151 National Freight Inc The Third Generation Steps In SIDNEY ROBERT BROWN After high school graduation, Sid attended Georgetown University in Washington, DC. While he was a student there, his father called him frequently, requesting his attendance at various meetings with the ICC and attorneys to further understand the impact of laws being formulated that would deregulate the trucking industry. It was all pretty complex, but Sid had a talent for it, and he learned a great deal along the way. After graduating from Georgetown University in 1979, he worked at Morgan Stanley in New York City in the corporate finance department and also in bond trading. He then entered Harvard, where he received his MBA in 1983. Upon Sid’s completion of his MBA, his father approached him with a business proposition. “I want you to come into the business… if you’re interested.” After spending a month considering offers from Wall Street investment banks, Sid made the decision that he had been thinking over for years. This commitment lay somewhere between a prime opportunity and a family duty. Once he cast his lot with the family business, he rose quickly through the ranks. Six years after joining he became Chief Operating Officer. He would later become the company’s Chief Executive Officer, and in this role he managed through the most difficult years the company would face, years that almost ended the history of National Freight. Yet under his leadership the company ultimately expanded its customer base, added divisions, shifted to dedicated drivers for customers, opened terminals and warehouses in multiple states, and made many acquisitions. Along the way, Sid had to navigate a number of complicated scenarios and sensitive interactions. One of his first assignments occurred in 1983 when a large payment was due to the Teamsters. This was not your normal payment, but a rather large ERISA withdrawal pension liability payment of $3 million. This was not something Bernard was in any hurry to pay, so he told Sid, “You go and negotiate this. Work to stretch this out for as long as possible.” Sid skillfully developed a relationship with the Teamster lead. Over the next seven years, Sid was successful at delaying this hefty payment sum. Finally the Teamster lead was about to retire, and he wanted to clear his docket. He cautioned Sid, “It’s time now to pay up. I’m retiring soon, and trust me, the next person to replace me will not take a long-term approach to this. You won’t have the luxury of building a relationship.” Sid managed to structure a deal whereby the liabilities was paid over the next three-year period with no interest, which ultimately stretched the payments over ten years. Today, Sid continues in his role as the CEO of NFI, a position he has held for eighteen years. Sid also presently serves on several company boards––Sun Bancorp (NASDAQ: SNBC), where he is chairman of the board, J&J Snack Foods (NASDAQ: JJSF), FS Energy and Power Fund, and the Cooper Health System. In the past he has sat on numerous other boards such as the YMCA, Beth-El Synagogue, and Moorestown Friends School.
152 The Third Generation Steps In National Freight Inc JEFFREY BROWN L ike his siblings, Jeff learned early in life from time spent working at the company during the summer. As a problem- solver, he had plenty of opportunities; on one memorable occasion, Jeff worked with a crew loading trucks at the Vineland terminal, and the pace dragged in the sweltering heat. At his father’s prompting, Jeff found a solution: a stereo belting out fast tunes helped the crew move faster and load more. After high school, Jeff enrolled at the University of Miami. There his father approached Jeff just as he had Jeff’s brothers. Bernard tasked him with balancing National Freight business with his studies. Jeff pulled it off; after his classes, he spent hours surveying the company’s Miami terminal and its customer Food Fair in order to report his findings to his father. After graduating from college, he entered the family business in May 1981. When Jeff first started at National Freight, he landed in central dispatch, the heart of the trucking operations, where each day was a battle for trailers, loads, and backhaul, a quest to handle customer concerns, and a never-ending cycle of vocal and heated internal arguments for resources. National Freight was making the switch from color-coded cards to computers at this point, and Jeff gained considerable knowledge about operations during this time. Ed DeFilipis was there to help Jeff through this daily entanglement of organized chaos. Seeing great possibilities in Jeff’s engaging personality, Ed also took Jeff to visit customers, seeking more business. Being a bit rough around the edges sales-wise, Jeff simply opened the conversations with the frank question, “Got any business?” Ed explained the importance of building relationships, learning about a customer’s needs and wants, and only then developing a plan to help the customers. Bernard also jumped into the mix to help Jeff. Knowing Jeff had the perfect temperament for sales, Bernard likewise took him on the road to visit clients, including trips to visit some of the premier customers—OCF in Toledo, P&G in Cincinnati, and others. He explained to Jeff the importance of gathering information first. “Just visit with the customers, learn about their transportation activity, and ask a lot of questions. Then bring the information gathered back to me. Then we will develop a sales plan.” All of the guidance paid off, and the confidence in Jeff was well placed. National Freight had a refrigeration division by this point, and when Bernard bought one hundred refrigerated trailers, Jeff was tasked with securing new accounts to load them up. Soon those trailers were loaded and profitable. Seeing further potential, Bernard gave Jeff several large accounts to handle and worked with his son to build
153 National Freight Inc The Third Generation Steps In relationships within those accounts. It was a great experience for Jeff to be mentored by his father, and he was able to further develop his abilities. These accounts included Procter & Gamble, General Foods, DuPont, and Colgate. Jeff learned fast and became an increasingly skilled salesman. Soon, he was placed in charge of the sales force for NFI. In 2010, Jeff became president of NFI Real Estate, and under his direction, the team has experienced an enormous amount of growth and expansion. The NFI Real Estate team is responsible for land development, property management, and Jeff has been an important factor behind the company’s success. Today, Jeff serves as Vice Chairman and President of NFI Real Estate. He continues to oversee NFI Global and handles national accounts. In addition to his responsibilities at NFI, Jeff also has served on a number of boards including the board of Sun Bancorp and non-profit organizations such as the Cooper Hospital Foundation, Katz Jewish Community Center, and the Kellman Brown Academy. He is also a loyal alumnus of his alma mater, the University of Miami, where he is a member of the President’s Council, an advisory group of alumni invited to participate by the university president. With his children involved in the company, Bernard worked to mentor them, but he also stepped back and gave them room to make their own decisions, for better or worse. As the years have shown, this turned out to be the best thing not only for them, but also for the company. With the third generation leading the company and the fourth generation getting involved, the future is bright for NFI. My children are all capable, ambitious, and hard working. I’m confident they will continue to build upon our foundation of success. −− Bernard Brown The Brown Brothers, early 1980s
155 National Freight Inc Texas Expansion CHAPTER 21 Texas Expansion Every challenge also presents an opportunity for those who can see it. The oil crisis of 1979 was just such an event, providing a silver lining for National Freight, and particularly for Ike Brown. The transportation industry, so dependent on diesel fuel, saw its own share of turmoil— long lines for diesel, high prices, and truck drivers having difficulty fueling up on a regular basis to handle their routes, and thus working less. It was no surprise that this led to unrest in the drivers, which eventually led to driver strikes. This is exactly what occurred in Texas at the National Freight terminal in Waxahachie. National Freight had entered Texas in 1971 as part of its westward expansion by building a terminal next to the OCF plant in Waxahachie. Business was increasing at a normal pace, but it suddenly came to a standstill when the drivers went on strike during this oil crisis. Fearing a significant loss of revenue if the strike continued for any length of time, Bernard Brown told his oldest son, Ike, “Get on a plane to Texas and fix that situation. Get those drivers back to work!” As Ike drove up to the terminal, thirty drivers were hanging around at a barbecue pit, while the Waxahachie terminal yard held 125 trailers full of OCF fiberglass insulation sitting idle. Ike was determined to take immediate action. He told Bill Vennell, the National Freight terminal manager, “I’m going to talk to the drivers.” It was a very brief discussion: “If you’re not back to work in an hour, you’re all fired.” Three hours passed and still no movement. Plan A did not work, so he moved to Plan B. “If they aren’t coming back to work, then where’s the Yellow Pages? I’m calling to rent some trucks and then calling up anyone I can find to get this freight moving!” Two days later the freight started moving again as owner-operators started trickling back to work. Grand opening of the Waxahachie, Texas terminal
