A&A Werner Enterprises Site Visit 6-2009

Werner Enterprises finds Growth in a Challenging Year

Omaha, Nebraska Site Visit

June 2, 2009

Evan Armstrong

Key Personnel:

Derek Leathers, Chief Operating Officer, President of Werner Global Logistics

Marty Nordlund, Senior Executive Vice President - Specialized Services

Jim Schelble, Executive Vice President - Sales and Marketing

Fred Thayer, Director of Corporate Communications

Company Overview

Founded in 1956, Werner Enterprises has grown from a small trucking company into a large, multifaceted transportation and third-party logistics (3PL) provider. Its 2008 revenues were $2.2 billion and net income was $68 million. Werner Enterprises’ service offering is split between truckload transportation, dedicated contract carriage, cross-border Mexican and Canadian services and non-asset based international and domestic transportation management. Werner Enterprises has over 14,000 employees (including over 3,000 non driver employees) and approximate trucking assets of 7,500 tractors and 25,000 trailers.

Werner Enterprises has invested sizably in its non-asset based 3PL operations, Werner Global Logistics (WGL) and Value Added Services (VAS), to expand beyond its core North American trucking operations. This includes additional domestic non-asset based transportation management capacity from a contracted base of over 6,000 alliance carriers. According to Derek Leathers, Werner Enterprises’ chief operating officer and president of Werner Global Logistics, "Our three-to-five year plan is to grow Werner to a $3 billion enterprise and have a third of our revenues generated by the non-asset based logistics services (VAS and WGL) operations."

Value Added Services (VAS) Overview

Founded in 1994, Werner Enterprises’ VAS has evolved from Werner Logistics Services. It consists of Brokerage, Freight Management services and Intermodal. VAS and WGL have grown to over $450 million in annual freight under management. When adjusted for accounting revenues, combined gross revenues for 2008 were $265 million and now account for 13% of Werner Enterprises’ total revenues. Of the $265 million non-asset based logistics services revenues, $135 million was generated by Brokerage with the balance coming from Freight Management services, Intermodal (approximately $50 million) and WGL. Total operating income for the non-asset logistics services operations was $14.6 million in 2008, which equates to 12.9% of Werner Enterprises’ total operating income.

Werner Enterprises’ Brokerage operations have grown rapidly since being formed in 2003. The operation now has a staff of 95 working out of 10 North American offices. Werner Enterprises’ Brokerage has contracts with over 6,000 carriers. Seventy percent of its business is dry van truckload, 15% is flatbed and specialized, refrigerated/temperature controlled and less-than-truckload (LTL) account for 5% apiece, and other modes account for the rest. Werner Enterprises’ Brokerage also performs power-only driver/tractor services for customers with trailers and transportation of bulk commodities. According to Skip Schollaert, senior vice president - Brokerage and Intermodal services, "We are actively targeting temperature control, LTL and commodities brokerage business for a significant part of our future growth."

When more extensive transportation management is desired by a shipper, Werner Enterprises’ Freight Management services provide a holistic approach to managing customers’ transportation from network analysis and design to transportation execution and visibility. It utilizes Werner Enterprises’ proprietary transportation management system, SMART, to optimize transportation modes and consolidate orders, create shipments and route shipments to carriers. Using SMART, Freight Management manages inbound and outbound transportation, tracks carrier routing compliance and insures proper freight bill payment. Freight Management’s services are organized into industry categories: retail, industrial, manufacturing and food services. This allows it to concentrate on industry expertise and implement the targeted logistics solutions for its varied customer base.

Intermodal services further differentiate Werner Enterprises from the majority of its domestic 3PL competition. Based in Omaha, the Intermodal operation leverages Werner’s equipment base of 25,000 trailers and offers a range of transit options to meet customers’ supply chain needs. An estimated 60% of its loads are handled via "free runners" (rail-ready trailers) and 40% are handled as trailer on flatcar (TOFC).

Werner Global Logistics Overview

Werner Global Logistics (WGL) was founded in 2006 and is made up of three separate legal entities: Werner Global Logistics U.S., LLC, Werner Global Logistics (Shanghai) Co. Ltd. and Werner Global Logistics Mexico. Werner Global Logistics U.S. is a licensed U.S. NVOCC (non-vessel operating common carrier), U.S. Customs Broker, TSA-approved Indirect Air Carrier, ITAR Certified Air Carrier and IATA Accredited Cargo Agent. Werner Global Logistics (Shanghai) Co. Ltd., is a licensed freight forwarder and NVOCC in China and a logistics, consulting, warehousing, consolidation and ground transport operator throughout China. Werner Global Logistics Mexico provides freight forwarding and NVOCC services to Werner Enterprises’ customers in Mexico.

