Mark Green: Verst began as a trucking company but has grown into a diversified logistics company today, including packaging and other operations. Can you take us through the sequence of steps of diversification as they occurred?
Paul Verst: Our company started in 1966, and since then Verst has provided logistics services for startup companies all the way up to Fortune 500 companies. We’ve been recognized by magazines such as Inbound Logistics as a Top 100 Third Party Logistics Provider. We provide warehousing, transportation, customized packaging and fulfillment services. Those are the four pillars of our company, along with real estate that we hold.
Our e-commerce fulfillment service represents our newest capability. It allows our clients to deliver products to their customers in over 85 percent of the U.S. in one to two days. As we look at ourselves, we exist to extend the expertise and capabilities of our clients. We like to say that our business is an extension of our client’s business.
My dad, William G. “Bill” Verst Sr., founded the company in 1966 when he bought an existing trucking company in Cincinnati. Right next to it was a trucking/warehousing company, and he purchased that in 1968. We continued to grow in transportation and warehousing throughout the ’70s and into the ’80s, and it was sometime late in the 1980s that we had an opportunity to move into Northern Kentucky and expand into contract warehousing.
In 2001, our strategic planning process identified a contract packaging company that would complement our core business, and we acquired it. Finally, the newest venture we’ve entered into is order fulfillment and e-commerce. We started that division in early 2017.
In the beginning, in 1966, we started with a fleet of about 10 tractors and 20 trailers. Today we’re at 6.5 million square feet of warehouse space and a fleet of about 120 tractors and up to 1,600 employees between all of our companies. Out of 1,600, 1,000 reside in Kentucky.
MG: Where are the other employees located? How many locations?
PV: We’re in five states: Ohio, Kentucky, Indiana, and we opened in Arizona and Alabama in 2017.
MG: Verst Logistics handles four lines of activity: packaging, warehousing, transportation and fulfillment. Can you tell us how much of your overall revenue stream each sector represents?
PV: I can break that down percentage-wise. Packaging overall is about 20 percent. Our warehousing is roughly 40 percent. Transportation is 35 percent. And fulfillment around 5 percent.
MG: Of those 1,600 employees, how many are in each category, and what is the company’s capital allocation or distribution?
PV: Within Verst Group Logistics, there are approximately 370 employees. Of which 227 are in warehousing and fulfillment, 56 are in packaging and 87 are in transportation. We also have a separate company, Zenith Logistics, providing dedicated warehousing with 1,200 employees.
MG: Has the company expanded and diversified as a result of responding to opportunities or after strategic planning to move into new but related sectors?
PV: We regularly do strategic planning, asking what additional services will drive value in the future. In the 1980s, we identified that contract warehousing would be something a lot of companies would take a look at in the future.
Around 2001, in the strategic planning session, we were sitting around a table saying, “What else can we do to add value to customer supply chains.” One guy in our group said, “There’s this thing called contract packaging, and in particular, shrink labeling.” He knew of a small company in Cincinnati doing it. I met with that owner, and he had I believe five employees in about 8,000 s.f. We worked out a deal where we acquired his company. We have dramatically grown that business in the last 15 years to a point where we now have approximately 200 employees and 300,000 s.f. of space.
The last endeavor was fulfillment. Clearly, with Amazon and Wayfair and the rest of the e-commerce providers in our geography, this is a hotbed – the Midwest, and primarily the I-75 corridor – for e-commerce and fulfillment. Our location enables overnight to two-day delivery covering 85 percent of the U.S. population. DHL, Amazon, and others recognize the advantage of operating in the greater Cincinnati area and leveraging the CVG airport. But frankly, we have been here all along.
MG: What type of packaging does Verst do?
PV: The majority of what we do is labeling empty containers: yogurt cups, distilled spirits, craft beer, liquid laundry detergent caps and more. We use a method called “steam heat shrink labeling” that provides brilliant graphics that you just cannot get from a printed label.
MG: Was there a specific customer or client that has allowed you to grow and be so successful?
PV: We do a lot of work with Kroger. We also handle large volumes of paper products and support the automotive industry. We have many Fortune 500 customers in a wide variety of industries.