156 Texas Expansion National Freight Inc INNOVATIONS AND AUTHORITIES With the manpower problem solved, Ike began to survey the Texas trucking marketplace. National Freight held a minuscule presence compared to the potential opportunity. As deregulation had not yet transpired, Texas was highly regulated, and National Freight could only haul interstate (in or out of Texas, one way). Operating authorities only applied to interstate commerce. If a trucking company drove in only one state it was intrastate commerce and state laws applied. That caused another problem because every state handled things differently, and Texas was the worst to deal with. If a company wished to haul freight between Dallas and Houston, for example, it would have to get authority from the Texas Railroad Commission, which was next to impossible. Knowing that securing the desired authorities would be difficult, Ike’s plan was to innovate—build a better mousetrap—by expanding trailer capacity, figuring that customers would then support National Freight in securing operating authorities with the Texas Railroad Commission. National Freight had been experimenting with Continental Can to expand trailer capacity by designing and building “wedge trailers” with a higher back end so that taller pallets could enter the trailer. This expanded capacity meant more volume could be loaded into a trailer. It was just the innovation needed to convince customers to use National Freight for their trucking needs. Still, Ike wanted more; to solidify National Freight’s position as an innovator in Texas, Ike also brought in higher capacity 48-foot trailers. These two innovations won many new customers. In early 1980, their first new intrastate authority for Continental Can was granted. Almost immediately after securing that new intrastate route, National Freight began a process of expanding their footprint route by route, customer by customer. Working with Ike to secure the many operating authorities was a brilliant Texas lawyer, Tom Sedberry, a transportation specialist who was skilled in the politics of the Texas state government and the Railroad Commission. Tom was a native Texan who had served as the Assistant Attorney General for the State of Texas from 1968 to 1971. Tom Sedberry recalls Ike’s business vision, grit, and sheer will to win: “He saw an under-served market. He had the right determination, combined with the right equipment and capital support, for National Freight to win the day. And he did. If he lost a permit, he would come right back and try another case. He never gave up. He never blinked.” With their primary competitor, Central Freight, only utilizing standard 45-foot trailers and no wedge design, the floodgates opened. “We were so novel, we caught everyone off guard,” says Tom. It was not long before Ike became well known in Texas, to both his competitors and customers. Bill Vennell, still employed at NFI today, remembers those early days. “Ike was a wheeler and dealer, a transportation whiz kid,” Bill says. “He was an interloper and feared because of it, the new kid on the block with a bigger stick. And he used it—new ideas, innovation, and unparalleled fortitude—all of which upset the status quo. He was not well liked by the competing forces because he was creating a new business model to secure business.” With his master salesmanship, undoubtedly learned from watching his father, Ike began a full court press to gain more new customers. He was aided by skilled partners; Tom Sedberry describes Bill Vennell as “a master at coordinating the logistics to ensure that the routes were covered with no idle trucks and, as importantly, at getting backhaul coverage.” With the innovations of the wedge design and larger trailers, customers could ship greater volumes in a single trailer, so they willingly supported National Freight in
157 National Freight Inc Texas Expansion securing operating authorities. Many new customers that manufactured aluminum cans were secured. Tom recalls plenty of times when Ike would ask him to help secure commitments from potential customers. “He would say, ‘Tom, I want to call on this prospect in Paris, Texas, and you should come with me. You can tell him how easy this will be to get a permit for him.’ We secured the business with his aggressive but tactful customer relations. We did this a lot.” Continental Can, National Can, Crown Cork and Seal, Ball, and others joined Ike and Tom to voice support at these permit hearings with the Texas Railroad Commission. “These were very combative cases,” Tom recalls. “We weren’t the only ones in the court room applying. In fact, our competition was there as well, not to support us, but to protest our petition. It was a heated battle in court, a big fight between the haves and have-nots. The Browns were in the have-nots bucket.” Yet with Ike’s leadership, Tom’s expertise, and the vocal support of numerous customers, National Freight won many more than it lost. “The Browns were resourceful and talented at marketing, at building warehouses, terminals, and an expansive presence,” Tom says. “Ike worked the clients and had each customer willing to step up and validate the efficacy of the Browns’ company and testify strongly in each case.” Waxahachie, Texas terminal
158 Texas Expansion National Freight Inc By the end of 1981 the newly secured routes increased revenue by 50 percent. They were so profitable due to the exclusivity, and thus security, of these routes and customers. Then in 1982 National Freight expanded trailer volume further by adding 57-foot trailers. Now even more customers flocked to National Freight. Not sitting on his laurels, Ike pushed the sales pedal to the metal and began leveraging this success. He thought, What other products are light and bulky? The answer: plastic bottles! Many bottle manufacturers signed up with National Freight: Sewell Plastics, Anchor Hocking, Chattanooga Glass, Foster Forbes Glass. Easy pickings. With all this new business, and given the requirement in Texas that a single company could only serve five contracts, it was necessary for National Freight to start new companies in order to legally handle this business. To meet the need, new National Freight entities appeared: Red Systems, National Freight Systems, White Management, and others. While driving down the road to San Antonio one day, Ike passed Mobil Oil and Plastics. Plastics? he thought. Soon National Freight was transporting huge volumes of plastic food containers used in restaurants. Why stop there? Soon after, corrugated box manufacturers were added to the growing roster of Texas customers. There was no stopping National Freight in the Lone Star State. SHOWING APPRECIATION At the same time that Ike aggressively pushed for new business, he made a point to show appreciation to the many people that were partners in this enterprise. Gary Kruger recalls: “Ike would run a quarterly meeting for the terminal managers of Waco, Waxahachie, Houston. Ike would always reward someone in the room—a dinner for their family or a trip. Ike was very thoughtful. He never forgot his people and took care of them, showing appreciation and gratitude. When we had a drivers safety meeting, Ike would often show up, and he would give some extra cash to someone who had done something good.” Gary adds: “I can’t tell you the times that Ike has stood in the firing line to take a bullet for me.”
159 National Freight Inc Texas Expansion Texas was a gold mine for National Freight, even once deregulation struck. Some states, Texas among them, kept control of the intra-state authorities (or transportation routes) and didn’t immediately deregulate as other states did. Confident that National Freight would secure these intrastate routes, Ike made a hefty investment. The company purchased, all at once, ninety 55-foot trailers and ten 57.5-footers. This confidence turned out to be well founded. Competition didn’t surface with the large trailers for five years, possibly due to the hassle and expense of purchasing trailers, court cases, and attorney fees. A company can get anything done with the right manpower and enough money. National Freight had both—smart people and deep pockets. However, continuing to effectively mine the gold in Texas was of paramount importance, the company back east was undergoing a severe backlash from the Motor Carrier Act of 1980… one that would almost force the company into bankruptcy. Waxahachie terminal
161 National Freight Inc Trucks and Trailers: A Long History of Innovations NFI has established a reputation for leading the way in truck and trailer innovations. Cutting-edge technology and efficient use of equipment not only translate into savings for the company and its clients, but they signal to drivers—along with everyone else—that NFI places a high priority on excellence. This approach to business is not a new one for NFI; the company has been at the front of the pack for decades, demonstrating to the rest of the industry that peak performance, efficiency, and success go hand in hand. CHAPTER 22 Trucks and Trailers: A Long History of Innovations THE CONTEXT As with other businesses, there are two primary means of making money in the trucking industry. One is to bring in more revenue, whether from additional clients and services or by raising rates (which is a challenge in a hyper-competitive industry like trucking). The other is to decrease the costs of doing business, whether by boosting efficient productivity or by lowering the money spent on
162 Trucks and Trailers: A Long History of Innovations National Freight Inc manpower, equipment, and so forth. NFI has attacked this thorny issue from all angles, but one area where the company distinguishes itself is in its purchase, maintenance, and utilization of equipment—especially its trucks and trailers. Every truck and trailer is purchased with attention given to the last tiny detail, every specification carefully considered, because the leadership knows that even fractional differences—over millions of miles—add up to tremendous consequences, either positive or negative. Efficiency is not, by any means, the only consideration; safety is a top priority, so every tweak to the specs must meet stringent standards for the safety of the drivers and other motorists. The cabs are intentionally designed to protect the drivers but also to give them the tools and resources they need to be effective and comfortable while performing their jobs. All in all, from the headlights back to the taillights, every inch of the tractors and trailers is designed for one purpose: to safely and efficiently transport drivers and goods to their destinations. Over the years, NFI innovators have found countless new approaches to carrying this out. LONGER TRAILERS, GREATER CAPACITY I n order to differentiate National Freight from its competitors, in the 1970s the company began experimenting along with Continental Can on extended 48’ trailers. Together the companies pioneered a design with 48’ trailers by shortening the cab and allowing for a longer trailer that still remained within the confines of the maximum front to rear length of a trailer. Gary Galati says, “We ran forty-eight feet when everyone else was running forty-five. This was a key selling point for lightweight goods.” Recognizing that longer trailers equaled greater capacity for product, and therefore higher profit from trucking routes, National Freight continued to seek designs for longer trailers. Continental Can’s Don Kuster worked closely with National Freight to get the regulatory approval to extend trailers from 45’ to 48’ to 53’. With regulatory approval, the two companies committed to a long-term contract and moved forward collaboratively with a design for 53-footers that would produce 15 percent more cubic capacity. The result was highly recognized in the industry and among the regulators. Together, National Freight and Continental Can sought additional Operating Authorities where needed to make the best use of their new trailers. Because of these innovations, many other customers came aboard with National Freight. And like Continental Can, they too were willing to support National Freight to seek additional Operating Authorities. Later, the company designed the first 57-foot trailers, which were especially well-received in Texas. “We had a better mousetrap to get in the door with the Texas Railroad Commission,” Ike Brown says. The company’s reputation grew, and its clients knew that they benefited equally from these innovations.
