C-LEVEL executives at A&R Logistics Inc may seem overly optimistic when they proclaim that they are building the dry bulk transportation specialist into a billion dollar operation. However, the numbers show that the Louisville, Kentucky-based company is moving in the right direction.
After just two years under new ownership, the A&R Logistics management team has engineered what is essentially a major turnaround for the 46-year-old company that is a leading provider of dry bulk transportation, packaging, distribution, and logistics services. The company recently announced record revenues, record safety scores, and record service performance for 2014.
“We are very pleased with the progress we made during 2014, and we are very proud of the way A&R employees came together as a team,” says Mark R Holden, A&R Logistics chief executive officer. “A&R Logistics required more of an overhaul than we anticipated when we acquired the company two years ago. However, we have accomplished much as we achieved record revenues of approximately $220 million in 2014 while we were focused on building a culture of ‘Doing It Right.’ Much remains to be done, but we are encouraged by the support from our customer base toward our strategic goals of achieving perfection in safety and service.
“We’ve charted a strategic growth strategy, with the initial focus on optimizing the assets currently in place. Phase II calls for organic growth to build capacity and cement our position as a value leader. Next comes Phase III. In which we’ll focus on inorganic growth (acquisitions) to expand our share of the plastics transport market and develop new business in the liquid and dry bulk transportation and logistics sectors.”
Richard Mitchell, A&R Logistics president, adds: “Since acquiring A&R Logistics, we have been very focused on safety and service. We spent $24.4 million to repair, fix, and upgrade our fleet (compared to the $14.8 million spent during the two years before we bought the company), a 65% increase in fleet investment. We purchased 100 new tractors in 2013 and 2014, and we are adding 50 more this year.
“On the safety side, we spent $1.5 million to equip every tractor in our fleet with electronic driver logs, and that includes owner-operator trucks. We’re investing another $1 million to upgrade fall protection at our maintenance shops, wash racks, and transload locations. This safety investment, along with our push to build a culture of Doing It Right, helped A&R Logistics achieve its best CSA score (under the Federal Motor Carrier Safety Administration’s Compliance, Safety, Accountability Program) in December 2014. That safety performance has continued into 2015.”
Transportation background
Holden and Mitchell purchased A&R Logistics in 2012 after forming a transportation-focused investment company (MRH Holdings LLC) in 2008. To help finance the purchase, they partnered with Mason Wells, an independent investment firm that provides equity investment in companies with $25 million to $300 million in revenue. A&R Logistics is at the top of the range.
“Our connection to Mason Wells means we are backed by $1 billion in private equity,” Holden says. “That means we have the resources to grow this company through further acquisitions.”
Transportation has been the career focus for both men. Holden helped lead trailer manufacturer Wabash National through some difficult years as senior vice-president and chief financial officer from 1992 to 2001, while Mitchell became a mergers and acquisitions specialist at United Parcel Service. They served together at American Commercial Lines, and doubled the size of the barge line’s business.
Holden says he and Mitchell were attracted by the opportunity to acquire A&R Logistics for a number of reasons. “We see A&R Logistics as a broad-based transportation company that includes trucking,” he says. “It is asset based on the trucking and warehousing sides. While this is one of the smallest companies we’ve worked with, it is the largest bulk plastics transporter in the industry.”
Roughly $40 billion worth of chemicals (equaling about 803 million tons) are transported annually in the United States. That includes $300 million to $400 million worth of plastics shipments.
“We handle 40% of the total plastics volume transported on highway, and that accounts for more than 80% of our overall cargo,” Mitchell says. “However, we are focused on the entire bulk transport market and are developing more foodgrade and looking to expand our liquid chemical business.”
Transport service
On the trucking side, A&R Logistics serves customers throughout the United States and Canada with a fleet that includes more than 700 tractors, 1,200 trailers (primarily self-loading pneumatic bulkers), 150 dry bulk intermodal pressurized containers, and 550 dry bulk intermodal non-pressured containers.
For company trucks, the carrier is running a sleeper and daycab fleet that includes Peterbilt, Volvos, Freightliners, International, and Kenworths. The newest company trucks in the fleet include Volvo, Freightliner, and Peterbilt vehicles.
