Selling Wholesale on Rail
Florida East Coast Railways leverages its intermodal assets to provide a tailored solution for BJ's Wholesale Club
Since its modest beginnings as a vehicle for Standard Oil co-founder and entrepreneur Henry Flagler to build a hotel empire in Florida in the late 1800s, Florida East Coast Railways (FECR) has been a mover and a shaker. First as a means of transporting building materials to support Flagler's vision, then as a channel for moving fruits and vegetables from Florida's fertile farming regions, FECR has played a critical role in the development of east coast Florida's transportation infrastructure and economic livelihood.
Today, the Jacksonville, Fla.-based railroad operates 350-plus miles of track along the eastern spine of Florida from Jacksonville to Miami. That stretch serves as a vital transportation link within the state and the surrounding region.
But the rail component is only one part of FECR's value proposition to its customers. Much like the innovative spirit of its founder, the railroad has evolved its business to complement its pedigree as a real estate development company—Flagler Development Company—and as a carrier, leveraging its intermodal capabilities with the flexibility of a third-party logistics provider.
"We sell ourselves as the Florida solution," says David MacInnes, vice president of Intermodal, FECR. "We like to think of our intermodal solution as a valet service—bring us the keys and we'll take care of everything else."
Instilling customers with this type of confidence has helped FECR persuade companies such as BJ's Wholesale Club to hand over responsibility for intermodal operations.
On the Road Again
In 2002, BJ's made a strategic decision to build a new 480,000-square-foot distribution facility in Jacksonville, Fla., to better serve its 33 stores in Florida, Georgia, North Carolina, and South Carolina.
Before the new DC was constructed, the Natick, Mass.-based wholesaler, which operates 145 clubs in 16 states, moved inventory from its suppliers to clubs in the Southeast through its Burlington, N.J., facility. Not only was this time-consuming and inefficient, but growth in the region necessitated a different strategy.
The center of BJ's universe was gradually shifting south, says Jim Cooney, vice president of global transportation, BJ's Wholesale Club. Building a new distribution center allowed the wholesaler to rethink how it wanted to handle distribution and transportation to its Florida stores.
"This was the first time in many years that we started with a new self-run distribution facility outside the Northeast," says Cooney. "It gave us an opportunity to open bids to core incumbent carriers, as well as new ones, to see what options were available."
Working with its 3PL, Exel Logistics, BJ's invited a mix of small and large carriers to make bids for its business out of the new Jacksonville facility. Among the suitors was FECR.
"Traditionally retailers can't go directly to rail," notes Nick Vespa, agency vice president for Exel.
For one, the infrastructure would have to be in place to make it a viable option for the retailer without making significant investments. This would also presuppose that the retailer was intending to move freight via rail, which clearly wasn't the case with BJ's.
Secondly, railroads have long been stereotyped as inflexible, static, one-way options, better suited for moving bulk freight commodities. Moving a varied mix of freight as BJ's does—ranging from auto parts to perishable foods—would require a partner with a great deal of flexibility and customer service.
Despite these reservations, Exel encouraged BJ's to strongly consider FECR's capabilities. "FECR is more entrepreneurial than some other railroads because it has a close-captioned market," says Vespa.
This closed loop aspect is especially important in South Florida where security is a primary concern. Combine that with good transit times and precision-like coordination and you have a practical intermodal transportation option.
"BJ's was clearly hesitant at first," says Vespa, "but made a commitment to give it a try. It put together a comprehensive procedures manual on how to handle its business and FECR accommodated its needs. FECR proved its service was reliable."
The notion of working with a railroad, however, wasn't an entirely new concept for BJ's. "We were very comfortable with the concept of using rail to transport inbound shipments from our suppliers because we had been doing that for nine years," says Cooney. "The piece of the puzzle that was unique was that we had never used a rail carrier for outbound shipments from our DCs to our clubs."
Thinking Like a Trucker
The differences between moving freight inbound to a DC, then outbound to retail outlets using rail were considerable enough to merit concern.
"A majority of the shipments from our vendors are full truckload—the product is shrink-wrapped, palletized, and uniform. But on the outbound side, after shipments have been cross-docked, there are often many mixed shipments. As a result, the potential for cargo shifting increases, which might jeopardize a product's integrity," says Cooney.
Despite these apprehensions, BJ's ran tests with FECR and discovered that it wasn't a problem. "We were capable of making the necessary equipment allowances and trailer modifications to meet BJ's requirements," notes MacInnes.
"FECR really thought like a motor carrier," adds Cooney. "The transportation process is made up of lots of moving parts—numerous handoffs from origin to destination. FECR broke through traditional perceptions of a railroad's ability to be flexible."
Satisfied that FECR could ably handle intermodal distribution, the two companies began working together in March 2003. Presently, FECR handles approximately 12 to 16 shipments a day, transporting trailers from Jacksonville to Miami.
"Deliveries are generally made after 10 p.m.," says MacInnes, "and we unload shipments literally 15 minutes after customers leave the store."
That FECR has proved itself competitive with motor carriers is partially due to the fact that it is an intermodal company. Last fall, it discontinued its long-haul trucking operation, Florida Express Carriers Inc. (FLX), and folded that segment of its business under the auspices of its intermodal drayage operations.
Under the new arrangement, FECR contracts out freight to a dedicated pool of independent owner-operators so that it can meet its customers' service commitments. As a result, it now offers a more seamless door-to-door intermodal option that can accommodate the varying demands and shipments of a business like BJ's.
The consolidation has similarly given FECR much more flexibility in tailoring solutions specifically to BJ's requirements.
"We're going to fit to our customers' needs, rather than asking them to fit to our needs," says Husein Cumber, assistant vice president, public affairs, FECR.
Every day FECR hosts a daily call-in with Exel and BJ's to discuss operations, determine how many trailers are in the pool and where they are, and update each party on when deliveries are scheduled to be made.
This communication is especially critical during peak seasons—between September and December, for example—when FECR can accommodate BJ's spikes in consumer demand by increasing its pool of available trailers. Because the Jacksonville facility is primarily a crossdock operation, speed and fluidity are essential to keeping BJ's supply chain running smoothly.
"Having a steady supply of empty trailers allows us to keep inventory efficiently flowing," notes Cooney. "Our business model is one of just-in-time inventory replenishment and cross-dock distribution. High velocity and dependable transportation are essential to executing within this dynamic environment. FECR has done a superb job at making it a seamless move."
Since going live with its new Jacksonville DC and partnering with FECR, BJ's has shaved nearly four days out of its transportation leg. For a business that depends on speed and precise inventories this is most certainly a noteworthy accomplishment.