163 National Freight Inc Trucks and Trailers: A Long History of Innovations NATIONAL FREIGHT AND FREIGHTLINER In 1992, National Freight cemented its relationship with Freightliner by placing an initial order for 700 vehicles. Since then, at least 25 tractors per month have been put in service, with an average of 300 purchased each year, and today the vast majority of the fleet are Freightliners. Freightliner was chosen based on a number of factors, not least of which is the two companies’ shared commitment to innovation. Freightliner is known for its spacious interiors, exterior styling, aerodynamic efficiency, and designs intended to reduce driver fatigue and add alertness and productivity for the driver. Freightliner has also been able to handle all of National Freight’s related needs, from used equipment to parts inventory control, and from warranty claims processing to the Fleet Assistant computerized maintenance management system. Like NFI, Freightliner has consistently pursued dramatic changes in the best form of truck transportation, and the partnership shows no signs of slowing down. LIGHTER, BIGGER, BETTER With a standard trailer and tractor, the federal weight limit is 80,000 pounds, so the highest weight for a payload was about 46,000 pounds for the trailers they were using. So Bernard and his team developed a lightweight alternative with their partners Freightliner (trucks) and Great Dane (trailers). Some components were removed, while others were constructed with lighter weight material. Every ounce was considered, and the result allowed for heavier loads of goods. One innovation involved expanding the interior of the trailer by placing sidewall supporting beam structures outside the truck rather than the standard use within the trailer. National Freight became the first company to work with trailer manufacturers to implement this design, and within the company this type of trailer became known as a “Superwide”. Another key strategy involved efficient placement of goods inside the trailer, allowing for higher capacity. Bernard Brown and his team went to work to design an innovative way to place pallets inside trailers. With the placement of certain pallets reversed, they now fit side by side, thus staying within the 102” law-barrier for the trailer’s width and yet allowing two extra pallets per trailer. This spirit of innovation permeated the company; even in the warehousing group, the company devised methods to allow for additional amounts of goods to be easily stored and moved. For example, they began to build warehouses with higher clearance to allow for quicker and higher capacity loading and storage. Wherever you looked, National Freight was trying new things and leading the way.
164 Trucks and Trailers: A Long History of Innovations National Freight Inc THE GREAT NEGOTIATORS: TRUCKS AND TRAILERS The Browns all like to do business with people they know, like, and trust, so they developed relationships with key individuals over the years. Bernard was forever intent on making the deal he desired—and paying the price he wanted to pay—but he accomplished it in a way that kept those relationships strong. “When you think of the family, Bernard Brown, Sid, and Shirlee—they are all first class, charming people,” Mark Lampert of Freightliner says. “All of them are very classy.” Mark remembers how, after Sid took the reins, he would always ask questions about how to spec a better, safer, and more efficient truck. From 1994 through 2015, Sid purchased close to five thousand Freightliners. Mark characterizes his dealings with Sid as involving “genuine respect and trust.” Just as NFI and the Brown family have long had a relationship with Freightliner, they have shared a special business connection with Great Dane Trailers for many years as well, starting with the smaller company of Pines Trailers. In 1997, when Great Dane Trailers purchased Pines Trailers, it created the world’s largest trailer company. Dave Gilliland, vice president of national accounts at Great Dane, recalls: “Our relationship with the Browns started with Mr. Pines and myself in the late 1980s, and over the years Mr. Pines and Mr. Bernard Brown developed mutual fondness and respect.” Ike Brown had been the one to recommend Pines Trailers to his father after seeing some on the road, and Bernard followed up by calling the Pines office in Chicago. Pines and Gilliland then flew out to visit Bernard. “Mr. Brown loved negotiating and loved to use trailers as leverage,” Dave says. “Mr. Pines would take in National Freight’s used trailers and then sell him new trailers. It was a relationship of mutual respect. Mr. Brown was a skillful negotiator, and they had a lot of respectful banter.” During the negotiations between Mr. Pines and Mr. Brown, it would always come down to practically cents that they were bantering over. It was a game that they both enjoyed playing. Eventually Sid took over and enjoyed a similarly prosperous affiliation with Great Dane; Sid likewise wanted a fair deal and wanted it to be competitive, but he also wanted to honor this long relationship with a valued partner. Great Dane currently supplies the vast majority of NFI’s trailers, averaging about five hundred trailers each year. “Sid is a great buyer,” Dave says. “Now it’s more of a team.” Every chapter of NFI’s history—whether involving drivers, safety, maintenance, or equipment—has centered upon excellence, innovation, and a dogged determination to pursue the best possible solution, whether or not that option was currently available. As each new chapter is written, now by third- and fourth-generation family members, this focus will surely continue as the company surpasses one milestone after another. It was a relationship of mutual respect. Mr. Brown was a skillful negotiator, and they had a lot of respectful banter.”
165 National Freight Inc Trucks and Trailers: A Long History of Innovations The Tesla Semi is an all-electric batterypowered Class 8 semi-trailer truck prototype planned for production in 2019
167 National Freight Inc Trouble Down the Road (Mid-1980s – 1990) I n the early 1980s, the road ahead for National Freight looked wide open—nothing but green lights and blue skies as far as the eye could see. The company was growing, its routes and customer base were expanding, and the troubles that plagued other trucking firms in the wake of deregulation did not appear to stick to National Freight. While others ran out of gas, figuratively or literally, National Freight plowed ahead. But the Browns could not see around the bend the equivalent of a ‘sign flashing’ and so it remained unnoticed. These were perilous times for all trucking companies, and as untouchable as National Freight seemed, before the decade was out it would have to fight for survival with as much intensity and determination as any company ever has. As the doors flew open on the deregulated trucking industry, countless new trucking companies entered and set up shop. Many existing carriers, like National Freight, expanded at an unparalleled pace. One consequence was that the booming number of available options allowed customers to take advantage of this over-supply in the market and begin demanding lower rates. It was perhaps inevitable that the company’s customers would seek to pay a few cents less per mile, but the company could only go so low in this race to the bottom. Many customers stayed with National Freight, but many others left. Although some customers left because they were seeking lower rates from competitors, others departed due to National Freight’s growing struggle to successfully integrate new start-ups—new customer engagements—smoothly. With negative margins depleting cash, the leadership CHAPTER 23 Trouble Down the Road (Mid-1980s−1990) began considering extreme measures to shore up the financials. Marathon Division—long haul transport coast-to-coast—saw the greatest impact from these ever-lower rates demanded from customers, and it was shut down in the mid-1980s. Likewise, the Flat Bed Division was scuttled, and Conestoga Leasing was sold to Hertz Penske in 1989. In 1986 the company sold the massive Lawnside warehouse to UPS, which brought in $11 million of much-needed funds to restore some of the depleted coffers. All money was put back into the company. Shirlee Brown thought her husband should take some chips off the table at this point, and she cautioned him: “Bernie, do you really want
168 Trouble Down the Road (Mid-1980s – 1990) National Freight Inc to put the money back in the company…now?” Bernard remained steadfast. He was determined not to see his pride and joy, the result of all of his years of sweat, blood, and sacrifice, go down the drain. “I believe in this company…in what we have built. We will continue to resolve these issues and grow. We’ll be stronger going forward.” Shirlee remained uncertain, but Bernard was not one to throw in the towel. He told her, “After all, taking risks, placing big bets, is what got me here in the first place.” To raise the stakes even higher, Black Monday occurred on October 19, 1987, when stock markets around the world crashed. When the crash spread to the United States, the Dow Jones Industrial Average fell over five hundred points. All of these financial shocks created tremors to shake National Freight to its very foundation. The company was overextended on its real estate and trucking debt. Nevertheless, Bernard’s sons, now in leadership positions at the company, retained an unbridled optimism that they could ride out this storm as the company continued to expand. The young men were conscientious about the business, and like their father they wanted to try new things, be entrepreneurial, and expand into new markets. For example, in the late 1980s, Jeff moved to the west coast to handle the California business from National Freight’s Fleetline acquisition. When people speak of wearing many hats in a job, they usually do not mean it literally, but Jeff was determined to connect with his customers whatever it took. When he was in California, the Los Angeles Dodgers were playing the Oakland A’s in the World Series. For the Dodgers home game, he invited his LA customers to join him and wore his Dodgers hat. Conversely, when the series switched to Oakland, he changed his cap to ensure his Oakland customers knew they were all on the same team. It worked like a charm. Jeff grew the business successfully in the Golden State by utilizing a strategy to first land a kingpin account that would lead to other big players. He went after Anchor Glass, a company supplying glass bottles for the highly successful Budweiser product Bud Light. Once this account was secured, other major accounts followed: Quaker Oats (Gatorade), OCF in Santa Clara, and Nabisco, out of Buena Park. It was a series of home runs when they were badly needed. As with these California prospects, most of the time the sons’ efforts bore fruit. Sometimes, though, their efforts soured. Their father, always the wise sage, provided guidance— especially when they miscalculated. Handing the ball to Jeff as he departs for California
