, S.E.A. Corp. returned the loaded containers to the port of Houston. It prepared all of the export documentation and tracked and traced the containers to ensure the product arrived at its destination on time and within the terms of the letter of credit.

     As a result of the collaboration with S.E.A. Corp., Caudill Seed has expanded to cover South Korea, Italy, and Durban, South Africa. Caudill is now anticipating an expansion involving Brazil, Asia, Europe and South Africa.

     S.E.A. Corp. also worked with Indiv, a company located in Springfield, Mo., that sells products associated with the poultry raising and processing industry. Its clients are third world countries in need of economical solutions to provide their populations with adequate protein diets.

     Beginning in 2008, S.E.A. Corp. began assisting Indiv on opening up markets in Guatemala, Venezuela, and Honduras. Through constant communication with steamship lines, S.E.A. Corp. worked to secure competitive pricing and provided Indiv with the necessary documentation required to open doors for new opportunities. Their expertise was needed to ship goods and clear customs without delays.

     S.E.A. Corp. was also able to assist Indiv in expanding its business to Russia. A meat processing company in Novorossiysk wanted Indiv to help turn barns into poultry houses. Indiv turned to S.E.A. Corp. to coordinate all of the logistical aspects of the project and to provide the required documentation. The project was successful and projects for 2014 include new markets in Kenya, Asia, Managua, Nicaragua and Trinidad.

     “The key to our success is our employees,” says Heavner. “We only hire dedicated employees who care about providing excellence for our clients and who are willing to go the extra mile. The customer is the most important person in our business, and we only hire people that understand and treat the customer as the lifeblood of the business.”

 

Looking Forward

     As Heavner looks ahead, she sees the growth S.E.A. Corp. has enjoyed during the past decade continuing. Although the growth in U.S. exports has slowed down during the past two years as a result of a changing global economy, Heavner says that is expected to change. She says U.S. exports are expected to gradually pick up through 2017. In order for S.E.A. Corp. to keep up with the growing demand, the company’s five-year plan is to strengthen the company’s infrastructure.

     “Global logistics can be handled in New York, Long Beach, Asia or Lincolnton, N.C.,” asserts Heavner. “A company’s customer service center can be located anywhere in the world that has the technological resources of the 21st century.”

     Heavner keeps her pulse on the market trends of her industry, including new regulations and related issues. Members of the S.E.A. Corp. team attend global networking conferences throughout the year. These conferences, such as the TPM Conference in Long Beach, Calif., are attended by the world’s most senior international logistics experts. They offer speeches, panel discussions and roundtables to address the major challenges faced by the industry.

     Heavner, herself, spoke at the International Logistics Network in Vancouver, Canada, in 2013. The conference was attended by 1,700 members from 166 countries. Heavner spoke on pulling resources from each member to develop a seamless supply chain management that would benefit organizations exporting from the U.S.

     These conferences also provide the S.E.A. Corp. team members an opportunity to meet and get to know personally the leaders in the logistics industry.

     Heavner attributes the success she has achieved as a woman business owner to the parents who taught her to work hard, and she has no intention of relaxing anytime soon.

     “Hard work and a never-give-up attitude are the two key components to my success,” she asserts. “I believe in going the extra mile, treating others as you want to be treated and setting the bar high. These qualities will lead S.E.A. Corp. to continued success.”

     Self-help gurus assure us that we don’t need a title to be a leader or a million dollars to retire well. But some needs seem to have a natural partner. A city, for example, should have an ocean or at least a major river to call itself a port. Norfolk, Va.; Wilmington, N.C.; Charleston, S.C.; and Savannah, Ga., qualify. They have easy access to the Atlantic Ocean. St. Louis and Memphis are inland ports on the Mississippi River.

     How about Charlotte? In 1984, Charlotte was named an “inland port” for North Carolina. Are we transporting goods to market by raft on the Catawba?

     Charlotte along with Greer, SC., Front Royal, Va., and Cordele, Ga., are prime examples of what the United Nations calls a dry port. Dry ports are often hundreds of miles from the ocean or a navigable river. They provide a synergistic hub for trains, trucks, storage yards and cranes that save time, reduce expenses, decrease congestion around the real port and close gaps in America’s transportation system.

     Charlotte Inland Terminal (CIT) General Manager Robert Dawson explains. Consider imports. When goods travel from port to port and not from port to the customer’s door, Dawson’s staff can arrange for trucks to finish the trip. It is a service CIT provides once a week for a freight-forwarding client.

