BNSF Team Turns Puzzles Into Paths

Everyone knows the shortest distance from point A to point B is a straight line. But a straight line may not be the most cost-effective route to move a shipment of, say, dog food from Tuscaloosa to Tucson. The folks at BNSF Logistics LLC of Springdale know that it may be cheaper to send that load through Topeka first.

Logistics — handling the details of transporting goods — has become big business in the last 20 years, spurring in-house logistics companies at carriers such as J.B. Hunt Transport Services Inc. of Lowell and Yellow Corp. in Overland Park, Kan. A 2002 survey conducted by Northeastern University of Boston and Accenture, a technology management company, estimates the third-party logistics business is worth $50 billion annually.

Jim Crowell, executive director of the Supply Chain Management Research Center at the University of Arkansas’ Walton College of Business, cited a study by Armstrong & Associates, logistics industry experts, saying the third-party logistics industry is worth $65 billion a year. Crowell said the industry has been growing at about a 10 percent clip for the past several years.

A facet of the overall logistics industry, third-party logistics companies — commonly referred to as 3PLs — have popped up to fill a need as an outsource vendor for shippers and carriers.

BNSF Logistics is looking to motor its way into the top bracket of the 3PL market. Eric Wolfe, vice president of the company, said its annual revenue is “north of $100 million,” but declined to reveal greater details about the company’s financials. The company has acquired two regional 3PLs — one in Oklahoma and one in Ohio — since May 1 and Wolfe projects its growth to more than double by 2010.

BNSF Logistics is a wholly owned subsidiary of railway company Burlington Northern Santa Fe Corp. of Fort Worth, but there’s not a word about the logistics arm or its financials in Burlington Northern’s 96-page 2003 annual report.

The report does say about 10 percent of Burlington Northern’s $3.7 billion in “consumer product revenue” was generated from “inter-modal marketing companies, primarily shipper agents and consolidators.” That presumably includes BNSF Logistics.

Not a bad stake for a company whose incorporation date is August of 2002.

Logical Acquisitions

Wolfe said 3PL transportation logistics operations are traditionally tight-lipped because competition is stiff and margin is relatively low. Information about proprietary software or business practices could give a competitor a significant leg up. He guesses there are about 25 well-funded, seriously competitive 3PL companies in the country.

The company employs about 150 people in 10 offices in Arkansas, Oklahoma, Illinois, Tennessee, Ohio, California and New York, Wolfe said.

BNSF Logistics bought Sumark Service of Versailles, Ohio, on June 7 and Rite Choice Transport of Roland, Okla., in early May.

Details about the acquisitions are not being made public, Wolfe said, but Sumark had gross revenues of $40 million in 2003 and a total of 54 employees who now work for BNSF. The former Sumark office will serve as the operation’s eastern arm of the transportation execution services (TES), he said.

Rite Choice was a smaller acquisition, with six to seven employees. In both instances, previous owners of the companies have remained as employees with BNSF Logistics. In the case of Sumark, Chuck Borchers, its owner since 1987, was appointed director of BNSF Logistics’ TES-East.

Rite Choice had an existing specialty in refrigerated and perishables, giving BNSF Logistics an expanded reach in a niche market, Wolfe said.

“The model out here in this 3PL world has been typically a decentralized, regional approach, close to the customer base,” Wolfe said. “I think it certainly gives us broader exposure, a broader carrier base, gives us a broader customer base and lets us add people more efficiently.”

The company acquired MRS Companies of Godfrey, Ill., in September. MRS was a “brokerage and freight forwarder.” Mike Soloman, former owner of MRS, remained as vice president of marketing and sales at that location.

Wolfe said he couldn’t discuss much about BNSF’s clientele, but said a “great percent of our business is tied up into large retailers.” He said the business was diversified and had recently developed a furniture and food niche.

According to a May 18 release from the company, BNSF Logistics signed a contract to provide services for Brandon Overseas Inc. of Palm Beach Fla., parent company of Brandon Home Furnishings. It is unclear if BNSF will be the exclusive provider of logistics services, but BNSF staff will go work on-site at Brandon.

The Logic Business

About 50 people sit in a 7,000-SF cubicaled office in south Springdale typing on keyboards and talking into headsets. “I have a truck going to Birmingham,” one man said to his client, typing furiously.

Their conversation is lost among the chatter of other dispatchers and logistics service managers answering telephones and shuffling the commerce of an untold number of shippers and carriers — a sort of match making service where supply meets demand.

“All of our activity is around providing services to shippers,” Wolfe said. “We just do it in slightly different formats.”

Wolfe said the transportation execution service, supplying carrier capacity, makes up between 70 and 80 percent of the company’s business.

BNSF Logistics offers modal solutions, transportation execution, supply chain service and consulting. Basically, it figures out how to move goods from one place to the other in the most cost-effective manner.

Mica Jordan, director of TES, said the Tuscaloosa to Tucson example may not be exactly accurate, but he said a load could easily be more cost-effective to ship from Chicago to Mexico City by way of El Paso rather than directly through Laredo.

Jordan said BNSF’s greatest asset to its clients is what he calls “headache management.” He said the logistics company is willing to take on shipments that many shippers might steer clear of, like multiple drop shipments, problematic lanes or even less-than-desirable materials.

The company has southern, eastern and northern segments that operate out of offices based in those regions. Jordan said the possibility of a future acquisition in the west that would support a TES segment could happen some day.

“Right now with all the pressure out there with driver wages, with fuel, et cetera, there’s a lot of pressure for innovative, different solutions using other modes – such as rail,” Wolfe said.

BNSF Logistics’ parent company offers a tremendous resource for multi-modal solutions. A look at the Burlington Northern map shows the entire central and western U.S. crisscrossed with the BNSF railway system, a total of 32,500 miles of track, with ownership of 24,500 of those miles in 28 states.

Logical Start

Even though the company is less than two years old, in some ways, BNSF Logistics has been around since 1997.

Wolfe, 38, started his career on the ground floor of J.B. Hunt’s logistics division in early 1992. When he left, Wolfe was vice president of operations. He stepped out with some coworkers in 1997 to help start Cardinal Logistics Management of Concord, N.C., which grossed about $100 million in revenue by 1999, he said.

Cardinal’s holding company, decided to jump on the technology bandwagon and spun-off a company called Clicklogistics of Boston, which provided host applications for clients to perform logistics management, he said.

But in the spring of 2002, Clicklogistics was dissolved. Wolfe, the chief operating officer, was asked to liquidate the assets. Part was sold off to Meridian IQ of Overland Park, Kan., the transportation management segment of Yellow Corp. The managed service, or transportation execution services were sold to Burlington Northern Santa Fe, he said.

Along the way, Wolfe has brought along Jordan, who has worked with Wolfe since 1999, and Todd Hoyt, director of business development, who has worked with him since 1994 when they both were at J.B. Hunt logistics.