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The logic of leasing

Just-in-time is more than a buzzword at Eaglebrook Inc. of Canada. It's a way of life. The Varennes, Que.-based company plays a pivotal role in the successful operation of several industries in Canada...

Just-in-time is more than a buzzword at Eaglebrook Inc. of Canada. It’s a way of life. The Varennes, Que.-based company plays a pivotal role in the successful operation of several industries in Canada where timing is crucial.

Eaglebrook is a manufacturer and distributor of iron- and aluminum-based chemicals used to treat drinking water and wastewater. The company also transports hydrochloric acid to steel mills and collects ferrous chloride from the mills. It then delivers the byproduct to the water treatment facilities, along with its own chemical products.

Eaglebrook’s pick-ups and deliveries are carefully choreographed to keep the mills operating. “We’re a complete just-in-time operation,” says Lloyd Moore, terminal manager at Eaglebrook’s facility in Concord, Ont. “For example, if a steel mill is pickling steel and doesn’t have enough hydrochloric acid, it might have to shut down. The steel mills are linked to the auto industry, and if they don’t have steel, they can’t operate. It creates a domino effect.”

The company’s customers at municipal treatment plants place a similar emphasis on timeliness. Water treatment facilities have an ongoing need for Eaglebrook’s chemicals. Since their storage capacity is limited, regular and timely deliveries are vital. “The word ‘can’t’ isn’t in our vocabulary,” Moore says.

Eaglebrook manufactures its products at three facilities in Ontario and several in the United States. It is a subsidiary of Kemiron Companies Inc. Kemiron, which is a wholly owned subsidiary of Kemira Oyj of Helsinki, Finland, acquired Eaglebrook in 2004.

About 70% of Eaglebrook’s business comes from municipal potable and wastewater facilities, while the rest involves mining and industrial accounts, such as steel mills. The water treatment facilities range from a rural pond 1,100 kilometers north of Montreal to plants in Toronto and Montreal. The company services steel mills in Ontario, Quebec and a couple in the U.S.

Eaglebrook’s fleet includes about a dozen leased tractors each in Quebec and Ontario – the majority of which are leased through PacLease – and about 16 owned trailers outfitted with fiberglass tanks in each location. The company also owns and leases about 700 rail cars.

Eaglebrook trucks usually run seven days a week. Kilometres per truck range from about 140,000 to 180,000 per year.

A customer’s location will determine whether it’s served by rail or truck in most cases. Rail service isn’t always available, especially in the more remote towns. The company follows a set schedule for picking up and delivering to its customers that ranges from daily to a couple of times a week. By having its own fleet of trucks, the company is able to dispatch trucks to cover an emergency when rail service isn’t timely or a customer doesn’t have enough storage capacity. For example, the company’s tractor-trailers will deliver five to 10 loads of Eaglebrook products a year to Saskatoon to customers or distributors.

To meet its schedules and maintain its high standards of on-time deliveries, Eaglebrook relies on its fleet of leased trucks. The company has chosen leasing for the past 11 years because it doesn’t want any surprises. The company formerly owned its trucks but management decided that it wanted to focus on its core business and not have to worry about maintaining its fleet, according to Serge Hudon, Eaglebrook terminal manager in Varennes. “Our private fleet works to serve our manufacturing capability,” Hudon says.

Moore says that by leasing, the company knows what its fixed costs will be for the length of the contract. And by choosing a full-service lease, the company receives reliable, scheduled maintenance that keeps its trucks up and running. “Leasing gives us peace of mind,” Moore says.

Eaglebrook began changing its leasing program in 2004 by leasing several Kenworth T800 tractors at its Toronto-area and Montreal locations through PACCAR Leasing Company (PacLease). Moore says the company wanted a more responsive maintenance program. “Following a just-in-time operation program, we need immediate maintenance or a substitute truck if repairs are required,” Moore explains. “We also need precise maintenance schedules that can keep our trucks in top condition. We’re getting both with PacLease.”

PacLease worked closely with Moore and Hudon on spec’ing the T800s. As an added service, Kenworth Ontario PacLease, the PacLease location in Toronto, applied the same specs to an extra vehicle that Eaglebrook rents monthly to meet business conditions. Also, PacLease reviews engine computer reports with Moore and Hudon to see where improvements can be made in operating efficiency.