169 National Freight Inc Trouble Down the Road (Mid-1980s – 1990) In 1985, an opening presented itself to haul auto parts and engines from Mexico to Chrysler and General Motors’ manufacturing plants in the U.S. On the surface, this appeared to be a huge opportunity. Bernard, however, understood that in this case the risks could easily outweigh the benefits, and he viewed the pursuit as misguided at best, pure folly at the worst. Bernard told his sons, “This is different from what we have done in the past! I don’t think you should be doing this.” They pressed ahead regardless, and soon one hundred trucks were hauling out of Mexico. That was the easy part. Much more difficult was balancing the traffic into Mexico, and the real trouble came when trailers started to go missing, seeming to get lost south of the border. It was not long before two hundred trailers went unaccounted for in Mexico, and their customers were not paying timely or at all. The accounts receivables that were past due were now over $1 million. Sid sought his father’s advice and told Sid, “You need to get your money and trailers back. The only way they will listen and take action is if you possess their goods.” His sons hadn’t thought about that. Bernard continued: “So, hold some of their goods back. That will get their attention.” Each truckload of engines had a cost of $500,000. At this rate, it would take two loads to recover their million-dollar negative position. So they parked two truckloads of engines instead of delivering them. The strategy was to first get agreement on one load and to keep the second load as backup in case they were not paid the entire $1 million due. Sid Brown called up General Motors’ USA plant manager in Oklahoma City to discuss the money due and to outline his position. “We have a load of engines, and we are not delivering it until we are paid our $1 million… and we need our trailers returned to the States!” “You can’t do this—we are General Motors!” “I don’t care who you are. You owe us $1 million. Pay up, or you don’t get your goods.” “Fine. We’ll FedEx you $500,000 and get your trailers back.” “What about the $500,000 balance? You have to pay for that too.” “I need those engines now! I’m giving you my word.” Sid considered and finally relented, agreeing to the promise. “I’m putting a lot of trust in you.” Two months later, twenty-five trailers were still missing and $200,000 was still owed. So Sid called up the Mexico plant manager again, and this time Sid explained that a second truckload of engines had been held in reserve. Although the client was less than pleased, the strategy proved sound—the truckload of engines held a higher value than the amount still owed for the missing trailers. Sid held the upper hand. Despite this successful planning for that particular negotiation, ultimately the overall expansion strategy for Mexico did not prove achievable. Looking back now, the Brown family agrees that the country presents a missed opportunity, a market that might have offered successful expansion had things worked out differently. Unfortunately, at the time circumstances simply did not allow it. MEXICO FOLLIES
170 Trouble Down the Road (Mid-1980s – 1990) National Freight Inc The most detrimental impact to the company’s financials was the state of its over-the-road business. This had been the life-blood of National Freight—You Call We Haul—and what fed the company’s customer base since its inception. However, in these turbulent, competitive times, it unfortunately became a low-margin business. The over-the-road (OTR) business had always had its significant drawbacks. Traditionally, there were few operating economies of scale, a large number of competitors, and relatively low financial barriers to entry, particularly after deregulation swept the industry, which meant fierce rivalry between established and upstart companies, that had lower cost structures. OTR trucking frequently means that its drivers are on the road for weeks rather than days, resulting in less time at home. This lifestyle leads to higher chances of dissatisfaction in drivers, which leads to high driver turnover. Dispatch also faces the challenge of coordinating routes to ensure the minimum number of trailers return empty on the trip home. Yet the main problem with OTR was its lack of long-term commitments to the carriers. This was a transaction-oriented environment that required long-term bets on capital. Without long term contracts, and given the unreliability of customers without commitments from shippers, it was a real mismatch for sure. In this environment, with companies aggressively and constantly seeking lower rates rather than committing to long-term business, it was inherently easy for any customer to leave National Freight. And that is what many OTR customers did. That was the bad news. The worse news: those that stayed with the company drove pricing through the floor. In early 1990, with mounds of low-margin business piling up, Bernard decided to bring in his oldest son, Ike, to reverse this negative trend. Arriving in Vineland, Ike was shocked at what he discovered. Having been in Texas, vigorously driving an increasingly profitable business month over month and year over year, the reality of the company’s macro-financing position was beyond his imagination. “What the hell is going on?” Ike said to himself. “This thing is going south!” Ike quickly shifted into recovery mode. First, he needed to demonstrate real change at the top of the corporation, ensuring that he showed more visible control within the ranks, and—as a consequence—that his father showed less. This came to bear in a brief conversation between the two of them. “Dad, I can only implement real change if I have the authority and visibility. This will require you to spend less time here….” Knowing his son had a valid point, Bernard moved his office out of National Freight and into his Sun National office in Vineland, a departure that undoubtedly wore on him, even if he knew it was best for the company. Now in his father’s position, as well as his office, Ike’s next tactic was to bring in some additional management firepower. It was a sound maneuver, but once aboard, these individuals did not facilitate the needed improvements, as either they had little trucking experience or simply were not capable of handling such a large operation. When matters continued to
171 National Freight Inc Trouble Down the Road (Mid-1980s – 1990) stagnate, these individuals were released. To shore up the balance sheet, Ike began working with the banks to restructure the debt load. He considered every asset—terminals, warehouses, trucks, trailers—and used these combined assets to provide as much leverage as possible with the banks to keep the company afloat. Still it was not enough. Additional measures were needed, so Ike sought other solutions. One option was to consolidate terminals. With many terminals underperforming due to customers leaving in this hyper-competitive environment, cutting back some terminals and combining these with others would reduce headcount and other monthly expenses. These desperate times called for desperate measures. It just might do the trick. Paul Nolf, an operations manager, was sent to close down eight terminals: three in Florida, two in California, one in Texas, and two in Pennsylvania. Unfortunately, it was not enough to turn the corner. Month over month the financials continued to decline. Frustrated with the lack of progress, Ike lamented to Paul that things were still not right. Paul explained the historical perspective of Bernard Brown. “We have always tried new things,” Paul said. “Some work. Some don’t work. Let’s step back, study our next step forward, and re-vector. It’s what we’ve always done. We’ll work through this.” Ike also sought the advice of his mentor and his father’s right-hand man, Ed DeFilippis. Over lunch the retired National Freight executive shared his views, which were helpful to Ike. But what happened after lunch was much more impactful to the business. As he departed, Ed received a call from Bernard requesting an immediate meeting, unbeknownst to Ike. “Eddie, things are not right. We need to right this ship before it’s too late. How about coming back?” Feeling a sense of pride in what they had built together, Ed did not want to see such a great company continue struggling. “Okay. I’ll give you five years.” With Ed DeFilippis now back running the company, it was agreed that Ike would return to Texas to continue driving the most profitable region of the company and providing the revenue and profit that were needed to resuscitate the entire company. It was an enormous responsibility and of the utmost importance, and Ike agreed and willingly returned to lead the charge in Texas. At Ed’s first meeting back in the saddle, Bernard called him and Paul Nolf into a meeting. “You guys have to put a plan together to fix this,” Bernard said, “otherwise we’ll be out of business in ninety days!” He threw down the gauntlet. “Can you hold this together?” With that, Bernard left the room. Paul pulled out a yellow pad, and together he and Ed outlined a strategy to revitalize the operations. Three hours later Bernard returned, and the plan was laid out. It included three key strategies: 1. Reopen most of the closed terminals. Customer were not pleased with the sudden lack of presence created by closing those terminals. 2. Tighten the belt. With too many people on the payroll with overlapping duties, cutting 10 percent would be required. 3. Run more efficiently. They would reduce dead-heading and refocus on getting more backhaul, as well as uncovering idle trailers to get them moving again. Their plan was a sound one, but it still presented a herculean task. In fact, the state of the business meant that even their implementation of these three key strategies did not improve the situation as quickly as they had hoped. More bad times were ahead, and the company still sat on the brink of failure—the same knife edge that so many of their competitors eventually crossed over.