     CIT also enables customers to move their product to ocean terminals for export. Area timber companies like Weyerhaeuser are typical. Its headquarters books space on a container ship traveling to overseas ports, but Weyerhaeuser relies on CIT to get its product to the dock on time.

     Dawson has a network of trucking companies he calls for just such a need. “Today I have to get lumber to the Port of Wilmington by 4:00 p.m.” says Dawson. If the trucks miss the deadline, they find themselves in the same bind as late-arriving tourists. Like no shows at the Hampton Inn, the shipping company offers the space to someone else.

     CIT’s headquarters in northwest Charlotte is a storage site for 300 shipping containers, the ingenious 20 ft. by 8 ft. by 8 ft. boxes pioneered by North Carolina native Malcolm McLean. Containers coming into Charlotte by rail from ports around the country are picked up by area truckers at the CSX rail yard or at the new Norfolk Southern Charlotte Regional Intermodal Facility at Charlotte Douglas International Airport. The truckers deliver the containers to a customer and bring the empties to CIT for cleaning, storage and reuse.

     “Ninety-five percent of our shipping containers are empty,” says Dawson. “Basically my facility is nine acres of asphalt with two machines that lift containers off or onto truck chassis. Anyone who needs containers lifted comes here. And it is easier for exporters to get an empty container here than to go to Wilmington.”

 

Wilmington: N.C. Deep Sea Port

     In the mid to late 1980s, containers came to Charlotte from the Port of Wilmington by truck and rail. The old Seaboard line moved 300 containers a month by rail to the Queen City. North Carolina State Ports Authority (NCSPA) paid the rail line $1 million annually for the service.

     In 1989, three years after the merger that formed CSX, rail container shipments to Charlotte ended. CSX claimed there was not enough volume at Wilmington to justify continued rail service and that major hub ports like Savannah, Charleston and Norfolk were better able to handle container shipments inland by rail.

     “We have been in conversation with CSX about resuming that service,” says Tom Guthrie, director of liner services at NCSPA. “But we’ve not been successful yet.” There are two sides to CSX, explains Guthrie: CSX-I, the intermodal container division, and CSX-T, the boxcar division. CSX-T trains leave Wilmington every day. “We are trying to get CSX to add containers to that train a couple of times a week.”

     North Carolina has been in the import and export business long before 1984 when Charlotte became an inland port. In 1945, the General Assembly created the State Ports Authority to develop and improve the harbors and seaports at three ports: Wilmington, Morehead City and Southport.

     In his book, Waterways to the World, historian Walter Turner explains the unintended consequences of that political decision. “In retrospect it would have been wiser to begin with a clear understanding to make Wilmington the major port, with Morehead City as a secondary port. One of the key reasons the state ports authorities of Virginia, South Carolina, and Georgia have been successful is that each had a mandate to build one major state port.”

     Today containers and bulk cargo like dry cement dominate the 284-acre Port of Wilmington. Grains, chemicals, fertilizers, ores, minerals and cement are Wilmington’s chief imports. Forest products like lumber, paper and forage for livestock lead the list of exports with woodchips and wood pulp close behind.

     Before the invention of the forklift, bales, barrels, bags and lumber were considered bulk cargo. They now go by the moniker break bulk. North Carolina’s break bulk lumber market has declined significantly since 2006 with the collapse of the housing market attributed much of the blame.

     The cargo is quite different at the Port of Morehead City. No container ships dock there. Bulk cargo rules the import and export sides of the 128-acre port. Sulphur products, rubber, scrap metal, potash and ores are its chief imports. Phosphate and phosphate products are by far the terminal’s leading export. PCS Phosphate is the largest player at the Morehead City port. Its phosphate mine in Aurora, N.C., is one of the richest in the world.

     Southport is a different story. After spending $30 million in 2006 for 600 acres north of Southport, North Carolina State Ports Authority had dreams of a port that would rival Savannah and Charleston. New super-sized ocean-going transports that would easily maneuver through an expanded Panama Canal were the prime customers for the North Carolina International Port. By 2011, the dream evaporated. There were already enough deep East Coast ports for post-Pamamax vessels that are expected in 2015.

