Hours before midnight on July 22, 2007, throngs of Andlauer Transportation Services (ATS) trucks were dispatched across the country to deliver what was arguably the most anticipated product release in retail history. The national distribution of Harry Potter and the Deathly Hollows — the seventh and final of J.K.Rowling’s wizardly Harry Potter novels — was a monstrous undertaking.

The fantasy book sold 11 million copies in the first 24 hours after its release (eclipsing the nine-million record posted by the sixth Potter book in 2005).

But more than 24 hours before, amid tight security at ATS’ three main trucking and cross-dock hubs in Toronto, Montreal, and Vancouver, staff had a different goal in mind. The rules were simple: Break down and sort thousands of boxes of the books and ship them in synchrony to bookstores across Canada on time — meaning not before, and definitely, not after.

When it comes to Pottermania, the delivery window isn’t negotiable or forgivable — as a poor U.S. postal worker found out when she was fired for accidentally delivering a single copy of the Potter book that had skipped past mail sorters.

For Etobicoke, Ont.-based ATS, which is contracted by publishers and entertainment distributors to haul many of the books, CDs, and DVDs sold in Canadian stores, the demand to avoid a logistics nightmare puts a different spin on appointment-sensitive freight.

Get there too early, and face the wrath of your client. Get there after the witching hour, and your trucks could also be in danger of being overturned by a mob of magic wand-wielding, Potter-loving geeks. Buzz Hargrove’s got nothing of that kind of just-in-time pressure.

“Everything has to be delivered at the same time,” says Bob Brogan, ATS’ senior executive vice president. “There’s one set of processes for all shipments, large and small. Wal-Mart can’t get it before Costco, and so on. In the entertainment industry, early is just as bad as late.”

That’s the kind of lesson that was learned very early on by Michael Andlauer when he founded the company bearing his name in 1991.

Message Conveyed: ATS’s new facility boasts
2.7 km of package pathways.

His ambition was to create a niche-focused, “one-stop-shop” for a select number of clients whose needs centered on the transportation of time-sensitive, high-value products.

“His vision was to do all things for some people,” explains Brogan on behalf of his boss, who was overseas at the time of this interview.

The fleet first rolled out by offering its original customers nationwide airfreight forwarding and ground transportation through facilities in a handful of major Canadian cities.

Demand for its customized services allowed ATS to expand to a small group of high-needs sectors with unique delivery requirements, such as pharmaceuticals, CDs and DVDs, telecommunication devices, and cosmetics.

About 10 years ago, ATS acquired Mowat Express to expand its asset base in the Ontario healthcare, consumer products and pharmaceutical markets. Just before becoming a publicly traded income trust in 2003, Andlauer bought back 100 percent of Concord Transportation from Clarke Inc. Today, Concord mainly handles much of the company’s cross-border, and domestic long-haul truckload and LTL freight.

Unlike most other income trusts, ATS hasn’t spent the last decade targeting small and medium-sized fleets for takeover. Andlauer originally became an income trust to accelerate such growth, but, says Brogan, the company has since preferred to concentrate on its core assets. (One small exception is the recent acquisition of a Winnipeg-based, curbside car and van fleet that delivers pharmaceutical orders to customers’ doors).

“We have to stay focused on a small number of niches that we know are going to be there for a long time or else what we do here is not going to work.”

Today, the $170-million company has about 100 power units and another 250 contracted owner-operators, ranking it at number 72 on Today’s Trucking’s recent 2008 Top 100 For-Hire carrier list.

It has also built a network of 23 customized terminals across Canada, representing nearly a million square feet of space.
From the start, Andlauer “purpose-built” his entire operation for targeted sectors, rather than trying to lure potential new customers after-the-fact.

“On day one, we made sure we had the entire layout set up –buildings, facilities, and equipment. The [sectors] we worked with required a specific type of building network with the kind of floor space the average LTL business just doesn’t have,” says Brogan.

“Then we made sure we could handle and distribute it all — courier, LTL, air freight. Our facilities are more like distribution facilities than they resemble trucking terminals.

“Our customers don’t spend a lot of money on distribution. They don’t have a lot of multi-carrier models. They just want to give it to somebody so it gets there safe, exactly at the right time. Not before, not after; big shipments and small ones — it doesn’t matter.”

In order to effectively give customers a fully catered distribution and transportation package, ATS initiated a technological overhaul of its major facilities.

The most recent state-of-the-art, cross-dock hub opened north of Toronto last November. The center, despite being smaller in physical size than its previous headquarters, provides significantly more ­utilization capacity, with 92 docking doors.

Years ago, the pharmaceutical sector needed a
comprehensive control-based solution. So ATS built one.