WE’LL GET THROUGH THIS. WE’VE BEEN THROUGH WORSE. ——Bernard Brown
173 National Freight Inc 1990s: Struggles and the Turning Point CHAPTER 24 1990s: Struggles and the Turning Point F or a long time, the business was touch and go, and it was anyone’s guess whether National Freight would survive. As the 1990s wore on, the changes implemented by Ed DeFilippis and his leadership team did bear improved returns, and a growing strength for the company was its emerging warehousing business, which was increasingly profitable. In the late ’80s, warehousing had expanded in scale, and in the ’90s this expansion took on greater momentum, offering substantial revenue. Still, turning around such a large company took time. Unfortunately, time was not on their side. As they pushed forward, many factors continued to hinder their turnaround plans. Chief among these was a change that occurred in Texas, which had long proved a profitable region even when everywhere else dragged. The income from Texas supported National Freight through its financial tribulations and provided desperately needed stability, without which the company might collapse. At least, it did—until 1993. TEXAS DEREGULATION Texas had remained regulated even after the Motor Carrier Act of 1980 deregulated most other states. This now-unusual playing field was the primary reason that National Freight could capitalize on the Texas market to prop up other, more poorly performing markets. However, in 1993 Governor Ann Richards signed into law a bill that did much to deregulate the truckload segment of the industry in Texas. This
174 1990s: Struggles and the Turning Point National Freight Inc new law eased entry requirements and increasing allowable flexibility in pricing. New contract carriers now needed only to prove that they were “fit, willing, and able” to transport general commodities by the truckload, drastically multiplying the amount of competition in the market, as had happened in many other states in the early 1980s. Then in August 1994, the US Congress preempted states’ authority to regulate motor carrier prices, routes, or service, effectively ending economic regulation of intrastate trucking— in Texas and elsewhere. The trucking environment in Texas was now wide open. It was 1980 all over again. New competitors flooded in, and customers took advantage of their increased ability to shop around, leveraging this flexibility to drive carriage prices downward. Profits for existing carriers plummeted. Now, National Freight’s Texas market was no longer able to provide the needed profit stream to buttress the company. New plans had already been needed, but now they were needed even more urgently. DEBT RESTRUCTURING With Ike now back in Dallas riding herd on the newly deregulated Texas market, his brother Sid had to manage the task of restructuring the company’s debt in a way that would allow continued operation. Making this job even more difficult was an escalating interest rate due to the improving US economy. In 1994, the economy was emerging from a big recession, and US Treasury yields began to rise from their lows in 1993 as the economic growth outlook improved. Taking a cue from these rising yields, Federal Reserve Chairman Alan Greenspan surprised markets by beginning to tighten monetary policy, and interest rates soared higher throughout the year, rising from 3 percent to 6 percent. With little room to maneuver as he sought lower debt payments, Sid worked closely with banks and non-banks to extend payment terms and implement financial restructuring. He negotiated with no less than twenty-one various lenders. Despite gradual progress throughout this staggering task, Chapter 11 was never far from his mind. To hold off that painful process, Sid sought forbearance from lenders—a special agreement between the lender and the borrower to delay a foreclosure, and potentially to avoid Chapter 11. In forbearance, the lender delays his right to exercise foreclosure if the borrower can catch up to his payment schedule within a designated time frame. Sid also requested a one-year moratorium on principal payments on both real estate and trucking debt, although they continued to make interest payments. These agreements bought the company some much needed cash flow relief, though it was like inserting a plug in the proverbial leaking dam. FEWER HOUSES, DIFFERENT BOTTLES With the Federal Reserve’s tightened monetary policy in full swing, mortgage rates rose and new home construction stalled. Given this slowdown in housing construction, demand for construction supplies—such as insulation—was naturally impacted as well. At this time, Owens Corning Fiberglass was still National Freight’s highestvolume customer; the slowdown in housing construction consequently had a severe impact on National Freight’s revenue. Another major vertical market for National Freight also began declining in the late 1980s and early 1990s. Glass bottle manufacturers had been a mainstay for National Freight for many years, but unfortunately most of these companies were not sufficiently adaptive and missed the industry’s evolution to plastic bottles. As glass bottle production began to decline,
175 National Freight Inc 1990s: Struggles and the Turning Point so did customer volume for National Freight. National Freight was slow to realize this transformation and lost some valuable customers during this period, precipitating significant revenue shortfalls in their warehousing and transportation business. Despite this, the Browns remained determined to succeed. In 1992, as executive vice president of the company, Sid prepared the company’s employees for trying times ahead. In his year-end ‘Holiday Letter’ to employees, he outlined the challenges and opportunities that lay ahead for National Freight: The basis for success in any business is to be adaptable to customers’ needs. The reasons why National Freight succeeded in the ’60s, ’70s, and ’80s will not be the same reasons we will succeed in the 1990s. Markets are changing rapidly, technology is impacting productivity, and life cycles for products are significantly shorter, as just a few examples. So what products do we offer today that we didn’t yesterday? a) larger trailers; b) bigger, more fuel efficient tractors; c) different types of tractors; d) national network of distribution centers; e) pick ’n pack operations; f) real estate development; and much more. However, as much as we have diversified, we must continue changing to survive! We must find new ways to do business more efficiently, to be more timely, and to become more service-oriented. We must challenge the old ways of doing business. Today, NFI is not just a trucking company, but a company that offers a total logistics package. We are all excited about the opportunities this presents as we proceed down the road to providing an integrated array of services for our customers. Sidney R. Brown Executive Vice President During these disruptive and turbulent times, Bernard held onto his historical conviction that Over the Road transportation was still the cornerstone of the company. It had served him well in the past, and he wanted to ride that horse for the foreseeable future. His sons, however, had other ideas. Ike, Sid, and Jeff recognized that big changes were needed if they wanted to see big improvements. The major thrust would be to reduce, and eventually eliminate, the inefficient Over the Road (OTR) transportation segment of the company. They viewed OTR as overly transactional, unstable, burdened with short lead times, dependent on season, and too difficult to keep assets active. With all of this combined, OTR simply did not appear viable to them for the years ahead. The brothers sought a sustainable, profitable, recurring revenue stream, and OTR did not provide this. But they also knew that their father held onto OTR with a passion. For now, this was a battle they knew they could not win, so it was not a consideration currently on the table. Still, their father’s sage advice over the years had been to ‘Try new things,’ and this advice continued to ring in their ears… so they began considering other options. The first option was to abandon the business altogether and pursue alternative careers. Ike and Jeff both considered leaving the company to seek greener pastures, but they ultimately decided they wanted to remain with National Freight and stay the course. Another consideration was to sell the business. With Bernard Brown still in control of the company and its equity ownership, this was another non-starter. There was even less chance their father would consider this eventuality than the abandonment of OTR trucking. The third option was also the most challenging, but if successfully pursued, it could potentially provide a workable solution for all parties: they could buy the company from their father.