     Ports are considered post-Panamax-ready when their channel is 50 feet deep, their cranes are capable of loading and unloading the larger and wider ships, and their docks are engineered to handle the new and larger cranes. Southport was too shallow, too remote, and too late to play in U.S.A.’s major league. Development is officially on hold and there is talk of converting the area to a state park, not a port.

     Though North Carolina States Port Authority’s mission is to enhance the state’s economy, it only benefits a few instate companies. In Waterways to the World, Walter Turner estimates that 75 to 80 percent of North Carolina’s businesses that engage in international trade utilize ports outside the state.

 

Savannah: Ga. Deep Sea Port

     Savannah pops up on the radar screen of many importers and exporters. For the past 15 years, it has been the United States’ fastest growing port. The Journal of Commerce reports that among the 41 East Coast ports, Savannah ranks second for container tonnage after New York/New Jersey. Their second place standing covers both imports and exports. After Savannah, Norfolk comes in at No. 3 with Charleston at No. 4. The North Carolina’s ports at Wilmington and Morehead City are at the bottom of both lists.

     Savannah is now in the construction phase of SHEP—the Savannah Harbor Expansion Project. It has taken 15-years of plans, studies, applications, postponements, environmental discussions, comment periods, permits and Acts of Congress to get to this point. Construction will take four years and result in a 47-foot deep harbor and a 49-foot entrance channel for 36 miles of the Savannah River.

     The project includes developing connector roads from the port to I-95 and I-16. The result will be a single, massive container terminal on a 1,200-acre footprint. “That allows the kinds of efficiencies you don’t find at the typical American port,” says Robert Morris, senior director of corporate communications at GPA. “Cargo traveling by rail or truck goes to one facility to drop off or pick up loads. It presents a great opportunity for businesses to increase speed and efficiency and reduce cost.”

     Georgia Ports Authority (GPA) manages two seaports: Savannah and Brunswick port, 80 miles to the south. Georgia’s imports mirror what the average American thinks we bring to our shores. Leading the list is furniture, the product North Carolina lost to overseas manufacturers in the late 1990s. Next are retail consumer goods, machinery, appliances, electronics, automotive, hardware and houseware goods. Mooresville’s Lowes, the country’s second largest hardware chain, and Charlotte-based Electrolux are among Savannah’s major importers.

     Food ranks second after wood pulp as GPA’s leading export. And poultry is a major player in the food big leagues. By year’s end, GPA will be well into the second phase of its new 200,000 square-foot Nordic Cold Storage facility. When completed, Nordic will blast or shock freeze more that 10 million pounds of poultry and produce each week. The Port of Savannah already handles nearly 40 percent of the nation’s containerized poultry exports.

     The Colonel’s Island Terminal at Brunswick is GPA’s automobile export and import center. It is currently the second busiest auto terminal in the United States with double-digit growth in the past three years, says Morris. Automobiles exported include KIA, BMW and Toyota. Mercedes-Benz automobiles assembled in Vance, Ala., are shipped from Brunswick to Germany, the fatherland of this iconic brand.

 

Charleston: S.C. Deep Sea Port

     Add Greer, S.C., to America’s short list of dry inland ports. The 40-acre site opened in October 2013 as part of the South Carolina State Ports Authority (SCPA). Unlike Charlotte’s inland port, rail traffic provides a vital link to the sea.

     “Ten trains run weekly,” says Erin Pabst, public relations manager for SCPA. Five import and five export trains run overnight between Greer and Charleston. Rail traffic to and from Greer by Norfolk-Southern has removed an estimated 25,000 containers traveling by truck along I-26. SCPA expects containers to and from their inland port to eventually reach 100,000.

     While CSX trains may not travel between Charlotte and Wilmington, there is good rail connectivity from Charlotte to Greer and Charlotte and Charleston provided by Norfolk-Southern. That fact plus its size, efficiency and productivity gives the Port of Charleston a competitive advantage over Wilmington for Charlotte’s business.

     Even North Carolina’s highways favor Charleston. Interstate travel from Charlotte to Charleston is almost 100 miles shorter than the I-77, I-85, I-40 trip from Charlotte to Wilmington. No wonder Pabst says, “Charlotte is one of our largest import and export markets.”

