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TrenStar Pooling Service Targets High Value Container Management
TrenStar has grown quickly by focusing on providing high value containers along with the services to track and manage them; its business model differs from a rental pool.

By By Rick LeBlanc
Date Posted: 6/1/2005

DENVER, Colorado — When Denver-based TrenStar was launched less than four years ago, the new mobile asset management company’s leadership identified a common issue across a lot of industries that are only too familiar to people involved with logistics -- their reliance on mobile assets.

    For TrenStar, mobile assets are any number of moveable objects that have enough monetary, intrinsic or strategic value to significantly impact a company’s financial performance – such as a high value container.

    “As mobile assets move from one domain to another, they become very difficult to account for, track and manage,” noted David Adams, TrenStar’s senior vice president of corporate strategy and technology.

    David was one of the early members of the TrenStar management team. A veteran supply chain executive, he had worked in the past for Greg Cronin, TrenStar’s president and CEO. “When I first read the business plan, I was so excited that I came here and worked for free for the first month,” said David. “You could see the intersection of technology, finance and actual service delivery.”

    Greg became president and CEO of TrenStar in September 2001, bringing with him more than 35 years of supply chain and related technology experience. He founded Viewlocity, a supply chain technology company, in 1999, and previously was executive vice president of Manhattan Associates, a leading supply chain technology firm.

    The company’s sales have grown rapidly since its inception in 2001, and it is nearing profitability. TrenStar had sales of
$2 million in 2001, and sales have grown continuously and significantly since, reaching $51 million in 2004.

 

Pioneering Pooling Business

    The first thing TrenStar determined was that because mobile assets travel from one entity to another, some type of technology would be needed to capture that information.

    “You can’t rely on supply chain partners to capture and share critical information and feed it up and down the chain,” David observed. “Capturing data in the high velocity supply chains of our customers is hard, but it is critical to our efforts to move our containers and our customers’ products.”

    The executives knew that some type of disruptive technology – a technology that transforms a business model – was critical.  They found their answer in RFID.

    “We started looking around and saw RFID as a solution,” David recalled, noting that RFID is a non-intrusive method of capturing data. “You can build the antennae around the loading dock, and as the assets go in and out, nobody needs to do anything else. The antennae will capture it, and our software will apply the business logic. It was perfect for us.” 

    The problem for TrenStar during its early period, however, was that there were very few companies with any real world RFID experience. After looking around, TrenStar decided to acquire King’s Technology Partners (KTP), a British company. KTP had delivered some of the leading edge data capture solutions as RFID began to emerge to Prada stores, Heathrow Airport, and TK Maxx, among others.

    With the data capture component resolved, the second task was to create software that could apply business logic and rules to the mobile asset data. TrenStar wanted a software program that could help identify rule violations — such as an asset going across the wrong loading dock, a container that had not been moved for too long in a warehouse, or a container that could not be loaded with specific materials because of incompatibility with the contents of its prior shipment. In addition, it required rules specific to reusable assets, such as repair requirements.

    TrenStar came into being as a holding company after Trencor Solutions, the technology division of Trencor in South Africa, which is a shareholder, merged with Colorado-based keg management company MicroStar Logistics.

    Trencor Solutions had written the tracking software used extensively by South African automotive companies. “They had built a software program that managed and optimized the flow of mobile assets using barcode,” said David. “They had built up some really neat logic that managed the trip plans of mobile assets, which was the important thing for managing resources in supply chains.”

    When the TrenStar business plan was being formed in 2001, the founders recognized that a lot of people had been burned by technology companies which had not delivered what they promised. “TrenStar founders felt that the market was crying out for a technology company that not only sold the technology but which took over the ownership of implementing and running the technology,” said David.

    As part of its formation, TrenStar sought to merge Trencor Solutions with a company that “had lots of operational experience with assets,” he added. It settled on MicroStar, a beer keg management company in Colorado that had significant operating experience and involvement in one of TrenStar’s target industries of interest -- breweries. MicroStar’s industry pooling business model was the final element of the TrenStar approach.

    “Critical to our model is that we go into an industry, we buy the assets as part of our business model, and then we take the assets and create a large asset pool for them,” David explained. TrenStar shares not only common containers pooled among multiple customers but also optimizes other related activities, such as cleaning, repair and logistics.

    TrenStar’s approach is different from a typical container rental company, David observed. “If I’m running a rental model and I lose the assets, the customer pays. If the customer is not efficient, the customer pays.”

    TrenStar’s business model, however, is built strictly on pay-per-use. “And then the acceleration of that asset through the supply chain, and its recovery, is up to us,” he added. “And if we don’t accelerate it, the customer is losing nothing. The nickel is all on us. In this model we’ve tied our incentives and our customers’ incentives together. Our customers only pay when they receive beneficial use of the assets.”

    “Our technology will identify where the nodes or bottlenecks are, and then we’ll go to work on those,” said David. “We take over a lot more of the supply chain than a traditional asset or equipment renter would.”

 

Targeting Industries

    Because TrenStar’s business model involves purchasing a customer’s mobile assets, it has required the company to focus on a very narrow range of client industries.

    “The reason for that is we really start to make our money when we go into an industry and reach a critical mass,” David explained. “I can’t tell you exactly where that is, but it is around 40 percent of market share. So right now we own 62 percent of all the beer kegs in the United Kingdom. It’s not only about profitability, but it is also about focus, and this limits the number of industries we can be in. Then you build concentric rings geographically around your markets.” Once critical mass is achieved in an industry, efficiencies of scale produce lower costs per trip as market share increases.