176 1990s: Struggles and the Turning Point National Freight Inc As the brothers formulated these thoughts in the early 1990s, the Brown family began to hold discussions about the company’s future, and dissension arose. Many formal family meetings ensued to discuss the long-term viability of the company and its future direction and ownership realignment. It was a difficult time for the family, as Bernard and his sons held different perspectives on what would most benefit the company and the family. Fortunately, all realized that these discussions, while difficult, were needed. In 1991, Bernard was approaching his sixty-sixth birthday. Although he still had plenty of vim and vigor, and he was working every day and displaying complete authority, Shirlee knew that the time had come for their sons to fully take over the company. She began gently urging Bernard with the same calm, patient persistence with which she had long guided him through tough decisions. “Bernie, it’s time for the boys to assume control,” she told him. “You need to sell the company to them. You’ve taught them well, and they will do a fine job… but only if they own the company can they forge a new path.” Heeding the advice of his wife, his shining beacon for so many years when skies were stormy, Bernard began the nearly ten-year negotiating process that would eventually complete an agreement for the sale of National Freight to his sons in 2001. I n 1996, Ike took the reins for the transportation side of the business. Although the company’s headquarters were located in Vineland, given the Texas market’s recent transformation from a regulated to a deregulated environment, and the negative consequences that market had suffered as a result, Ike firmly believed his energies and presence were needed there as well. So central dispatch, fleet management, sales, and operations were all moved to Waxahachie, Texas, while the company’s support services stayed in Vineland. Unfortunately, these changes brought little improvement
177 National Freight Inc 1990s: Struggles and the Turning Point to the company’s performance and financials. The years heading into the end of the decade saw more of the now-familiar difficulties: new start-ups failed; existing customers departed seeking lower prices, and Texas was now in this leaking boat, too; the woefully unprofitable OTR business declined further; and newly hired leaders only stayed briefly. All in all, it was more of the same, and the same was not sustainable. Though Ike, Sid, and Jeff were now ostensibly leading the company, their father still made significant decisions, and some of these further encumbered the company. Seeking more improvements across National Freight, and always driven by a fierce sense of urgency, Bernard hired some senior leaders to further restructure the company. He hoped they might finally revitalize the floundering enterprise, but this too proved fruitless. Some of these leaders lacked transportation experience, some would not collaborate with other team members, and others fought against the embedded, long-standing culture of the company. Tensions and conflicts arose, and hoped-for improvements failed to materialize. They did not last long. Another chance for improvement failed. One opportune development did occur during this period, and it would become a foundational element of the company in the future. Though it started by happenstance—not as the result of any grand plan to speak of—it would become one of the key strategic initiatives that propelled the company forward: a new, unique, customized transportation service for its customers. Dedicated transportation. Like the cavalry arriving, this shining development came onto the scene just in time. DEDICATION PAYS OFF Despite all the various interventions and efforts within the company, as the brothers reviewed the quarterly numbers, year over year, one area continued to struggle the most: Over the Road. They were certain it needed to be scuttled. But their father still held complete ownership of the company in the late ’90s, and this was not something he deemed a priority; in fact, he viewed OTR as foundational, as the business that had brought him here in the first place, and it seemed no argument could sway him away from where his heart and history had led him. For Bernard to recognize that there was another, better way, his sons would have to prove it. This is just what they did. By this point, Jeff Brown had become a super-salesman. He had taken the skills in building customer relationships that he had learned from his father and Ed DeFilippis, and he had honed them into a more nuanced and sophisticated approach over years of meeting customers and potential prospects. His years in California, managing the West Region, rounded out his experience in operations, real estate, and warehousing. It is no surprise that he would bring in a new account that would transform the company for years to come. Jeff had built a great relationship with long-standing National Freight customer Nestlé Waters. In 1995, when Nestlé sought to expand its operations from twelve pull-points to fifteen, Jeff wanted National Freight to be its partner in this expansion endeavor. National Freight’s standard tractors and trailers were too long and heavy, though; Nestlé needed a smaller, much lighter tractor and trailer. Rather than abandoning the prospect, Jeff realized that National Freight needed to design new tractors and trailers specifically to meet Nestlé’s requirements. Nestlé agreed that if National Freight could provide such a
178 1990s: Struggles and the Turning Point National Freight Inc unique solution, Nestlé would agree to a five-year agreement for a dedicated fleet. This was all that Jeff needed to hear. He assembled a team and they went to work. The National Freight engineering and operation teams designed new, lightweight cabs and trailers—aluminum wheels instead of steel, aluminum floors, and the passenger seat removed. They provided the requested solution rapidly, and Jeff secured Nestlé as National Freight’s first dedicated customer. After this establishment of a long-term working relationship, Nestlé brought more business to the company, and soon National Freight was hauling Nestlé Waters out of Framingham, Massachusetts, and in Zephyrhills, Florida. In addition to the large business accounts, a welcome outcome of this relationship—and the acceleration of more customers using National Freight’s dedicated services—was that the company significantly increased driver retention. With these new, dedicated routes, drivers were home every night and had predictability in their lives. Stability and extra time with their families provided incredible incentive to stay with NFI. It soon became apparent that this was a brilliant and sustainable strategy. More dedicated customers were quickly added: Jeff secured Costco, Sid brought in Staples and Budweiser, and Ike in Texas brought in Lowe’s Home Improvement. When the company’s leaders reviewed the next quarter’s results, the prescription was clearly written. Dedicated fleets were the needed solution that could resuscitate the company into financial health. It proved to be the saving grace that reinvigorated the company and carried National Freight to new heights. The transformation had begun.
179 National Freight Inc 1990s: Struggles and the Turning Point
TIRED OF UNPREDICTABLE GAINS AND SHORT-TERM PAYOUTS, THE COMPANY LEADERS SOUGHT TO POSITION THEIR EFFORTS FOR SUCCESS BY MAKING LONG-TERM INVESTMENTS AND COMMITMENTS.
181 National Freight Inc The Transformation Begins: Custom Solutions CHAPTER 25 The Transformation Begins: Custom Solutions With dedicated transportation now a key focus, it was time to take the next step and leverage this new venture by expanding into other customized services that could be provided to customers. It was clear to Sid, Ike, and Jeff that a standard approach to transportation—offering a single solution for all customers—was old school and not what contemporary customers were looking for. The marketplace had changed. Customers sought out custom-designed solutions to meet the demands of complex transportation and supply chain challenges. If a company could produce such a comprehensive solution, this company could win much more than dedicated transport. It was undoubtedly new school, and this approach was in high demand. It was time to begin following this new paradigm. Here is what the brothers began to consider: Why not structure a total customized solution to specifically meet each customer’s requirements? Wouldn’t such specialized service provide more adherence between supplier and customers in a much more permanent way? It would not be the same old business with Over the Road. Rather, it would offer a comprehensive end-to-end supply chain solution. This was the Holy Grail of transportation, distribution, real estate and logistics. And it was right within the brothers’ grasp.
182 The Transformation Begins: Custom Solutions National Freight Inc NFIL I n 1996, the brothers launched a new company: National Freight Interactive Logistics, or NFIL, which would be devoted to customized, responsive, scalable transportation and distribution solutions. Third-party logistics (3PL) would be like nothing they had ever done, but the possibilities it offered were endless. This endeavor was spearheaded by Sid Brown, who recognized the potential presented by this new way of doing business. Tired of unpredictable gains and short-term payouts, the company leaders sought to position their efforts for success by making long-term investments and commitments. He understood that 3PL represented one of the biggest trends for the future. To thrive in the changing marketplace, this new endeavor needed to have broad geographic coverage, offer a range of service options, and be able to pull those options together and customize solutions for customers. His plan was to expand the new company into a full service third party logistics firm providing a broad range of services for the entire supply chain spectrum. This approach would succeed, and later this company would be integrated with National Freight, forever changing the way the Browns’ family-owned business operated. Before NFIL was established, Sid analyzed the market and the customers’ needs and preferences. He brought on a team of industry specialists who were skilled in third party logistics in order to build an integrated suite of applications for running a world-class 3PL operation. Sid realized it was a complex trucking solution, something far beyond simple pickup and delivery transactions, and required extensive engineering and database algorithms. It depended on the right resources, knowledge, and processes. As such, creating a 3PL company was not to be attempted lightly.