The standardized specification calls for 450 horsepower engines, automated manual transmissions, and tandem-drive axles with automatic traction control. The newest sleeper tractors were ordered with a mid-roof sleeper that offers plenty of stand-up room, a wide premium mattress, refrigerator/freezer, 120-volt inverter to power the driver’s personal electronic gear, a shorepower plug-in outside the sleeper, and an auxiliary diesel heater for n-idle heat in the cab and sleeper.
Electronic driver logs are managed with Omnitracs hand-held computers. Product handling equipment includes PTO-driven Tuthill and Gardner Denver blowers. Running gear includes Goodyear tires and Alcoa aluminum wheels with Zafety lugnut locks.
Heil and J&L Tank pneumatic self-loaders account for most of the dry bulk trailers in the fleet, and typical capacity is 1,600 cubic feet. Trailer hardware includes Bayco air filters, pressure-relief vents, and butterfly valves. The newest trailers were specified with Meritor’s MTA axle/air suspension system and the Meritor Tire Inflation System by PSI.
Warehousing and logistics
A&R Logistics has assembled a significant warehousing and transloading infrastructure to serves its plastics shippers. Warehouse space totals more that 1.8 million square feet spread across 10 facilities in the East Coast, Southeast, Gulf Coast, Midwest, and West Coast. Twelve transload locations offer more than 1,700 car spots.
The company continues to expand both the warehouse and transload infrastructure. In March, the company announced that it signed a lease for an additional 70,000 square feet of warehouse space in Jeffersonville, Indiana, bringing total capacity for that location to 170,000 square feet.
Other expansion projects over the past couple of years include opening a 112,000-sq-ft warehouse in Jackson, Tennessee in 2013. In Morris, Illinois, the company completed a $1.8 million rail track expansion, added another 60 railcar positions (for a total of 425), and added 18 transload positions (for a total of 84).
A new Dover system at the Morris warehouse can package one million pounds of plastic pellets daily. The sophisticated system has its own weigh scale with double weight-check capability, a vacuum blower system that pulls pellets to the silo feed, and an advanced dust collection capability.
On top of the transportation, transload, and warehouse infrastructure, A&R Logistics has built a far-ranging logistics capability. The company’s experienced 3PL team can address specialty national and regional logistics needs. Logistics capabilities include transactional brokerage, carrier management, transportation management, and international freight audit/payment services.
Key locations
Operations are directed out of three key locations—Louisville (corporate headquarters), Morris (operations and customer service), and Houston, Texas (commercial development). Management continues to make adjustments in the focus at these locations to align with the corporate vision.
“Prior to our acquisition, Morris was both the corporate headquarters and operations center, Mitchell says. “It was bursting at the seams, and we wanted to separate corporate management from operations. We’ve moved the corporate back office functions to Louisville, and it made sense to consolidate corporate functions in Louisville to provide room for growth in Morris.
“It’s all part of our effort to change the A&R Logistics culture. It is part of presenting a more professional image, and doing what we say and saying what we do.”
As A&R Logistics executives chart the company’s course for the future, Holden and Mitchell say their focus will remain on three key factors—safety, service, and people. They believe these core factors are key to driving excellence.
Safety focus
Safety tops the list because it serves as A&R Logistics’ foundation. “As the largest plastics hauler, we believe A&R Logistics has an obligation to be a safety leader,” Holden says. “Safety is our highest priority, and we put safety ahead of profits. That’s why we have invested $7 million to help build our Safety First culture.
“Safety is a cultural aspect, and it is at the core of our ‘Doing It Right’ philosophy. It means we always think before we act—protecting our employees, customers, partners, and others; carefully handling products and materials; and obeying all environmental laws and regulations. It is one reason we turned down tractor speeds (to 67 miles per hour on cruise and 65 miles per hour on the pedal) in addition to rolling out electronic driver logs across the fleet.
“While we may never achieve perfection in safety, that is our goal. We believe we have made a lot of progress over the past two years. Based on our safety scores, we believe that A&R Logistics is achieving excellence.”