MG: Logistics is a rapidly changing sector. What major trends are you working to stay abreast or ahead of?
PV: The demand for faster velocity, speed to market and speed of delivery continues to increase. It’s all about how you get products from Point A to Point B as accurately as possible. The millennial generation is driving a lot of that. With the “Amazon factor” you can order today and get it delivered tomorrow. The need for speed and consistency is more important than ever. Winners are those who are flexible and can provide B2B and B2C solutions including final-mile delivery. We think we’re well-positioned with our fulfillment solution to handle the evolving demands of today’s consumers. It’s all about speed and accuracy!
MG: What is your geographic footprint, both for operations and for your customers?
PV: From our core area here in the Northern Kentucky/Cincinnati area, our (transportation) fleet goes out approximately 300 miles. We also have some sleeper cabs that get up to Canada, down to the Carolinas and Tennessee. Our warehousing operations extend much further, as we will operate in any state that the client requires. We currently have operations in Arizona, Alabama, Kentucky, Indiana and Ohio.
MG: How did you hop all the way to Arizona?
PV: We were running a distribution center for a customer in the Cincinnati and Northern Kentucky area. They constructed a manufacturing plant in Arizona and needed some expertise in logistics, so they asked us to go out there with them.
MG: How big is your operation there?
PV: It’s an 800,000-s.f. manufacturing plant of which 200,000 s.f. is warehousing, so we run the 200,000 s.f. for them. For now, it is just warehousing.
MG: Can you describe the Verst transportation and fulfillment operations?
PV: We have over 120 late-model tractors and over 200 trailers that utilize some of the latest technology available to the trucking industry. Our tractors have front and rear facing cameras as well as geo-fencing and electronic logging devices. Our fulfillment operations are scaling rapidly, and soon we will be moving to a larger facility with additional automation. We have excellent technology and even better integration to serve e-commerce retailers of all sizes.
MG: There is the discussion that freight delivery vehicles are among the leading candidates for early adoption of self-driving vehicles. Is this likely?
PV: Self-driving vehicles are going to be a reality at some point in time. They’re already testing on roads around the world. I think it’ll come in waves. The platooning vehicle convoys, groups of trucks, will likely come first, and then semi-autonomous highway control systems and finally fully-autonomous trucks. Given the increasing driver shortage and the need for safer highways, the transition appears very likely, although the timeline is less specific as we see it. In the early stages, we expect drivers to remain on board. With the electronic logging data or ELD systems (that monitor vehicle and driver), drivers need to spend more time resting, relaxing. So, you’ll see the driverless vehicles, but the driver will be in the sleeper cab just resting up while the tractor-trailer drives itself.
MG: In shipping, the captain’s main job is to bring the ship into port or navigate a certain section of the Mississippi River. Is trucking liable to follow a model like that?
PV: The challenge on driverless trucks is at Point A or Point B; it’s not in between. In between, the trucks can drive themselves without a problem. But for a semi pulling into a parking lot, who’s going to walk up to a dispatch office and say, “I’m here to pick up a load going from here to there. What door do I check into?” The truck can’t do that. Somebody’s got to bring it in and check the freight if they have to, sign the bills of lading, things of that nature. But once the truck leaves, it can automatically drive itself. But then, when it gets to the destination and pulls into the customer’s parking lot, the same thing has to occur. The technology’s not there yet for the more nuanced communication between the truck and the customer.
MG: Any educated guess on the timetable for when trucks with the driver spending a lot of time in the sleeper cab might be out on the Interstate?
PV: I think InBev (Belgium-based largest beer producer in the world) may be using driverless trucks right now. There are several companies out there. It is being done. But right now, it’s primarily interstate driving.
MG: So, there might be self-driving trucks on the road today on I-75 or I-65, I-71 or I-64?
PV: There could be. They see more success out West where it’s wide-open highways and expressways than around here right now.
MG: Does Verst foresee trucking remaining the dominant mode of product transportation for the immediate future?