183 National Freight Inc The Transformation Begins: Custom Solutions In consultation with the specialists, the company learned that at the heart of 3PL is software to manage the complex interworking between warehousing, transportation, and business management and the optimization of these operations. Third party contract logistics coordinates multiple activities for customers who formerly performed these in-house or used individual vendors on an independent basis. In 3PL, all projects are tailored to the customer’s specific needs, and information systems tie the various logistics functions together—such as surface transportation, inventory management, warehousing, and customer service—which allows the successful 3PL company to bring value in a way that justifies out-sourcing all of these activities. The first NFIL customer was Staples, then Quaker State Oil, based in Irving, Texas, came aboard. Quaker State Oil outsourced its entire supply chain to NFIL, which meant a huge transport management logistics contract. More customers would soon follow. As they pressed ahead, NFIL teams worked closely with their customers’ managers, which often included single source
184 The Transformation Begins: Custom Solutions National Freight Inc managers who handled both transportation and warehousing for these companies. The NFIL teams developed relationships and collaborated with the customers to determine their specific needs. At the start of this collaboration, transportation functions were often outsourced to the customer’s existing carrier or another external carrier, but as the customer relationship progressed, NFIL would begin to supply the necessary trucks and trailers to the company’s drivers. Later, NFIL began providing dedicated transportation to its customers—including trucks, trailers, and drivers—if this was determined to be the most effective approach. Unfortunately, this created confusion in the marketplace. National Freight mostly offered Over the Road, but there was also a component of dedicated trucks. And NFIL specialized in dedicated transport. Generally speaking, if a customer’s operations were short-haul, involving a 250-mile circumference of distance, or required 3PL solutions and complex supply chain management, then this became a dedicated NFIL customer. If a customer’s hauling needs were simple and involved distances greater than 250 miles, it was considered a National Freight customer. But soon the lines blurred, and National Freight and NFIL started to compete for the same customers! For twelve years, these two groups both offered dedicated trucking, and both sales teams were aggressive and competitive against each other. A nickname for NFIL developed among the ranks at National Freight, who called it “the Dark Side.” Dark Side or not, NFIL flourished. The separation of these companies and competition between them created issues over the coming years, which finally came to a head in 2009 when they were merged together. Kutztown, Pennsylvania
185 National Freight Inc The Transformation Begins: Custom Solutions Even as dedicated transport thrived, OTR trucking continued to struggle. The Brown brothers compared the dedicated fleets to OTR: lower turnover of drivers, higher revenue per power unit (truck), radically reduced number of management staff, increased productivity, and money freed up on the bottom line. Dedicated offered the same short-haul routine every day, and repetition is profitable. And drivers were home every night, something they, and the company, highly valued. They were forced to reach the conclusion they had been heading toward for years—the OTR business was not strategically sound and not growth oriented. Gradually, the company reduced its dependence on OTR, meanwhile building up the dedicated fleets. It was a huge change, but one that was needed for the company’s long-term viability. Another change had also been put into motion, one that would likewise push the family business to new heights: National Distribution Centers. NATIONAL DISTRIBUTION CENTERS J ust as the company sought to reverse the short-term, unpredictable business of OTR trucking through the long-term, reliable business of dedicated transport and NFIL, they wanted to implement a similar change in National Freight’s use of warehouse space. For a long time, warehousing functioned essentially as short-term overflow. This needed to be updated. The warehousing division had been founded in 1961 as Eastern States Warehouse Company in order to respond to customer demands for a single supplier of both trucking and warehousing services. In 1983, warehousing was producing $700,000 a year in revenue with only four locations—three in New Jersey and one in Baltimore. In 1986, warehousing expanded in scale and was rebranded as National Distribution Centers (NDC). A massive facility of 800,000 square feet was built in California in 1992, and in 1996 Sid hired a new manager and began expanding the warehousing business in earnest, with an emphasis on long-term contracts. By 1997, the revenue from NDC had grown to $90 million.
186 The Transformation Begins: Custom Solutions National Freight Inc The overall plan was to capitalize on the combined resources and technological expertise of National Freight, NFIL, and National Distribution Centers. Combined, these entities would be able to offer transportation, management, fleet analysis, inventory planning, and interactive logistical services to customers, which would give these customers control over how, when, and where their business needs were met. The plan was for NDC to continue to be developed with an uncompromising focus on building long-term strategic relationships. It would not be about cookie cutter solutions, but would instead be based on an in-depth understanding of customers and their needs. It succeeded beautifully. I n 2008 National Distribution Centers—rebranded as NFI Distribution—served a wide range of Fortune 1000 customers with over 90 warehouse facilities and over 32 million square feet of real estate nationwide, making NDC one of the top ten warehousing corporations in America. NDC serves the diverse needs of its customers with a specialized focus on retail, beverage, food and grocery, and consumer products. NDC services range from traditional public warehousing, which fills customers’ short-term needs for warehouse space on an as-needed basis, to contract warehousing, which involves building a longer-term relationship. Contract warehousing provides services ranging from managing the basic in and out flow of pallets of products or materials to highly sophisticated Warehouse Management Systems. These systems utilize leading edge technology to manage the distribution process and provide management with the information it needs to optimize efficiency, minimize the carrying costs of inventory, and enhance the customers’ service to their own customers. The consistent goal is to develop ever-broadening, deeper relationships with customers, leveraging the assets and talents of all operating companies to provide integrated supply chain solutions to customers. A NEW MILLENNIUM — A NEW START As the twentieth century drew to an end, the prospects for National Freight were undoubtedly improving. Even as things were looking up for the Brown family due to these new initiatives and the gradual transformation of National Freight, the brothers were making progress in convincing their father that it was time for them to assume control. Over the past several years, the topic had repeatedly been brought forth, and although its execution was just as repeatedly postponed, it would not be many more years before Bernard would agree that the time had come. Meanwhile, they continued to reduce the company’s reliance on OTR and to build up dedicated transport as a key driver of business. They developed and expanded NDC and NFIL, which both garnered new customers and ever-growing revenue streams. It appeared that the organization had turned the corner. What lay ahead on the road was anyone’s guess, but the biggest obstacles had been cleared, and they could once again push the pedal down with confidence as they headed into the twenty-first century—a new millennium and a new start with the brothers now in control. Ike, Sid and Jeff steered the company into the 21st century.
187 National Freight Inc The Transformation Begins: Custom Solutions
A BUSINESS MUST CONTINUE TO GROW OR IT WILL DIE. —— Sid Brown
189 National Freight Inc Transforming NFI: 2001–2006 CHAPTER 26 Transforming NFI: 2001−2006 2001–2003: A ROCKY START TO THE DECADE I n many ways, the brothers chose a challenging time to assume control, and they were immediately put to the test. Their first year in control of the company saw the terrorist attacks of 9/11, and the country soon entered an economic recession that impacted all industries, including their own. Nevertheless, they set big goals and pushed forward. For instance, in 2002 NFI expanded into Canada with facilities in Toronto and Edmonton, and in 2003 the Brokerage division was established, providing non-asset based transportation services for FTL (full truck load) and LTL (less than truck load) customers. In a July 2003 company newsletter, Sid Brown addressed the employees: “‘These are challenging times’ was a recent quote from Washington, DC. We, too, are facing our own challenges after completing six months of 2003. The high cost of fuel, weather delays, and lower customer volume have challenged us to come together to keep our flagship company moving forward. We continue to be dedicated to our plans and objectives for 2003, knowing that we will make the most out of every opportunity.” This determination and optimism were characteristic of the leadership’s approach during the challenging times of the recession, and they were well founded. In his message, Sid outlined several key areas for the company to focus on, which he knew would make a difference in the long run, including: • An expanded network of good drivers, bolstered by a strong new referral program that rewarded National Freight drivers for helping the company expand.