     Among the larger North Carolina companies connecting to South Carolina ports are Siemens, Continental Tire, Deere-Hitachi, Husqvarna and S&D Coffee. Looking at the bigger picture, much of our furniture, lumber, machinery parts, chemicals, textiles and recyclable materials such as PET plastics and paper is exported from Charleston. Even our frozen turkeys head to the Palmetto City. “Poultry is a growing market for the SCPA,” says Pabst.

 

Two New S.C. Deep Sea Ports?

     There are two new Southern ports are on the drawing board.

     South Carolina Ports is well into Phase 1 demolition, site clearing and construction of the 280-acre Navy Base Terminal. This three-birth SCPA-funded terminal is located on the south end of the former Charleston Naval Shipyard. The federal government closed the ship-building and repair facility in 1996.

     Navy Base Terminal is expected to increase container capacity of the Port of Charleston by 50 percent when it commences operations in 2019. Since 2005, the area north of the new terminal has undergone revitalization as a mixed-use urban hub and historic district for the city of North Charleston.

     Prospects for a new terminal in Jasper County, S.C., do not seem as rosy. Putting aside a rivalry that extends beyond football, South Carolina and Georgia signed an agreement in 2007 to collaborate on the development of the Jasper Ocean Terminal. That key piece of land sits on the Savannah River south of Hilton Head Island.

     Last year a consulting firm estimated that it would take 13 years to obtain the necessary permits to build the new 1,500-acre terminal, the country’s largest contiguous port. Jasper Ocean Terminal Board Chair Dave Posek apparently wants to delay construction even further. He prefers waiting until the ports at Charleston and Savannah near capacity in about 17 years.

     Are Southern ports ready for the big changes that lie ahead once an expanded Panama Canal opens in 2015? Charleston and Norfolk are ready. Savannah will be ready by 2018, the completion date for its often delayed expansion. The Port at Wilmington will not be able to accept the largest post-Panamax ships, but that is not necessarily a disadvantage.

     Senior Director for External Affairs for NCSPA Laura Blair explains: “There is not one post-Panamax vessel, but a wide variety. We are talking with our customers and asking what they think we need to do to meet their needs.”

     The ports at Wilmington, Charleston, Savannah and Norfolk are the South’s gateway to global trade. They are job-creating magnets for international trade and investment. In what many are calling the post-Panamax decade, these great economic engines will provide Charlotte businesses with an array of opportunities for new markets, more sources of raw materials and greater profits.

 

BizXperts

This article deals with another 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 for themselves 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.

 

     When it comes down to your business, a buyer only cares about two things: Return and Risk. How much profitability will your company make in the future (Return)? How reliable are your estimates of future profitability (Risk)?

     In its simplest terms, Value = Return/Risk, where Return equals cash flow and Risk equals a buyer’s required return on investment. The Return is calculated as the EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) of the business. The Return is normally easy to calculate (though don’t forget to consider addbacks, non-recurring revenue and expenses, etc.).

     The Risk is dependent upon how reliable potential buyers of your business feel your estimates are as to your business’ future Return. If your future return is considered very risky, a buyer may require a 50 percent Return on his investment. If your estimates of future return are considered relatively safe, a buyer may only require a 10 percent Return.

     Basically, the lower the Risk, the higher the multiple of cash flow you will receive upon sale. The multiple is the reciprocal of the required return. If the required return is 10 percent-, then the multiple equals approximately 10 (1/.10=10).

     What all this means is that there are only 3 ways to increase the value of your business: 1. Increase Return; 2. Lower Risk; or better yet, 3. do both!

     To increase Return and lower Risk, a business owner should employ “value drivers.” Value drivers are what qualified buyers look for in a business which increases the business’ value by increasing Return or lowering Risk. What are some of the key value drivers?

 

A Clear and Compelling Vision. This sets the expectations for employees and creates a common mission across the business, communicates culture and core values, and provides employees with significance from their job beyond a paycheck.

 

A Growth Strategy. A believable and executable plan to achieve the growth objectives within the vision. The more scalable your business is, the more likely a buyer will believe your projections since the business growth is not dependent on the owner.

 

A Stable and Motivated Management Team. A team capable of driving future success without the owner. These key employees should be tied to the company by carrots(incentive plans, possible ownership, stay bonus plans, etc.) and sticks (non-compete, non-solicitation of customers and employees agreements, etc.).

 

Products/Services. Includes vibrant, growing niche markets, proprietary or patented products or services, and contractual and re-occurring revenue streams.

