Short Line Railway Leader Watco Branches Out into 3PL Services
Springdale, Arkansas USA Site Visit
June 23, 2016
By
Evan Armstrong

Key Personnel:
Eric Wolfe, President – Watco Supply Chain Services
Andy Cordischi, Senior Vice President/Chief Information Officer – Watco Companies
Lynda Patterson, Vice President, Growth Strategies – Watco Supply Chain Services
Judd Gilgen, Vice President, Risk Management – Watco Supply Chain Services
Amy Parady, Vice President, Business Development/Corporate Liaison – Watco Supply Chain Services

Watco Companies History
To support its first customer Boise Cascade, Charles R. “Dick” Webb founded Watco Companies in 1983 with the purchase of an industrial railroad switching operation in DeRidder, Louisiana. Dick Webb instituted a “customer first” culture at Watco focused on identifying customer needs and delivering solutions in an era when large railroads were rationalizing their networks and reducing the number of value-added services being provided.

In 1985, Webb opened a railcar repair shop in Coffeyville, Kansas and secured a contract to repair railcars for coal trains traveling from the Wyoming coal fields to southern power plants. The Coffeyville mechanical shop was served by the major rail lines, and during discussions with the Union Pacific, the opportunity arose to purchase a rail line running from Nevada, Missouri to Coffeyville, Kansas. This was the Union Pacific’s first short line railroad sale.

Fast forward to today and it is easy to see the Watco growth strategy has been consistent and opportunistic. The guiding Customer First Foundation Principles have never wavered over the past 33 years: “Value our Customers, Value our People, and Safely Improve Everyday.”

• From the first industrial switching customer, Boise Cascade, in 1983 to 30 industrial switching customers across the United States;
• From the first railcar repair shop in Coffeyville, KS in 1985 to 38 railcar repair shops through a 50/50 railcar repair joint venture with The Greenbrier Companies, creating the largest independent railcar repair shop network in North America. The venture, GBW Railcar Services, LLC, owns and operates the combined network of railcar repair, refurbishment and maintenance shops of Greenbrier and Watco;
• From the first short-line purchase to a growing inventory of 36 short line railroads operating in the United States and Western Australia, Watco Transportation Services (WTS) is the largest privately owned short line operator in the United States, covering 4,500 miles of track and shipping more than a half million carloads annually;
• In 2008, Watco expanded into terminal and port operations through the purchase of Reload, Inc. which brought 25 years of transload experience. Through continued investment, Watco currently operates 55 terminals across the United States, with the largest being Greens Port Industrial Park, the largest private multi-tenanted industrial park in the Gulf Coast market, located on 655 acres on the Houston Ship Channel offering deep water and barge docks, 31 miles of rail infrastructure, unit train capabilities, three million square feet of warehousing, storage and general transload;
• Listening to the customer once again, Watco launched Watco Supply Chain Services (WSCS) in 2014.

With the addition of WSCS, Watco Companies has become a multifaceted logistics provider with 2015 revenue in excess of $800 million.

Watco Adds Supply Chain Services
In June 2014, Watco Supply Chain Services (WSCS) was launched with industry veteran Eric Wolfe at the helm. Previously, Eric held leadership positions with BNSF Logistics, Clicklogistics, Cardinal Logistics, and J.B. Hunt.

The main focus of WSCS is to provide customers with supply chain management services including domestic over-the-road and intermodal transportation management offerings. Additionally, WSCS has differentiated with specialized rail logistics and engineering and regulatory consulting (ERC) services. Its current network includes 11 domestic branch offices with a staff of nearly 100 team members, servicing over 470 customers. WSCS is on track to generate $65 million in revenue in 2016.

Approximately 75% of WSCS’s revenue comes from domestic over-the-road transportation management services. Intermodal accounts for 10% and the remainder is split between its Rail Logistics and Engineering & Regulatory Consulting (ERC) services.

Highway and Intermodal
Domestic over-the-road transportation management services:

• Truckload – Van, Flatbed
• Over-Dimensional / Specialty
• LTL / Consolidation
• Dedicated Capacity (25 dedicated units for a major retailer)
• 3PL Outsource Services
• Network Optimization
• Mode Optimization
• Freight Audit and Payment

Intermodal transportation management services:

• Full Service Provider
  • Door-to-Door Variations
  • Ramp-to-Ramp Variations
• Shipper Load / Consignee Unload
• Transload Scenarios
• Container and Chassis Management
• Port and Terminal Drayage

WSCS works with over 15,000 motor carriers, its short-line railroad brethren, and Class I and II railroads in developing solutions for customers. It utilizes its own proprietary TMS (transportation management system) to manage domestic over-the-road shipments, as well as intermodal and rail transportation management.

Rail Logistics
WSCS sees rail logistics as a key differentiator versus other third-party logistics providers (3PLs). Key industries for its rail logistics services include industrial products, consumer goods, bulk commodities, and energy industry goods.