190 Transforming NFI: 2001–2006 National Freight Inc
191 National Freight Inc Transforming NFI: 2001–2006 • Fuel savings programs that recognized drivers who utilized them and pushed for total participation. • Reducing operating expenses through innovative and efficient changes to keep all NFI companies competitive; for example, NDC saved $1.2 million by outsourcing the fleet management of forklifts, and Sid urged all employees to reach out to him with ideas for taking more cost and waste out of the businesses. • Winning as a team by working together cross-company; for example, National Freight and Interactive Logistics worked together to develop a solution, and they won $6 million as a team in dedicated fleet and transportation management business from Wise Foods. • More top line revenue growth; despite the slow economy, new business from companies like Wal-Mart, Trader Joe’s, Colgate, and Clorox brought in over $34 million in 2003. • Prioritizing safety and recognizing employees who demonstrated safe, accident-free careers, embracing safety as a way of life. These initiatives and others paid off, and as the nation began to emerge from the recession and find more solid financial footing, NFI was able to reflect on successes even in the midst of turbulent times. In 2003, the company was able to improve its safety record, lower its accident insurance, and improve workman’s compensation costs; over three hundred drivers received Drive Safety Bonuses, totaling more than $300,000; twelve NFI locations won the “000” Risknet award for zero accidents, injuries, and claims; NDC won the annual Quest for Quality Award, naming NDC the best overall value; and NFI companies won nearly $40 million in new business. The brothers had passed through their first great test and had emerged on the other side, ready for more. 2004–2006: GROWING AND CHANGING As the economy improved in 2004, business from customers increased as well. The focus for NFI was on growing profit, better utilizing drivers, optimizing equipment, improving top line sales growth, and greater upgrading of the fleet. All of these efforts continued to expand NFI. “The brothers learned quickly that scale is important,” says Steve Grabell, CFO. “You lose a lot of deals if you aren’t big enough.” In 2004, the company held its first Truck Rodeo, celebrating the exceptional skill and dedication to safety of NFI’s drivers. NFI also became a member of the EPA’s Smartway Transportation Program in 2004. In fact, milestones were achieved this year across the NFI family, such as • The acquisition of Campos Express, located in Tunkhannock, PA. • The first million-dollar net income month for Dedicated Transportation. • Entry to new market segments for NDC. • The opening of a 120,000 square foot contract facility for the Gunite Corporation, a supplier to the automotive industry. • The construction of an enormous new facility for Hasbro in California, in collaboration with NFI Real Estate; the building was over 1,000,000 square feet, featured over 200 doors, and rested on 53 acres of land. “We threw many challenges at NFI and they rose up to meet them,” said Steve Silva, SVP Global Logistics, Hasbro. “NFI was a true partner to identify potential stumbling blocks and eliminate them before they became issues.” Meanwhile, NFIL saw record revenue and earnings, including management of over $80 million annually of refrigerated freight for Morningstar Foods. NFI also enhanced its
192 Transforming NFI: 2001–2006 National Freight Inc
193 National Freight Inc Transforming NFI: 2001–2006 Five Below warehouse, Pedricktown, New Jersey
194 Transforming NFI: 2001–2006 National Freight Inc core transportation management system with web-based interfaces to all carriers, which significantly improved communications and made load planning much more productive. In 2005, the company made additional great strides in growing revenues and expanding in new directions. This year, NFI launched NFI Intermodal and NFI Global Freight Forwarding initiative. This enhanced the company’s portfolio of service offerings; by offering Freight Forwarding, NFI could now handle its clients’ importing and exporting needs by arranging the storage and shipping of merchandise worldwide on behalf of its shippers. As a Freight Forwarder, NFI Global handled complicated logistics and negotiations for its customers, such as shipping and export documents, freight charges, cargo insurance, freight consolidation, insurance claims, warehousing, and so on. By utilizing their extensive
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196 Transforming NFI: 2001–2006 National Freight Inc transportation knowledge and network of connections, NFI Global’s employees could save untold time, money, and headaches for their clients. Other highlights this year included NDC signing $19 million in new business in 2005, along with seamlessly integrating the acquisition of a General Warehouse facility in New Concord, Ohio, serving Colgate Palmolive. Dedicated Transportation started up nineteen new projects, and hundreds of new trucks and trailers were added to the fleet. In fact, at year-end the average age of the fleet was only twenty-seven months when the industry average, at the time, was approximately double! Throughout, Sid recognized and continued to stress the importance of NFI’s employees, the ones who made the company successful day in and day out. “Overall,” Sid said in 2005, “all our companies will continue to invest in our greatest asset… our people, with continued training and career development opportunities. Growth creates opportunities for everyone.” The next year saw more signs of growth and intentionally long-term strategy. In 2006: • About 1,200 more new tractors and trailers were purchased for the fleet. • A major emphasis was placed on the new intermodal business for NFI—including the purchase of 500 new containers for stacked train services. • NFI Roadrail Express began offering double stack container service, the most economical 53-foot intermodal service available in the industry. Over the years, NFI Intermodal, along with other business lines within NFI, pioneered the cold chain with multiple innovations, such as state-of-the-art refrigerated containers. These containers could keep hard frozen products at -10 degrees Fahrenheit or keep sensitive refrigerated goods within a narrow temperature range. The 53’ temperature-controlled container that NFI developed fundamentally changed the cost structure of refrigerated transportation—both over-the-road and on the rail. All of these innovations and advancements were important components in the company’s growth and development. Yet something was missing, something that held NFI back from reaching its full potential. A change needed to occur, one that no single division, expansion, or acquisition could bring about. This change involved a radical shift in the company’s culture, and in 2006 the revolution began. The NFI Eagle is still soaring. Despite all the challenges, I am confident we will achieve our plans. To do so, we must all work together to maintain our competitive edge in this rapidly changing marketplace. We will reach our goals, and we will do it together! −− Sid Brown
197 National Freight Inc Transforming NFI: 2001–2006 Cherry Hill, New Jersey, Headquarters
Integrity Entrepreneurship Social Responsibility Customer Service Performance People 6 VALUES one direction
199 National Freight Inc Advancing the NFI Culture When the brothers took control of NFI, the company had long been driven by underlying values that the Brown family had shared and relied on for generations. Yet the company culture was not adaptive, and it was not effectively tied to the company’s goals as NFI evolved and grew. A change was needed, and in 2006, that change took off. Nancy Stefanowicz, senior vice president of Human Resources took the job at NFI in 2006 because she liked the senior leadership and saw an opportunity to build something even greater than was already in place. Yet after just two months in her new position, she thought to herself, What was I thinking? “It was a mess,” Nancy recalls. “When I walked into my office, it was filled with ancient trucking décor—linoleum floors, a dilapidated desk, non-matching furniture.” The décor reflected a widespread tendency within the company to cling to the past and established, traditional ways of doing things simply because that was how they had always been done. To make matters more difficult, in 2006 the HR department was desperately understaffed. The company had 4,500 employees at the time, so by the industry standard of 100:1 there should have been forty-five employees handling HR functions. Instead, there were only three dedicated HR staffers. It would be a major uphill battle, but the leadership was determined to not only win the battle, but the war. “Human Resources was decentralized back then, and every separate business unit was handling its own activity,” Ike Brown says. “This was the way it had always been, and CHAPTER 27 Advancing the NFI Culture without any controls it was a recipe for disaster.” Held up to the goal of being entrepreneurial, this lack of centralization and control was viewed as a positive situation, but the company leadership recognized the signs of an enterprise run amok, full of inconsistencies and silos that prevented true cooperation. Everything had to be built from the ground up. There were some policies in place, such as attendance and vacation, but there was no common review date, no pay for performance, no centralized recruitment policy. “There was a trucking culture, a difficult culture. People were not transparent,” Nancy remembers. “They were just concerned about their own profit and loss at the cost of others. They were competing for the same talent, especially the drivers.” At the time, NFIL and Dedicated Transport could have utilized common practices but did not; their policies were all different. As two distinct companies, equipment was not shared. A shift was needed to create efficiencies and standardization, and changing the culture that supported this environment would be a big step. A lot of the management team, though, did not want to change. They were confrontational and unwilling to alter their practices because things seemed to be working, at least to them. Why change? Change would come with pain, something they did not want to endure. After Nancy’s first two months on the job, Sid called her to a meeting with himself, Ike, and Jeff, and the brothers asked for her initial assessment. She almost didn’t know where to begin. “People are afraid to tell you what’s really going on,” she
200 Advancing the NFI Culture National Freight Inc told them. “This is not a healthy culture. When I mention new processes and change, people have the ‘deer in the headlights’ look. They are all thinking, ‘Why change? After all, we are very successful and have been doing this for years. Who are you to tell us how to run our jobs?’ People don’t want to work together.” Nancy let this sink in, realizing it was likely not what the Browns wanted to hear, but then she continued. “But…the good news is that people are passionate about the business— they love this company. However, they are unwilling to change because they simply don’t know any better.” Worried that any recommendations might not be fully considered without the troops’ input, the team suggested an anonymous survey. The brothers agreed and HR initiated a survey and utilized focus groups of ten people per group, repeating this six times. The outcome revealed gaps in communication, leadership, accountability, and expectations. These results, after being shared with Sid, Ike, and Jeff, precipitated some organizational shifts in the leadership. If senior leadership and the levels below couldn’t adapt, they would be dismissed. The change came swiftly—no time to waste. Too many things needed to get done. Then HR team along with other company leaders traveled to meet with groups of employees from all business lines and downstream personnel. This confirmed what all suspected. They learned that NFI employees didn’t have a blueprint and that a company mission, vision, and core values were needed. A senior leadership conference was held to discuss and define the company’s mission, vision, and values. Following this significant step, training became a high