 

A Diversified Customer Base. No one customer is larger than 15 percent of your revenue. Customers are financially healthy and have contracts with your company.

 

Excellent Operating Systems. Operating systems with the right operational performance metrics.

 

Fixed Assets. Facilities appearance and condition is excellent as well as the age and condition of operational assets.

 

Financial Systems and Effective Financial Controls. Financial reporting is accurate, timely and useful.

 

Financial Growth. Growth in all three areas of revenues, cash flow, and profitability at once.

 

Owner Removed. If possible, the owner is already removed from the business (one of the most important).

 

     However, from our experience, the single most important value driver is your overall relational health with your employees, customers, suppliers, and co-owners. Always be respectful and kind to your employees and continuously recognize them for good performance. Make certain you are surveying your customers to ensure you are serving them to the best of your ability and you have no misunderstandings. (Try a tool called the “Net Promoter Score” as a proven and formal way to predict growth). Have great relationships with several separate suppliers. Work hard to keep your communications and understanding (as well as contracts) up to date with your co-owners.

     Next month we will discuss a number of other ways to manage and lower your Risk that your cash flow will be interrupted or decreased.

     This year, Charlotte Douglas International Airport (CLT) will transform from the second largest hub of the new American Airlines—the world’s largest airline, into the most integrated global trade hub on the East Coast of North America.

     It will encompass the most comprehensive transportation facility as air, trucking, and rail (with shuttles to the ports of Norfolk, Charleston and Savannah) will all have presence within the airport. It will become the most reliable because freight can be transferred to any mode without entering a city street. It will be the most cost-efficient because goods transfers take place without having to leave the airport area. This facility will elevate the Charlotte region from a local distribution role to a global competitor.

     Important to the strategy is the massive project to widen the Panama Canal that will be completed in 2015. Ships laden with cargo nearly triple that of the current ships that can pass through the canal will be able to transverse from the Pacific to the Atlantic, transforming oceanshipping patterns. While the effects of the opening of the Canal on the East Coast ports of North America are still uncertain, what is certain is that the opportunity for expansion of direct trade between the East Coast and Asia will be greatly increased.

     The plan for the CLT multi-modal hub began years ago; resulting from the recognition of rapidly increasing global freight flows after 1990 as the former Communist bloc countries became integrated into the world economy. By 2000, what had begun as accelerating growth turned into an avalanche of trade that altered the global economic landscape.

     The Chunnel connecting England by a land connection to Europe for the first time in history, the Oresund Bridge between Denmark and Sweden connecting Scandinavia by surface transportation, and the widening of the Panama Canal are all projects of historic dimensions.

     Within this context, the previous CLT Airport Aviation Director, Jerry Orr, initiated the process of exploring the possibilities of expanding airfreight volumes at CLT. Over 20 years ago, he recognized that change was coming; while passenger volumes were rapidly increasing, airfreight volumes remained pallid. The desired increase in airfreight volumes would represent an expansion of airport revenues, strengthening the airport’s financial profile and increasing its competitiveness.

     The assessment of Charlotte’s role in the air-freight market of the East Coast airports revealed that the Charlotte region fulfilled a marginal role as a trade and transportation hub between the major trading regions of the Eastern United States, New York, Atlanta, and Miami. Unless Charlotte was to evolve as a more important trading center, airfreight would not increase significantly at CLT.

     Developing the plan for the airport involved pulling together the major transportation, communications, and finance companies serving and located within the region. The plan was not academically-based, as was the struggling Global Transpark, but an industry-based plan that involved developing industry relationships that were vital to implementing the plan and operating the facility.

     This strategic development plan called for the creation of the Charlotte Air Cargo Center, construction of a third parallel runway, and the relocation and development of an intermodal/bulk transfer rail facility. Geographic location would be crucial to the success of the global intermodal hub; the airport is located at the intersection of the Norfolk Southern mainline and interstate system and is bounded by I-85 to the north and I-77 on the east. Norfolk Southern’s rail line lies directly to the north of airport property.

     A land envelope would be created by acquiring sufficient land directly adjacent to the airport. This would restructure the urban grid to create an “economic edge city” to strengthen the airport, the community and uptown, while creating new transportation opportunities through the relocation of rail lines and yards.

     While a great deal of press and public attention has been given to the growth of trade on the Pacific Coast, especially in Los Angeles, it is predominantly goods arriving from Asia. Along the East Coast, trade is more balanced between Europe and Asia, with a significant portion from Latin America and to a lesser, but growing extent, Africa, the Middle East, and the Indian subcontinent.