Holden is passionate about hours-of-service compliance and enforcement. “We have problems in this industry with fleets not obeying the rules,” he says. “In fact, some fleets recruit drivers by advertising that they still run paper logs. We’re encouraging our customers to require e-logs from all of the carriers they use. We want a level playing field with e-logs across the board. It’s the right thing to do for public safety.”
Mitchell adds that the shift to e-logs did come with a price. Even though the carrier achieved record revenues in the past year, margins were lower as a result of lost productivity. To ensure that drivers were not penalized for the lost productivity, the carrier raised driver pay.
“We have had to take a closer look at our operations,” he says. “False capacity is created by incorrect hours-of-service management. For instance, industry practices of recording loading and unloading times at 20 to 30 minutes is not accurate. In reality, it takes an hour and a half to two hours. While this practices allows for more drive time, it is counter to both DOT rules and not consistent with our safety culture. A&R is taking a leading role in its capacity as one of the largest bulk carriers to help ensure that all carriers properly record duty time and not have an un-level playing field.”
Preferred employer
Holden makes it clear that A&R Logistics is doing its best to position itself as the preferred employer for drivers who want to run safe and legal. Drivers account for a majority of the carrier’s 1,200 employees, and the company is working aggressively on driver recruiting and retention.
“We’ve increased driver pay, and we believe we are in the Top 10 for the tank truck industry,” Holden says. “We’re also at the top of the heap for benefits. We benchmark our benefits package to make sure we stay at the top.
“While driver pay is always an issue with turnover and retention, it is not the biggest influence at A&R Logistics. The biggest challenge we face is home time and the difficulty of the job compared to drop-and-hook dry van work.
“Drivers aren’t the only workers targeted by our programs. A greater number of our employees share in the bonus and benefits programs, and this has helped with employee buy-in as we have made changes in the operation. People go where they are wanted and stay where they are well treated.”
Pay for A&R Logistics drivers ranges from $65,000 to more than $90,000. Bonuses for safe driving, fuel economy, and engine idle management can put a driver at the upper end of the range.
Driver recruiting is one of the factors addressed in A&R Logistics latest marketing campaign. The campaign also has highlighted the carrier’s growth over the past couple of years, and it has communicated the company’s focus on “Do It Right” and Safety First.
“Our drivers are responding very well,” says Lisa Grow, director of marketing at A&R Logistics. “They understand that this is a new A&R Logistics, and that we offer significant opportunities. We hope they see that every individual plays a crucial role in our organization.”
Service metrics
Satisfied, motivated drivers help ensure outstanding customer service, the third of the key focus points at A&R Logistics. The management team maintains a close watch over service metrics, including non conformances, on-time pick-up and delivery, contaminations, and other factors.
“Service translates into revenues,” Mitchell says. “The trend shows that we are doing things the right way. For example, we scored a service reliability of 99.8% in December.”
“It took a holistic approach to reach that target. That included replacing older equipment that was prone to breakdown, and improving our fleet maintenance effort. We will continue to bring more maintenance in-house, because outsourced maintenance is becoming a service liability.
“In addition, we work closely with our customers to provide customized solutions to their transportation and logistics needs. We still have an entrepreneurial spirit in this company and a desire to work in partnership with our customers.”
The carrier is doing a better job of communicating with customers. This includes an extensive overhaul of the A&R Logistics web site (www.ardoingitright.com). Customers receive regular updates on shipment status and factors affecting transportation operations throughout North America.
“We publish weather bulletins for our customers now,” Grow says. “We provide weather updates by region on a daily basis when needed. We communicate how the weather will impact our operations.”
Looking to the future for A&R Logistics, Holden and Mitchell say they see plenty of opportunity for growth and profitability. They see opportunities to broaden and expand the market in all areas.
“We can grow by double digits almost indefinitely,” Holden says. “We have more capacity coming online in the next few years. We’ll probably add more warehouses and transloading capacity. We see opportunities in foodgrade and liquid chemicals. Acquisitions will become a bigger part of our focus. We will continue to work toward that billion dollar revenue target.” ♦
