A&R Logistics – Building 3PL Service from a Dry Bulk Transport Base

Morris, Illinois USA Site Visit

July 7, 2011

By

Kurt Baumann

Management:

Jeff O’Connor, President & CEO

John Ciszek, COO, Global Logistics Division

Paul Sweeden, SVP Sales & Marketing

Mike Hogan, VP Sales & Marketing

Andrew Mantey, COO, Transport Division

Bob Dotson, COO, Packaging Division

Brian Reichert, CFO

Introduction

A&R Logistics started operations in 1969 with two trucks, transporting plastic resin materials to and from LyondellBasell’s Equistar petrochemical plant. Since then, A&R has grown to become a leading provider of bulk plastic and dry flowable materials transportation with 810 tractors and 1.3 million square feet under roof among 10 warehouses and 23 terminals across the U.S. In 2010, A&R grew top line revenue by 17% to $211 million. Most of this revenue was earned by the Transport division (70%). A&R’s warehousing and brokerage divisions (3PL) contributed the remaining 30% and grew by 6% and 21% respectively. Expanding its 3PL business and mix of commodities handled are key elements of A&R Logistics’ growth strategy.

A&R’s Transport division is a major logistics services provider in the plastic resin industry. It manages a fleet of 810 tractors and dispatches loads to 660 company drivers and 150 owner-operators using TMW Systems suite. Major customers are premier chemicals producers including: DOW, Chevron Phillips, Exxon Mobil, Total and PolyOne. Plastic resin producers generally ship full rail cars from plants, but many times customers can’t take rail cars or rail car quantities, which creates the need for rail-direct logistics. For example, A&R manages approximately 75% of the Houston-based petrochemical manufacturer LyondellBasell’s shipments in North America. This incorporates packaging and warehousing services in addition to transportation management. In addition, A&R handles a broader range of dry bulk commodities for other customers including grain, soybeans, corn, sugar, olive oil, and slag.

Transport maintains significant capacity with 1,070 dry bulk trailers, 1,000 non-pressurized intermodal containers and 150 pressurized vessels. The “Eliminator” invented by A&R, is a 1,500 cubic feet of aluminum vessel that fits within a 40-foot ocean container. It eliminates the need for disposable liners and reduces the dwell time of rail cars on track by speeding the loading/unloading process. One hopper car feeds about four bulk truckloads. So instead of waiting for a corollary number of trucks to come in and unload a train unit, the Eliminator allows shippers to re-task assets without lengthy dwell periods. Thus, rail cars can be turned in three or four days versus sometimes as many as 30 days under previous methods.

The system also allows A&R and its customers to blend materials for the end user and fully utilize inventory. For example, after unloading a rail car into bulk trucks, there might still be 1,000 or 2,000 pounds of product left over, referred to as the “heel.” How do you manage that heel? Do you send it back to the manufacturer? This can create problems. With the Eliminator, excess inventory is removed and stored, then used to top off other trucks as they come in. The Eliminator represents the type of innovation and investment that exemplifies A&R Logistics’ reputation in the market.

A&R Packaging and Distribution: Bulk material handling is an asset-intensive business requiring a significant national network of truck terminals and warehouses with direct rail access, trans-loading and packaging equipment, and bulk storage. The Packaging and Distribution operation plays a necessary supporting role in bulk commodity logistics, including:

  • Trans-loading from rail hopper car to bulk hopper truck or drytainer
  • Packaging into gaylords and super sacks
  • Storage of raw materials in on-site rail cars, containers and silos, and of packaged goods in warehouses
  • Inventory management of raw and packaged goods by date and lot number

The Packaging and Distribution division operates a nationwide network of 10 warehouses on a 24/7 basis.

In Morris, IL, paired silos positioned next to a rail siding are used to store plastic resin pellets from a rail car which are fed into gaylords and super sacks during the packaging process.  These containers are inventoried and handled using A&R’s TRAMS warehouse management system, which maintains both date and lot number for each container.

For bulk materials, rail access is important. Rail-direct delivery, taking pellets off line and delivering to customers via truck, represents about 90% of A&R’s business. On any given day, the 3PL performs up to 125 rail-to-bulk truck transfers. Using pneumatic suction, A&R can remove 800 to 1,200 pounds of pellets per minute out of rail cars. This equates to 2.5 hours of unloading time per unit. Rail cars are essentially forward storage locations for A&R’s customers. All but three warehouses have direct rail access with total rail car spots for customers’ in-transit inventory exceeding 1,500. With the importance of environmental safety, all of A&R’s warehouses are ISO9001 certified and it trains employees on detailed procedures for trans-loading. The focus is to minimize and prevent spills, and A&R follows guidelines established by leading industry associations, namely Operation Clean Sweep (a joint program of the American Chemistry Council and the Society of the Plastics Industry) and Responsible Care (International Council of Chemical Associations).