Eaglebrook leases space at the Kenworth Ontario PacLease facility in Concord where it performs maintenance on its 16 trailers. The close proximity pays off because PacLease can easily do maintenance on Eaglebrook’s trucks and occasional work on the trailers when Eaglebrook’s technicians aren’t available.

Custom spec’ing plays an important role in Eaglebrook’s efforts to enhance efficiency and productivity. The company spec’d 13,200-pound front axles to accommodate maximum weight on the front end of its tractors and 46,000-pound rear axles to handle heavy loads off-road and the drag weight of its trailer “trains,” according to Moore.

Hudon adds that the spec’ing had to take into account that the trucks would have to operate in both Canada and in the U.S. where load limits are lighter.

Eaglebrook chose the T800 with 72-inch sleeper for its aerodynamic shape to reduce wind drag and improve fuel economy when carrying heavy loads, according to Moore. “Since ours is a high-volume, low-margin business, we try to arrange for maximum loads as much as possible.”

The T800 is also designed to appeal to Eaglebrook drivers. Moore says that because the trucks look good and are equipped with a top-notch interior, drivers take “ownership” of the trucks and help keep up the appearance and mechanical condition. “That presents a positive image to our customers and improves the truck’s value when the lease is over,” Moore says.

The trucks are equipped with a Cummins ISX engine with 475 horsepower for pulling power on hills. Moore says the EGR engine is also appealing because its emphasis on reducing emissions fits with Eaglebrook’s own policies of protecting the environment.

In addition to smart spec’ing, Eaglebrook does operational checks to ensure it’s getting the most out of its trucks. Idling time is compared among drivers to find ways to reduce idling.

Tires are monitored regularly by PacLease to maintain proper air pressure and to maximize performance. Performance and traction is important, especially in inclement weather, because the liquid loads shift when a truck is climbing a grade, according to Moore.

All of these tactics help Eaglebrook maintain peak efficiency and stay responsive to its time-sensitive customers. “We’re open for business 24/7,” Moore says. “We have to be ready when our customers are.”

ADVANTAGE: Private Fleets

Many companies are starting to see them as the best way to guarantee capacity and control costs

Private fleets are facing a challenge. As the economy hums along, they are busier and need more trucks to accommodate inbound and outbound deliveries. In a recent PacLease survey of national account customers, 67% said they intended to make additions to their fleet.

If companies turn to for-hire carriers, they’re in for a surprise: Freight rates have increased because of greater demand, less capacity and federal regulations. For-hire trucking revenues in Canada increased almost 19% in the fourth quarter of 2004 compared with a year earlier, and that was on the heels of a 27% gain in the third quarter of 2004, according to the Ontario Trucking Association. Our own annual Transportation Buying Trends Survey found that 80% of shippers using truck transportation in 2004 paid higher rates with 56% paying increases of 4% or higher.

As demand increases, costs for shippers go up. One of the causes is higher driver turnover. Annual driver turnover at truckload carriers in the United States has soared above 120%, according to recent reports, and that number will probably get worse before it gets better. Ultimately, this means increased hiring costs for carriers that get passed on to shippers.

Companies operating their own fleets can be at an advantage. Costs can be kept in check, thanks in part to less driver turnover (at private fleets, turnover is typically between 10% and 30%) and more control over truck routing. They can be in a better position to optimize how loads are staged, who gets to load the trucks and how much time drivers spend waiting or idling.

In the long run, the new U.S. Hours of Service (HOS) rules may also favor private fleets that run in the U.S. because they will have more incentive to use their own trucks on specific routes. On the other hand, for-hire fleets will need to charge more in areas with less freight density because less backhaul capacity is available.

“If you want to guarantee that you have the capacity you need while controlling your costs, operate your own fleet,” says Bruce Richards, president of the Private Motor Truck Council of Canada.

As growing pains take place with HOS rules, one thing will be constant: Equipment reliability will be of paramount importance. Delivery slots continue to be set like clockwork. With tightened schedules, a loaded truck that shows up late will either have a domino effect on other deliveries for that receiver, or it may have to wait until a slot is open. Fleets that want to remain productive will require an incredibly well-run operation.

“While some fleets may embrace a culture of ownership, the true cost of ownership extends well past the initial purchase. Acquisition accounts for just 10-15% of the total cost of ownership, while operating and maintenance costs account for the remaining 85-90%, says Bob Southern, president of PacLease.

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