     From a local distribution market, companies from each of the other five major trading blocs will now flow through the Charlotte region, providing the area with an unprecedented opportunity to increase its visibility across the world and attract industry from areas that were not traditionally present in the region.

     With its infrastructure in place, the Charlotte region has developed an unparalleled infrastructure that can provide it new global opportunities. CLT has just begun the next steps in fulfilling its desired goal of becoming a global leader in the logistics world. The future for new businesses, research and development, and manufacturing/industrial parks has yet to be realized.

     For more than 15 years, CLT has been systematically assembling the necessary development components that were specified in the airport’s Strategic Development Plan. A new third parallel runway opened on February 11, 2011. Ground was broken for the new intermodal rail yard on May 2, 2012. In December 2013, Norfolk Southern moved its operations from its rail yard near uptown Charlotte to its new Charlotte Regional Intermodal Facility at CLT, 19 months after construction began.

     The intermodal facility represents a $92 million investment in the region. Funding for the facility included $15.7 million in federal funds and some financial support from the State of North Carolina with Norfolk Southern funding the remainder of the project.

     A total land envelope of approximately 4,000 acres on property and bordering CLT and the intermodal rail yard has been assembled and airport staff is working with the appropriate entities to ensure proper zoning, roadway and utility infrastructure and environmental compliances are in place so that compatible economic development may be pursued.

     CLT is in the federal approval process to have local boundaries for the nearest Foreign Trade Zone (FTZ) adjusted. This will allow companies utilizing the intermodal facility and adjacent areas a competitive advantage of a tax relief business zone. Strengthening and enhancing CLT’s logistics infrastructure with the addition of a FTZ is another vital component that will allow Charlotte to continue emerging as a major East Coast economic center.

     CLT will further invest in this effort by adding an economic development manager to create and promote additional cohesive and innovative strategic initiatives. The Charlotte Regional Intermodal Facility at CLT is expected to serve as a catalyst for entrepreneurial growth and innovation, while presenting the opportunity to strengthen existing business sectors and growing new sectors.

     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. While gross profits, operating income, net income and EBITDA all relate to earnings, each emphasizes a different aspect of financial performance.

     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.

 

Gross Profit is revenue minus the cost of making a product or selling a service. This is profit earned after direct expenses such as manufacturing labor, materials, supplies and some direct overhead costs are subtracted from revenue. These direct costs are usually referred to as Cost of Goods or Cost of Sales. Wages paid to workers who harvest, roast and package coffee beans, bag and box costs, maintenance costs, and other expenses incurred during the harvesting and packaging process might all be included in cost of goods. In our example, Company A is best, because its gross profit is $165,000 higher.

 

Gross Margin is calculated by dividing gross profit by revenue, and gross margin allows companies with different revenue levels to be compared. Since Company A has higher revenue, you would expect its gross profits to be higher; its 34.2% gross margin confirms that Company A earns $0.342 gross profit per revenue dollar while Company B earns only a $0.326 gross profit per revenue dollar.

     An investor might consider Company A more attractive if he thinks he can significantly increase either company’s revenues, because additional revenue at Company A will generate more gross profit than at Company B. It is important, however, to know the specific costs that are included in costs of goods when making this comparison. In our example, Company B could be including expenses in its costs of goods that Company A includes in Selling, General and Administrative expenses (SG&A). For an accurate comparison, the gross margins must be calculated using similar costs.

 

Operating Income is gross profit less all selling, general and administrative expenses. These expenses include costs not directly related to making a product or delivering a service. Coffee manufacturers might include rent, management and sales wages, bank fees, advertising and travel expenses, accounting and legal fees, utilities, etc. as part of SG&A. Company B’s operating profit is $15,000 higher than Company A.

 

Operating Margin is calculated by dividing operating income by revenue. Again, operating margin provides a way to compare companies with different revenue levels to determine who performed best after most expenses are subtracted. Company B has both a higher operating profit and a better operating margin. While Company A was able to produce more profitable products during the manufacturing process (higher gross margin), they are now less profitable from an operating perspective, because their SG&A costs are higher than Company B. A bank or investor might now be more impressed with Company B, because its operating margin is 0.5% higher than Company A’s.

