May 11, 2006

AWARD WINNING SUPPLIERS: Consolidated Fastfrate

Canadian Shipper

President and CEO Ron Tepper speaks about Consolidated Fastfrate’s ambitious new plans for the Maritimes in an exclusive interview. 
 
CT&L: You’re building a major cargo distribution and warehouse facility in Dartmouth. What is the size and scope of the project and what’s the strategy behind it? 
 
Tepper: The project was initiated as a result of discussions with some of our customers on the west coast that were looking for alternatives in the event they ran into labor or congestion issues. Also, Canadian Tire is a major customer and they have a large volume of freight that has to go into the Maritimes for their stores there, so we looked for ways to route that product so that it would stay in the Maritimes rather than bringing it in to Vancouver, shipping it by train to Toronto and then trucking it to the Maritimes. If you bring it through Halifax and deliver it directly to the store, that’s going to save a lot of money and time. 
We had about a year’s worth of meetings with various retailers, the people at the port of Halifax and various entities within the federal and provincial government to put together a package. We are putting our money where our mouth is with a $10M investment and the port was excellent to work with. Halifax Port Authority president and CEO Karen Oldfield has embraced this opportunity; she understands it and has been able to articulate it. She gets things done. 
We should be breaking ground some time in the fall. We are building a roughly 100,000 sq ft facility on about 20 acres with an extension we hope to build within two years of an additional 60,000 sq ft on another four acres. We are going to employ approximately 180 people in the warehouse and dock and maybe another 20 drivers who will be going back and forth from the port and between the Halifax area and Toronto and Montreal. We think we will be able to handle 25,000 containers a year in this facility. 
There are going to be a myriad of services offered. We are going to offer drayage service from the port to our facility. We are going to create a container yard for the steamship lines and bring the product from the port into our facility and we are also going to offer a transload service, taking shipments out of international equipment and putting them into domestic containers destined for Montreal or Toronto. We will be able to handle the transporting of some of those shipments on our own system. We are also going to offer warehousing and transportation services for shipments destined for the Maritimes. And we will be able to reload international containers with export freight initiated in the Maritimes. This will save the steamship lines a fair bit in repositioning costs, making Halifax more attractive to them. This also makes more equipment available for exporters who currently have trouble getting equipment from the steamship lines because they have to wait for repositioning, which is expensive. We will be eliminating a large portion of the repositioning cost. 
This project is a Canadian-made solution to an international problem. Rather than just sitting back and saying there’s no way around the congestion and labor problems with our west coast ports, we found a way that is starting to make sense to a lot of people. And it’s not to take away from the port of Vancouver, it’s more to create an alternative for incremental work so that the port can continue to grow at a more manageable rate that works for everybody. 
 
 
CT&L: If this trade grows, it will obviously move across several modes and I assume would run into the same congestion issues we have on the west coast and actually all over Canada: Looking specifically at congestion on the intermodal system, are there significant signs that it is getting better? 
 
Tepper: There is only one railway in eastern Canada, and that’s CN. And so we will be playing by CN’s rules unless we can create some sort of competing service. I think it’s going to have to be up to the railway to decide what it has to do from a shipper point of view to be effective. While there’s no way we can create a competing service for the amount of volume we expect to see, we can create a competitive service for part of that volume. 
 
 
CTL: Capacity has been an issue for shippers using trucking services for a couple of years now. What have you added in 2005 and plan to add in 2006?

Tepper: We purchased Koch Transport last year, which brought us an additional 200 containers and roughly 100 tractors. It’s a cross-border operation so with the purchase we increased our internal capacity for Quebec, Ontario and the northern US. Our growth in capacity will come mostly through acquisitions. Domestically we are in good shape from a capacity perspective. 
 
 
CT&L: Should shippers be concerned about the trend towards consolidation or is it necessary to meet the growing sophistication of shipper demands? 
 
Tepper: If I was a shipper I’m not sure I would worry about consolidation. You almost have to be large to survive in today’s environment. I think shipper”s understand their business today and where it’s going tomorrow and understand he they to align themselves with a carrier to have the capacity , and that’s for both equipment and drivers. For that reason shipper’s would want to see companies such as ours grow and be able to meet the demand of our customers. Our service menu over the last five years has grown considerably to the point where our peripheral services are roughly equal to our main service in terms of volume. I think pricing is going to go where supply and demand takes it it’s going to be a factor of many different issues, such as fuel, border security and the driver shortage and those issues are going to be there whether there is consolidation or not. 
 
 
CT&L: At the end of last summer you announced that Roynat Capital has purchased 15% of the common shares of Consolidated Fastfrate. How will this development help your future growth plans?

Tepper: Roynat is owned by the Bank of Nova Scotia. They are an asset-based lender and so make access to funds a little easier for us than otherwise. Being a partner in the business they have the same desire to grow it.as we have 
 
 
CT&L: How do you see your company evolving over the next 5-10 years? 
 
Tepper: At the end of the day, if we can’t provide a service that is valuable to our customers we are not going to survive and so we will remain very service oriented. That’s first and foremost in our mind. We don’t want to grow to the point where we lose track of our service capabilities. We are going to grow this business to the size we think makes sense. And we are going to drive our costs down by time by addressing the fixed cost component as a percentage of the revenue. And we will continue to look to add on services we are capable of performing and our valuable to our customers