Its rail transportation management offering relies upon coordinated truck/rail service combinations to achieve high on time performance at lower costs versus pure over-the-road transportation management solutions. According to Eric Wolfe, “We are making rail ‘truck-like’ providing customers with the benefits of large rail network scale and cost in an easy to use multimodal transportation management package.” Each customer solution will often start with a modeling exercise comparing the cost and service levels between different mixes of transportation modes. A lot of the WSCS rail logistics solutions include railcar (not intermodal containers) and over-the-road trucking modal combinations to provide customers with door-to-door transportation management services. In addition, its solutions can utilize one or more of Watco’s transloading or port operations if needed.

As part of its rail logistics service offering, WSCS provides customers with railcar fleet management services, which has two major service components: railcar location management and railcar maintenance management.

WSCS has a dedicated customer service team providing customers with railcar location management services. It uses active AEI (Automatic Equipment Identification) radio frequency tags mounted to railcars to provide integrated real-time shipment tracking statuses to its Fleet Management Software across all classes of railroads. By monitoring railcars, the team can ensure that equipment is at the right place at the right time avoiding network “bottlenecks” and in-turn, minimizing storage and demurrage charges. With the data from the system, WSCS can track railcar utilization and fleet velocity to drive continuous improvement initiatives.

Railcar maintenance management programs are a significant value-add for WSCS customers. WSCS manages railcar maintenance programs with its Watco run and outside vendor repair shops. It coordinates railcar diversion requests and empty dispositions. WSCS documents maintenance needs and maintains records on each railcar’s repair history to ensure compliance. It also performs maintenance audits and railcar registrations.

Engineering and Regulatory Consulting
The Engineering & Regulatory Consulting (ERC) team delivers highly technical, compliance-based services to customers in the railroad, switching, shipping, manufacturing, repair, and supply industries. Its engineering consulting services include: ceramic engineering, manufacturing engineering, mechanical engineering, metallurgical engineering, weld engineering and reliability engineering; product design, development, and redesign; product failure analysis; and tank car qualification and maintenance programs. It basically works with customers to ensure rail transportation is provided in a safe, compliant, and cost effective manner from railcar design, repair, through ongoing service.

Engineering:

• Qualification and maintenance programs
  • Freight cars
  • Tank cars
  • Components
• Railcar design and repair design (AutoCAD, SolidWorks)
• Reliability engineering
• Metallurgical and failure analysis services
• Manufacturing engineering, facility layout and process development
• Expert witness for litigation support

Compliance:

• Association of American Railroad (AAR) based compliance audits and program development
• Training, program development, and auditing
  • Hazardous material – railroads, shippers, manufacturers and maintenance facilities
  • Nondestructive testing
  • Quality assurance
• Car Analytics Reliability System (CARS), life predictions
• Welding support (AWS D15.1 and AAR Appendix W)

MRO Services:

• In-plant maintenance, repair, and operational services
  • Railcars
  • Track
  • Switching

WSCS Customer Solutions Examples

• WSCS is providing over-the-road transportation management services to a Fortune 100 Global retailer for deliveries of lawn mulch and store fixtures shipments. WSCS supplies it with surge capacity for seasonal, construction, and promotional transportation needs. This includes managing trailer pools and “pop up” fleets. Each shipment is time sensitive requiring delivery appointments. Store fixtures are being shipped to new stores, remodeled stores, and to relocated stores. The fixture shipments have special delivery requirements with WSCS coordinating operations with shippers, store managers, installers, project managers and warehouse personnel.
• For a leading provider of fresh herbs in the United States, specializing in supplying the retail grocer market, WSCS is managing refrigerated truckloads of USDA certified organic live plants and dry herbs from mixing centers to multiple grocery warehouses including Kroger and Giant Eagle.
• For a leading floor covering customer, WSCS has integrated an over-the-road and intermodal rail transportation management strategy that includes managing cross border over-the-road truckload shipments from El Paso and Laredo, Texas to merry into the intermodal network, and final delivery at destination.
• WSCS manages a fleet of 1,500 crude oil railcars for a leading energy-related customer. The service includes the daily monitoring of fleet railcars and providing fleet analytics to properly manage the ongoing size of the customer’s railcar fleet. WSCS performs multiple administrative functions comprising AAR Circular OT-5 application submissions, one time movement approvals, and depreciated value statement submissions. WSCS is also managing railcar maintenance services including shop scheduling and repair auditing.

Watco Supply Chain Services Operations Summary
WSCS is unique 3PL with a service offering spanning traditional over-the-road and intermodal domestic transportation management, to highly specialized niche services including railcar maintenance and engineering consulting services. Its rail logistics offering, with multimodal transportation management and rail/road solutions, is competitively differentiated and should be an area for growth. With the support of its customer-focused parent, we expect to be hearing more about Watco Supply Chain Services going forward.

Sources: A&A Primary Research, http://www.watcosupplychain.com/