 

     While no single earnings ratio can explain a business’s overall financial performance, gross profit and operating income do show total dollars earned at two different levels of a company’s operation. Gross margins and operating margins, however, are needed to make comparisons between companies with different total revenue.

     In our example, when we switched from one earnings ratio to another, the most financially profitable company switched from Company A (higher gross margin) to Company B (higher operating margin). It is important, however, to know the specific costs that are included in cost of goods and SG&A to make an accurate comparison between companies.

     Next month, we will use this same example to look at net income, net margin and EBITDA.

Publisher's Posts

     Ever since Pat McCrory assumed his elected position as Governor of North Carolina in early 2013, we have heard about his ambition to turn the economy of North Carolina around. He attends nearly every media conference that celebrates a new business moving to North Carolina or opening a new office or expanding its workforce in our fair state. I don’t blame him. I would be front and center too, if I were in his shoes.

     Governor McCrory has appointed several people from the Charlotte area to his leadership team that are quite knowledgeable about economic development including Tony Almeida, his senior advisor for jobs, Sharon Decker, his Secretary of Commerce and John Lassiter, who will chair his new Economic Development Partnership.

     While Almeida stepped down in January soon after the new jobs plan was released, Decker and Lassiter are directing a transition from a governmental agency, the Commerce Department, to a public/private partnership called the Economic Development Partnership of North Carolina, Inc.

     I have had the privilege of listening to presentations from both Decker and Lassiter. They have done their homework and speak with clarity about their plans and the importance of them. Over the past year, they have reviewed the performance of the Commerce Department and they have many recommendations for its improvement. Their North Carolina Jobs Plan was completed in December 2013 and released in January 2014. It is comprehensive and covers the gamut of economic development initiatives.

     The plan is actually quite good. It covers all the valuable ambitions…targeted industry clusters with an N.C. brand to carry them forward, business climate issues including deregulation and lower tax rates, innovation and entrepreneurship to encourage small business and startups; talent and retiree attraction to assemble workers and prepare them to good use; education and workforce development taking full advantage of our community colleges with a greater focus on Science, Technology, Engineering and Math (STEM); and added emphasis on rural and community development as well as delivery of services. This plan works to serve all corners of the state and every community within it.

     What I don’t get from this plan is why this needs to be implemented with a move from a state agency to a “public/private” partnership. Will it save money? Will it remain accountable for its use of state funds? How will it prove to be more expeditious in response to corporate inquiries about opportunities within the State of North Carolina?

     I have two primary concerns.

     First, I am not confident about the need to create a new organization that will serve the public interest any differently from a state agency. Transparency, accountability, expeditious responses and annual plans should be part of any organization whether it is a state agency or a public/private partnership.

     The Governor, Decker and Lassiter have already spent the last year reviewing previous economic development strategies over the last 20 years and building their plan of action. They don’t even have implementing legislation prepared for this newly revised agency and it could not be passed into law until, at least, July or August at the earliest. That is nearly two years into a four-year term of office.

     Even if Governor McCrory is re-elected for a second term, this team has not even begun to raise any of the “private dollars” that are to be raised along with public dollars for this organization to function. I would much rather that they spend their time promoting the state using existing resources more effectively.

     But, what troubles me most is my second concern. I am troubled by the underlying messages in this plan. Concerns about regulations, costly litigation and taxes are always front and center when politicians are trying to gain support from the business community. Both Republicans and Democrats rail against unnecessary and burdensome regulations and onerous business taxes.

     After further investigation, however, it is often the case that regulations have been written to protect consumers or public interest after private enterprise has failed to provide protection or has taken advantages to the detriment of the public. North Carolina will be right for some businesses and not right for other businesses. We need to be selective. Not every match is the most appropriate match for this state or region.

     What is most important is to build upon the rich investments we have made in education and innovation within North Carolina. In the midst of global competition, we should use our limited resources to serve our statewide interests.

     Our state is located at the center of the East Coast and Midwest with abundant land. We have an ample and growing supply of competent, capable and trainable workers. We also have access to major markets with great highways, railroads, airports and ports. We have clean water resources, low cost electricity, low cost natural gas, great universities, outstanding community colleges, quality public and private school systems, and an outstanding quality of life and environment.

     We can compete for business anywhere in the world. We need to be careful to protect, preserve and expand on our assets so that we can be competitive for many years to come and for future generations.

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