As elaborate as anything you’d see at UPS or FedEx, the facility features 2.7 km of elevated, crisscrossing conveyor belts custom designed by FKI Logistex. Parcels and boxes of varying sizes whiz through 39 sorting lanes at 550 ft per minute.

The boxes are automatically sorted, scanned, weighed, and sent to their appropriate dock door for loading. The system has the ability to process nearly 11,000 packages per hour. “Our driver can deliver a skid or a box, switch back and forth, and he doesn’t even notice,” says Brogan.

The facility, in combination with the carrier’s fleet of high-tech temperature-controlled equipment, also gives ATS significant leverage in the pharmaceutical industry, which makes up 35 percent of the company’s business.

Not only is ATS required to maintain a certain temperature of all pharma shipments inside the trailer, but it’s one of the few transport providers that can control and monitor strict temperature ranges during the entire unloading and handling process at its facilities.

“Years ago, the pharma sector needed a comprehensive control-based solution, so we built one,” says Brogan. “We were the ones that stepped up the quickest and did the most extensive work around temperature, which became that industry’s most important requirement.”

The system was so impressive, it automatically propelled ATS to the top of the market, giving the carrier unprecedented branding and pricing leverage in that sector.

In a recent analysis of the company, RBC Capital Markets described the temp-management program as ATS’ “main growth engine for the future.”

“Shippers in the pharmaceutical industry provided un-prompted accounts of ATS’ success in providing transportation services that met their regulatory monitoring specifications for temperature control,” says RBC’s Walter Spracklin. “Moreover, given the high value of these shipments and the importance of high quality processes, ATS has significant leverage when it comes to pricing.

This is supported by the fact that very few of its competitors provide this level of service.”

RBC recently conducted a national shipper survey that examined the evolving nature of the shipper-carrier relationship. In it, the firm identified that a key priority for shippers is consolidating their supplier relationships around fewer carriers.

“This ‘one-stop-shop’ focus and customized transportation solutions helps ATS deepen its relationship with existing customers and allows for better than average customer retention,” notes Spracklin. What’s “better than average?” Well, more than 50 percent of customers (including the top 30) have been loyal to ATS for eight years or more.

“Sure, our customers expect us to be competitive. But there’s not that many companies that can do what we do under one roof,” says Brogan.

“We work hard to be able to say that we are the best solution for client x. But perhaps we’re not a good solution for client y. So we never get client y. He doesn’t even come here.

“Usually if client x leaves, it’s because he’s changed his business model where he no longer finds the same value in a one-stop-shop. That’s how we lose, but we don’t lose that many because of that.”

As a result of ATS’ discipline to not overextend itself, the carrier has largely avoided stepping into the economic quicksand that has grinded down many other general truckload and LTL carriers — especially in central Canada where the value of the Canadian loonie and reliance on the U.S. economy, vis-à-vis our manufacturing export sector, has taken a heavy toll.

“While we remain underweight on the trucking segment due to continued weakness in manufacturing … we expect that ATS will continue to be shielded from these headwinds because of the company’s focus on service-sensitive shippers in targeted industries,” says Spracklin.

AROUND THE BEND

ATS’ pricing challenges are more technology-driven and less based on general economic conditions. Internet downloading and streaming video, for example, are biting into the sale of hard copies of CDs and, ever more often, DVDs on the shelf. “That translates to pricing pressure in our business, for sure,” says Brogan.

At the same time, Spracklin believes that ATS’ ability to offset the decline in the entertainment industry with growth in pharmaceuticals is its key test over the next decade.

While Canada’s demographic pool dictates pharma will continue to grow progressively over the next 25 years, its margins for trucking are not as high as what the entertainment industry currently contributes.

Almost unheard of five years ago, Canadian trucking companies, including income trusts, are starting to look quite attractive to American private equity firms. In 2007 two such investment firms bought Canada Cartage and Consolidated Fastfrate.

Examining these acquisitions at the time, Spracklin said carriers that are based on niche-market segments, are characterized by higher barriers to entry, and have solid pricing discipline continue to make more sense for private equity consolidation. And yeah, ATS fits that criteria as well as any carrier in Canada, Spracklin adds.

So how often does Michael Andlauer’s phone ring in a single day? Brogan won’t say exactly, but he stresses the company isn’t rushing to put the For Sale sign out front.

“It’s nice to be noticed, sure. But we’re not courting private equities or anything like that.

“I assume when they say that [analysts] are looking at the fundamentals — the things that make us a good purchase for unit holders also makes us, I suppose, attractive to those looking to buy a company — things like stable sense of market; secure, robust customers; and to be able to spit up decent results.”

And don’t forget, Bob, the importance of being able to keep happy thousands of cloak-clad children (and let’s not kid ourselves, their parents, too) waiting not so patiently for their next Harry Potter fix. Just ask J. K. Rowling how profitable that racket is.