Greatwide diversifies
Streamlined logistics company re-introduces itself after financial restructuring.
By Eric Kulisch
There are bankruptcies and then there are bankruptcies.
Greatwide Logistics was a solid operating company with satisfied customers when it went into bankruptcy in late 2008. Its financial crisis was precipitated by the huge burden of debt private investors took on to acquire the company, and their inability to meet repayment schedules and reduce their debt ratio as trucking volumes plummeted amid a major recession.
The asset-light motor carrier and third-party logistics company was subsequently acquired in February 2009 through a debt-for-equity exchange by two hedge funds ' Centerbridge Partners and D.E. Shaw ' that held Greatwide's primary debt.
With stronger financial backers and a restructured balance sheet, Greatwide spent the following year restructuring semi-autonomous units into an integrated operating company with a clear chain of command and a centralized technology platform.
Executives for the first time are mounting an advertising campaign to promote their new capabilities and targeting mid-size shippers as customers.
The bankruptcy 'probably hurt them a little bit in the marketplace, but on the other hand they have top quality management people,' logistics industry consultant Richard Armstrong said. 'The issue is getting all the parts working together like an integrated 3PL solution,' instead of a collection of different companies.
Greatwide is the nation's largest dedicated refrigerated contract carrier and one of the top overall dedicated contract carriers. The Dallas-based company also provides truckload service by managing freight dispatch for its fleet of independent truck drivers and manages dedicated distribution centers for major retailers.
Before the reorganization, the company's four primary business lines ' Greatwide Dedicated Transport, Greatwide Truckload Management, Greatwide Distribution Logistics, and Cargo-Master (truckload brokerage) ' all operated as separate units with their own vice presidents of sales, chief financial officers and other executives who worked under another level of executives at the corporate level. And each unit was responsible for measuring its own performance. The legacy structure was a function of the rollup strategy begun in 2000 by original carrier Refrigerated Transport Inc., and then accelerated by private equity group Fenway Partners, that led to a series of trucking and warehousing acquisitions.
(Fenway sold the company to Investcorp and Hicks Holdings in 2006 for $730 million.)
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| Gulisano |
The new ownership group installed Chairman Leo Suggs, the former president of UPS Freight, as chief executive officer to replace Raymond Greer. Bob LaRose last year joined the company as chief financial officer from Landstar System, another top performing asset-light trucking company. John Simone, who came over from UPS Freight in early 2008 to be president and chief operating officer of Greatwide Dedicated Transport, is now COO of the entire group. And Vincent Gulisano, previously the president of the warehousing and distribution business, is chief customer officer in charge of enterprise-wide sales and business development.
Under the consolidated structure, the sales force has been integrated and trained to sell the entire suite of products so that shippers only have to go through one contact.
Cross-selling trucking, freight management and warehousing services to existing and new customers is still a work in progress, but one that could ultimately propel the company to greater growth.
During the recession shippers cut back on freight transportation and logistics spending and put a lot of pricing pressure on 3PLs because they had less freight to move.
Armstrong, the founder of Stoughton, Wis.-based Armstrong & Associates, said a sustained economic recovery is necessary for customers to expand their relationship with Greatwide.
'They need the economy to recover to really provide them with a competitive solution. Otherwise, you get trapped in just doing tactical logistics pieces for people,' Armstrong said. 'So you want to develop at Greatwide a whole book of new business that utilizes the different functions.'
Tom Connolly, an associate with Atlanta-based logistics investment bank Eve Partners, agreed that unifying the brands makes sense.
'In general, the management team has done a pretty impressive job navigating the business through bankruptcy and maintained their customer base. They had some good disparate businesses that probably worked together behind the scenes, but marketing them together will be a positive for the organization,' he said.
Greatwide is a $1 billion company today compared to $1.2 billion during its peak in 2006-2007, before the trucking industry faced a three-year drop in demand that pre-dated the official start of the broader recession. About 65 percent of its business is dedicated trucking. Net revenue ' minus pass-through revenue for purchased transportation ' was about $305 million last year. The company plans to grow this year after experiencing a tremendous organic business expansion in the second half of last year. Year-over-year volume with existing customers is up and revenue has increased.
Greatwide recently won a contract from Dairy Farmers of America to transport the marketing cooperative's milk and dairy products from its plants to stores.
Officials say the financial restructuring left the company with a low debt-to-equity ratio of 0.72.
One of Greatwide's new advances is a centralized transportation operation center for procuring truck service from partners, tracking equipment and assigning drivers pickup and delivery orders instead of the previous method in which local facilities controlled their own dispatch.