A&R Global Logistics – Integrated Logistics Services for Dry Bulk Shippers: This division was added in 1997 to operate as a non-asset based 3PL for domestic transportation management (DTM). In 2010, GL grew gross revenue to $53 million and net revenue to $7.7 million with 25 employees. Leading customer accounts include: DOW, Stryron, American Styrenics, PolyOne, Mytex Polymers and Chevron Phillips. By combining capabilities across divisions, A&R offers an integrated 3PL services portfolio detailed in the figure below.

Core services include transportation management, exception management, track and trace, general commodity freight brokerage, trans-loading, silo evacuations, and terminal management services. A&R’s UTC Overseas division is an extension of Global Logistics. A&R partners with international transportation management 3PLs (ITMs), such as Schmidt, to handle end-to-end transport of global shipments.

Access to Dry Bulk Capacity: Global Logistics is a complement to the asset based Transport division. Its significant access to dry bulk transportation capacity and knowledge of plastic resin handling requirements are differentiating factors in the market. GL dispatches 700 loads per day for more than 50 customers. Most of these are regional moves (65% within 250 miles and 35% beyond).

GL’s carrier network encompasses less-than-truckload (LTL), truckload (TL), reefer and flatbed modes as well. It has 3,000 carriers in its system. 10% or 300 of them are under contract. 46 of its contract carriers are dry bulk carriers. GL closely tracks Federal Motor Carrier Safety Administration (FMCSA) data on core carriers, including out of service violations, accidents and BASIC scores. Carriers with individual category ratings above FMCSA thresholds are flagged as a warning sign. GL also sets a secondary threshold. Once exceeded, the carrier is red-flagged and discontinued.

Full-Service Transportation Management: Most of GL’s transportation management resources are housed in its Midland, MI office. It performs carrier procurement and management, shipment planning for all modes, dispatch, track and trace, claims processing, freight bill audit and payment, and specialized services, such as silo evacuation. Many accounts, such as Mytex Polymers, take advantage of the full range of Global Logistics’ services for dry bulk, TL and LTL shipments, which are performed using MercuryGate’s TMS.

DOW has been an A&R Logistics customer for 29 years; Global Logistics has been managing transportation for DOW for 14 years and has developed a deep understanding of DOW’s business. GL manages all of DOW’s dry bulk shipments, using A&R’s DataCorp transportation planning system. In 2010, GL managed 30,600 shipments with 98.93% On-Time Delivery. GL’s proactive approach to exception management has resulted in high marks in Customer Complaint Error Free shipments of 99.62% and Non-Conforming Reports for 2.8% of shipments.

Over the years, Global Logistics has designed a number of enhancements to the DataCorp system and developed in-house expertise in report writing. While 40% of DOW’s dry bulk volume goes to A&R Transport, the remaining volume is brokered to 46 core bulk contract carriers. GL has been able to deliver 3% to 5% annual savings gains to DOW by increasing backhaul volume, leveraging shipment volume to gain favorable rates from dry bulk carriers, and reducing empty miles through better shipment planning.

Ramping up General Commodity Freight Brokerage: GL’s core customers are plastic resin producers. However, GL’s Elgin, IL operation is growing its freight brokerage business beyond dry bulk and into general commodities. Major customers include: Berry Plastics, Chemical Resources, Oce, Wisdom Adhesives and Wham-O. In 2010, A&R hired Mike Hogan as vice president of sales and marketing. Mike is expanding business by offering more logistics services to existing A&R Logistics customers, as well as actively developing new business across commodity groups and industries. GL is positioned for growth, especially with regard to its IT. GL currently brokers 25 to 30 loads per day using MercuryGate’s TMS on a full range of modes, including TL, LTL, reefer, flatbed and, of course, dry bulk hopper trucks.

Monitoring Rail Car Movement for On-Time Delivery: Coinciding with A&R Distribution and Packaging’s rail car trans-loading services, Global Logistics developed a service and reporting tool to support rail car management for key customers, such as PolyOne. Customer rail car orders are sent via FTP (file transfer protocol) to Global Logistics. Rail car movement status is likewise received from Kleinschmidt’s CLM (car location messaging) service. GL loads order and movement data into a proprietary database that generates status reports and alerts for potentially late rail cars. The critical needs for just-in-time delivery and inventory reduction have made GL’s rail car management program an obvious value-add to bulk shippers.

Positioned for Growth: With a strong foundation built upon asset based logistics services and an extensive customer base within the plastic resin industry, A&R Logistics is modifying its business model to grow its non-asset based transportation management business and use it to serve a broader range of customer commodities and industries. A&R’s range of integrated 3PL services and access to transportation capacity has improved its value-proposition to shippers, which is becoming evident in A&R’s sales growth. Its investments in systems and sales promotion should produce positive returns, especially if the broader economy continues to recover.

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