WGL has over 200 customers and is managing international shipments to and from over 90 countries worldwide. Its import/export services include: ocean and air freight forwarding, NVOCC shipping, shipment consolidation/deconsolidation and customs brokerage with duty drawback processing. Additional WGL services include: purchase order and vendor management programs, product labeling and pick/pack operations.

In addition to its own office network in China, WGL has established alliances with select local Chinese logistics providers to provide inland distribution from major ports and warehousing and transportation services from 20 distribution centers throughout China. WGL has also established an agent network in Europe, Central America, Africa, Russia, South America, India and the Caribbean. WGL's largest NVOCC/freight forwarding markets are: 1. exports/imports to and from Eastern Asia, 2. exports to Africa and 3. imports/exports to South America. The WGL companies and agent office locations are shown in the figure below.

Werner Global Logistics Locations

Dedicated Services

Established in 1992, Werner Enterprises’ Dedicated services operations have grown at over 33% annually. With 2008 revenues of $735 million, Dedicated services accounts for 37% of Werner Enterprises’ revenues and approximately 42% of its total truck fleet with 3,150 tractors. Marty Nordlund, Werner Enterprises’ senior executive vice president - Specialized Services plans on growing Werner Enterprises’ Dedicated services to 4,000 tractors by 2011. The Dedicated services team is focused on creating customized solutions for its customers utilizing solo drivers, trainer teams, slip seat and part-time drivers handling equipment including: dry van, temperature controlled, curtain side, flatbed, and dump and pneumatic bulk trailers. Dedicated services’ largest customer is Dollar General. Other major Dedicated services accounts include: Anheuser-Busch, ConAgra Foods, Family Dollar, Home Depot, Kraft, OfficeMax, P&G, Sears, Staples and Walmart.

Dedicated services manages over 120 individual customer fleets ranging from one to 100+ tractors. About 70% of the fleets are managed on-site at customer locations and about 30% of the smaller fleets are managed from Werner Enterprises’ operations center in Omaha.

The Dedicated operation reinforces three key market differentiators: technology, flexibility and backhaul contribution. Werner Enterprises uses its unique position as the only DOT approved carrier that can use the paperless log system to improve utilization by over 8% on the fleets it operates. As one of the largest transportation companies in the industry, Werner Enterprises has both the freight network and 7,375 trucks to offer fleet size flexibility to its customers. Dedicated services utilizes a team of backhaul specialists to match empty lanes with freight opportunities, which according to the Dedicated operation has saved customers over 4% of the cost of operating their fleets. Combined, these differentiators save Dedicated customers 12% annually and are why it’s one of the leading dedicated contract carriers in the industry.

Going the Distance: U.S. Swim Trials Transportation Management Case Study

The 2008 U.S. Swim Trials were held June 29 through July 6, 2008, in Omaha, Neb. WGL was selected to be the official freight forwarder and logistics provider for the pools used in the trials.

In April 2008, five WGL containers were loaded with the pools components and materials at the Myrtha Pools factory in Genoa, Italy. The thousands of components and materials ranged from individual bolts to two-meter-wide pool side panels. Many of the materials were sensitive and some were hazardous. WGL arranged for the ocean shipping from Italy and the containers were transported to the Port of New York. After clearing Customs, the containers were loaded on an intermodal train and ultimately delivered to a warehouse for short-term storage.

On May 8, the containers were loaded onto Werner Enterprises’ trucks and transported to the Qwest Center in Omaha, where they were unloaded and the materials were separated and prepared for installation.

This case study demonstrates how WGL managed the importation of the pool components, handled the customs brokerage into the U.S. and arranged for intermodal container transportation, short-term storage and final delivery to the swim trials site.

Summary

Werner Enterprises has its vision set squarely on strategically developing complementary non-asset based logistics operations and dedicated transportation services to meet customers' global supply chain needs. As it expands, it will continue to leverage its corporate culture and long-term focused values in developing relationships which provide Werner Enterprises with significant competitive advantages.

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