PV: Trucking demand is here for the foreseeable future. Right now, trucking moves 70 percent of the nation’s freight by weight; however, the ability to optimize trucking is still the key. There are too many trucks driving around the country empty or partially loaded as they attempt to find freight or return to base. Many internet visibility tools are helping to maximize truck utilization. Verst is in a position to locate empty capacity and match it to our customer demand in real time. It reduces the number of trucks on the road, fuel consumption, pollution, highway congestion and deterioration of our interstates. Our goal is to make sure every one of our drivers that goes out loaded also brings back a load so that they don’t go out or come back empty.
MG: What’s the status of the price point for truck freight shipment? Has that been changing in recent years? Is it dropping?
PV: The price point is increasing. The truck freight rates hit a recent all-time high in January, and right now there’s no end in sight. It’s the most robust trucking market in over a decade, caused by an increase in demand for services coupled with a driver shortage and a recent implementation of ELD (Electronic Logging Device) regulations that went into effect in December. Additionally, there are a lot of carriers out there that are becoming more selective about the freight they haul and where they haul it. Due to ELD’s, the driver hours of operation are better monitored, limiting the ability to reach longer hauls in one day. Drivers, too, are selective, wanting “no touch” freight where they can haul it from point A to B and not have to load or unload. They do “drop and hook” loads only. Carriers are being really selective.
MG: This is a good time to go into truck driving?
PV: It’s always a challenging industry, but yes, right now we are happy to be in trucking. We love it. I remember a conversation in a business meeting, and they stated that if you walked into a classroom full of students and said, “How many of you would like to be a truck driver?” you would probably have zero people raise their hands. But if you approached it differently and asked, “How many of you would like to make $65,000-75,000 a year?” all of those kids would raise their hands. And that’s what a lot of drivers are making. Driver wages are rising.
MG: How computerized is the bidding process today for your various services?
PV: We see some electronic bidding. However, our services are wholly custom and require more discovery and project management. We’re not frequently being asked to respond to strictly electronic bids. Warehousing, fulfillment and packaging frequently require engineered solutions, and while it is possible to put it out to bid, the requests and the responses are complex and require a high level of communication.
MG: There are bidding apps, but that’s not something that you, with your specialty services, have been getting involved in?
PV: We elect not to play in that arena of electronic bidding.
MG: Kentucky has a large logistics sector, and Northern Kentucky is a big hub of that. How does the size and expertise of Kentucky’s logistics sector compare to other regional clusters? Who are our peers and competitors?
PV: Ohio, Kentucky and Indiana are a hotbed for logistics. Companies that want to distribute to the east coast but remain in a lower cost real-estate market have discovered this area, and it is rapidly growing. We’re fortunate to be in the heartland, in some of the best distribution geographies in the country, where we can reach over 85 percent of the population in under two days. Verst facilities are in Northern Kentucky, Louisville, Lexington and the Cincinnati area.
MG: Does the region’s cluster of logistics operations generate a heightened level of understanding and expertise, idea-sharing that cross-fertilizes across companies?
PV: We notice the solid skills among college students in particular, as there are a growing number of universities that offer logistics degrees. We also have a concentration of highly-skilled supply chain engineers, logistics and warehousing leaders in this area, making it an excellent place for think-tanks and incubators of new supply chain concepts.
MG: How has your number of employees grown in the past decade?
PV: We have two different companies, Verst (transportation, packaging and fulfillment) and Zenith (warehousing). Within Verst Logistics, we’re at about 375 employees now, and ten years ago we were at about 175. So, in the last decade, we’ve more than doubled.
MG: Much of the business community in Kentucky (and beyond) says workforce development is its top concern. Does Verst face challenges acquiring and maintaining skilled workers?
PV: Just like everybody else, that is a concern we face as we grow. While we have challenges, we also have quite a few long-tenured employees. Our annual employee survey has shown increased satisfaction each of the last three polls we’ve administered. We believe employee satisfaction is key to attracting and retaining talent.
MG: What is your primary strategy for acquiring and maintaining employees? Do you have relationships with training programs and entities outside your company?
PV: We do. Our benefits and pay are very competitive, which help to start out. Customers see our skilled workforce as a real plus, as evidenced by awards from companies such as FedEx. We work in partnership with Gateway Community and Technical College in Northern Kentucky; I served on their board for many years when they built two new campuses in Boone County. They offer free online courses, and we work with them. They provide a CDL (Commercial Drivers License) program, and we typically hire one to two drivers from them every six months.