At the heart of the 24/7 operation is an upgraded transportation management system from LeanLogistics that analyzes real-time satellite-based data about each truck's delivery status, location, the driver's available hours of service and other factors to optimize routes and identify backhaul opportunities throughout the network, which can help reduce costs and the rates customers pay. The system ' which ties into new load planning technology from McLeod Software, mobile communications from PeopleNet, and RedPrairie's warehouse management system ' helps planners identify the best mode, consolidation opportunities and carriers, including private fleets, dedicated capacity and unique hybrid combinations.
In the spring, Greatwide began offering a Managed Transportation Services product that allows shippers to outsource all or part of their transportation management functions. It essentially layers the company's brokerage operation on top of its internal trucking business with the help of the TMS to enable the company to act more like a pure 3PL than a trucking or logistics company that simply executes transportation moves. In that capacity, Greatwide will purchase transportation on the open market, manage the carrier selection and bid procurement process, and handle back-office tasks such as freight bill auditing, settlement and payment.
Greatwide's customer base has primarily consisted of large companies, including six of the top 10 grocery chains in the nation, but company officials are also targeting mid-size companies that supply big shippers.
'That's where our freight management system can be a strength. We can analyze their network and bundle their buying power,' Gulisano said in an interview, one of several he conducted in the spring as part of a campaign to reintroduce the company to shippers.
The trucking industry recession benefited mid-tier companies because, as freight rates plunged, the gap between what big and small firms paid narrowed. Now those companies are beginning to experience a reversal of fortune.
Gulisano pitched Greatwide's enhanced transportation management capability as a way for smaller shippers to better control transport costs as truck pricing firms up along with the economy.
'We think as capacity tightens, there is a potential for medium-size firms to get burned. More of the burden of the higher rates is going to fall on them,' he said.
Industry officials say shippers will increasingly find it difficult to find available trucks to move their goods because of driver and equipment shortages that were masked by the economic downturn. Many motor carriers went out of business. Others sold used trucks overseas without investing in new equipment and are grappling with new environmental regulations that make trucks more expensive to purchase. Meanwhile, the driver shortage that lay hidden the past couple of years is beginning to manifest itself as freight demand increases. Stricter truck safety enforcement procedures being implemented by the U.S. Department of Transportation this year are also expected to thin the driver pool.
The risk is greater too, Gulisano said, because some large retailers are already trying to change the terms of sale in supplier contracts to get control of the freight and use their volume buying power to negotiate more favorable rates with pre-selected motor carriers that vendors are forced to use. That means many suppliers could lose the profit margin they tack onto the cost of transportation listed on the retailer's invoice.
'So they need to start addressing that (cost differential) now so they don't lose control,' Gulisano said.
Greatwide acts as a neutral 3PL, but many transactional customers want the company to take advantage of backhaul opportunities on its dedicated trucking network to help obtain lower rates, Gulisano said. The practice also helps lower costs for dedicated customers because they are not on the hook for the entire round trip.
Greatwide's business model relies heavily on the use of 4,000 independent owner-operators, which gives it a variable cost structure that enables quick adjustments to market demand. The company encourages the use of three- to five-year contracts for dedicated contract carriage because it can better plan equipment purchases and subcontractor arrangements, while long-term amortization schedules allow it to provide more competitive rates. About a fifth of its fleet is company-owned equipment that is operated by about 1,000 in-house drivers.
Gulisano said most people assume that using outsourced labor translates into low-service levels, but Greatwide knows how to manage subcontractors to provide high service levels. Wal-Mart, for example, named Greatwide its carrier of the year in 2008.
Last November, Greatwide acquired the dedicated contract division of YRC Logistics, a subsidiary of troubled less-than-truckload carrier Yellow Worldwide. The $34 million sale included customer contracts, trucks and trailers. Greatwide gained additional customers in its core grocery and retail services, as well as increased strength in the industrial sector with steel and auto manufacturers. The deal also expanded the company's capabilities to provide dedicated flatbed service.
About 25 percent of Greatwide's revenue comes from its warehousing business. The 3PL leases warehouses and runs them for several major customers. It recently gave up on managing shared, public warehouses and now only operates facilities dedicated to specific customers.
In March, Greatwide took over operations at LG Electronics USA's 750,000-square-foot distribution center in Plainfield, N.J. The expansion of the existing LG contract brings the number of LG warehouses that Greatwide serves to five. About 25 employees there will fill orders and distribute appliances such as big screen TVs, refrigerators, and washers and dryers using full truckload, LTL and parcel modes.
Greatwide has begun to focus on pool distribution, Gulisano said, because it ties better into its transportation offering. Instead of directly delivering merchandise from various suppliers to retail outlets, workers at regional or local distribution center deconsolidate smaller LTL shipments and load full trailers headed to stores with multiple types of products ready to put on the shelves.
Consolidating inbound goods and making shuttle runs to a cluster of stores from the distribution center reduces the number of truck trips.