We also provide comprehensive training, and we have an exceptional safety program. Our management team is solid; they’re all actively involved in the community. And we have a completely open-door policy within the company. We have a Future Leader Program, where we identify 10 to 20 employees and put them through training that provides them the ability to move up within the company. We recently made adjustments to our vacation and holiday schedule to create more flexibility in employee time off options. We are convinced these efforts make a difference. We had three employees last year who celebrated their 40th anniversary with the company, including myself. Now that’s loyalty!
MG: The relationships between product producers and their supply-chain partners are changing. Where is the general business community regarding adopting 3PL practices in supply chain systems?
PV: More and more manufacturers and distributors see the value of outsourcing for supply chain functions. Outsourcing is a standard function in many parts of business today in areas such as maintenance, payroll and technology. Supply chain outsourcing is finally catching up as companies see the advantages of being able to flex and respond quickly to market demands using a supply chain partner such as Verst.
Best in class companies want to focus on their core competencies. And many times, logistics is not it. We’ve been quite successful operating within our customers’ facilities and running their warehouse logistics. We have several customers for whom we run warehousing and JIT delivery from inside their facilities, providing services like line side delivery and sequencing.
MG: What issues generate the most significant challenges or are most important?
PV: The shortage of drivers. The average age of a truck driver is around 58 years old, and younger people are not coming into the industry to make up for retirements, so that shortage is likely to grow worse. Also, availability of developable land in Northern Kentucky is becoming almost a crisis. We have rolling hills in Kentucky, and most of the flat land now has been fully developed, so we have to go into some areas we would not even have considered 10 or 15 years ago. EPA rules and regulations, especially as they apply to wetlands and delineation and remediation, have become a big issue as well. It’s sometimes taken one to two years just to work through wetlands issues so that you can start developing.
MG: How about the proposed additional 11-lane span at the Brent Spence Bridge for I-71/75 between Northern Kentucky and Cincinnati? Would that make a big difference to Verst?
PV: That would. We have employees who live in Ohio and drive across that bridge to work in Kentucky. Our fleet goes across that bridge in both directions numerous times of the day and night. One year we took a look at the cost to our fleet to idle on the expressway, costing time, fuel and wear and tear on the pavement, and the number was somewhere around $300,000 to $400,000. As you’re looking at the ELDs and the requirements for drivers’ time off, it makes it challenging for drivers being able to complete all their duties and deliver loads and pick up loads when they’re sitting there in traffic. And then you’re polluting the air. They can’t build that bridge fast enough.
MG: The ELD is one of these digital tools and has to do with the Internet of Things. How are digital tools impacting your operations and the management of your transportation fleet?
PV: We try to be proactive as much as we can. Our tractors have been ELD-compliant since 2006, but 2017 is when a mandate went into effect. We have been proactive and on the leading edge of technology adaptation in managing the fleet. With geofencing, GPS tracking and forward- and rear-facing cameras, we’re prepared to connect with the future. We’re also operating smart warehouses as well, with our WMS (warehouse management system) technology that’s fully-integrated and web-connected.
MG: People don’t consider that tractor-trailers out on the road are that techy. But they are!
PV: We’ve been investing more and more every year in technology. Information rules the road right now, and you’ve got to be not just on par with everybody but ahead of the game.
MG: Yes. Can you say how much you spend annually investing in technology, keeping up?
PV: It’s a quarter-million to a half-million dollars a year.
MG: What are your annual revenues?
PV: We expect 2018 to hit right at $200 million. We’re projecting 16 percent growth over 2017.
MG: How do you achieve that kind of growth in one year?
PV: We have a great team, a good story to tell and great customers. We have a lot of customers that sell for us and spread the word. In 2017, we had 12 percent growth.
MG: Do you have a closing statement?
PV: The one thing I can’t stress enough is that we are so fortunate to have a great team working with us, employees who are dedicated and who would do anything needed for our customers. We try to take care of our people, and in return, they take care of our customers. I can’t thank them enough.
Mark Green is executive editor of The Lane Report. He can be reached at [email protected]