    To finance its capital intensive model, TrenStar raised $64 million the past three years. The vast majority of the capital was spent on purchasing assets for its pools. “We expect to be cash flow neutral by the middle of this year and profitable by the end of the year,” David said.

    So far TrenStar has focused on such industries as brewing, food, and chemicals, including synthetic rubber.

    In addition, TrenStar entered the air cargo market last year, acquiring aircraft unit load devices (ULDs) in a joint venture with Lufthansa Cargo to form a global ULD management business for the airline industry called Jettainer. Another TrenStar company is Agility Healthcare Solutions, which is delivering an RFID-enabled product suite of turnkey resource and workflow management solutions. “We’ve gone from nothing in that market to being the market leader in less than a year,” said David. Unlike its other operations, TrenStar’s healthcare solutions company does not buy the assets because of liability concerns.

    TrenStar executives considered pallet pooling, according to David, but did not pursue it because of the low value of pallets. “We did a pretty extensive look at industries before we went into the ones we did,” he said, evaluating a total of 42.

    One of the key requirements that emerged was that the asset had to be relatively valuable.  “Beer kegs are probably at the low end,” said David. “They cost $50 to $100 each.” Containers for other clients are valued at $1,500 to $2,000 and more.

    Aside from the low price point of pallets, part of the company’s strategy in not entering the pallet pooling business was to “go where CHEP wasn’t,” said David, referring to pallet rental company CHEP.

    TrenStar has looked at pallet pooling in South Africa, however, and just recently announced an agreement with RHINO in the U.S. to offer management services for RHINO aluminium pallets (see accompanying article). The higher price of the aluminium pallets built a stronger case for asset management.

    “You have to really focus on the right customers within an industry,” David explained. Another key requirement is the value of the network for a given customer or industry. “If I had a chance of closing a $100 million revenue deal that included a brewer in France, a brewer in the United Kingdom and a brewer in the Czech Republic that didn’t overlap, versus if I had a chance to pick up $50 million from a deal involving three brewers that were only a 100 miles apart and which did overlap, I would much rather build onto those latter three networks in terms of a sustainable and defendable network, and then begin to add layers of concentric rings.”

    TrenStar’s approach is to capture a customer’s network through a management agreement that in turn defines the space in which it will seek its next customer. “If you look at our customer base in brewing, air cargo and healthcare, each one has been built this way,” said David. “We’ve gone after a specific customer and a specific network for a specific growth path. I can tell you right now who our next five customers will be in brewing or in air cargo. It makes sense from a network perspective as well as from a capital perspective. We don’t have billions of dollars of cash. But once you begin to build up your network, it is a difficult thing to defeat or even compete with.”

 

RFID Reliability

    “RFID has been a strong enabler for us,” David pointed out. “We’ve used it in some of the toughest environments you can imagine, such as heavy metal environments. We’ve used it in caustic areas, in the beer industry with its cleaning cycle and hot temperatures, and we’ve been getting great results.”

    In the process, Dave is convinced that TrenStar is getting NASA-level reliability from its reads, which are over 99% accurate.

    “We are on track to tag about 5 million containers, and we are about 3 million tags into it,” he said. “It is a long process. When you talk about tagging millions of anything, it is a long process.  In the United Kingdom we’re probably still a good year away from hitting the 95% tag container mark. The point is that right now a lot of the RFID is technology in search of a business, but we started at the other end.”

    “The truth of the matter is that most of our customers don’t care (about RFID),” he added. “It’s part of our agreement. Our agreement essentially says that we are going to give you a container where you need it, whenever you need it, and how we do that is up to us. We have a business model that says you pay me a certain amount every time you fill the container, so I make sure that the container moves through the system rapidly.” TrenStar is a key user of the technology itself.

 

Beer Keg Pooling

    One of TrenStar’s target industries has been brewing. In addition to its acquisition of Denver-based MicroStar, it has also made a major play for keg management in the UK, “The UK keg market is a tough nut to crack,” David remarked.

    While the brewing industry is hundreds of years old, there has been substantial consolidation the last 10 or 15 years, but not with respect to keg standardization. Not only are kegs specific to individual brewers, but often they were designed to be impossible for a competitor to use and difficult for a pub to switch from one brewer to another.

    “Part of our agreement requires the brewers to work with us to get to this industry level of pooling,” David explained. The extremely competitive environment made it a challenge for the different brewers to agree on keg standards. “The thing that kept them coming back to the discussion was the cost savings that were available.”

    One of those savings is in logistics. “Just the pooling impact on transportation results in a 21% savings in transportation of kegs,” he said.

    TrenStar now is the fifth largest owner of kegs in the U.S. through its U.S. keg pool. “So you have a craft brewer in Seattle today,” David explained. “He wants to brew beer and ship it to Chicago. To do that, he has to pay to ship the empty keg back to him in Seattle.  So the utilization of the keg was very low, and the cost to deliver a dollar of revenue was very high. So we came along and said okay, brew it where you have to brew it, give it to us, but then we’ll take over getting it to Chicago. We’ll get it to the distributor, and the distributor will drain it and then give it back to us, and we’ll reassign it to the next closest user of kegs. So instead of the keg going all the way back to Seattle, it just goes two or three miles down the street to another one of our subscribers.”

    On a grander scale, David indicated, this is the same system that will be used in the United Kingdom. Scottish Courage, TrenStar’s first customer, will be able to fill a keg in Edinburgh and ship it to London. When it is emptied, the keg will go to a Coors brewery to be filled. Efficiency gains are significant with keg fill-to-fill cycle time improvements expected to be in the 30% range and elimination of almost half the empty keg transportation miles.

    David believes that the pooling business model offers a fundamental value to customers that they cannot achieve through self-management of mobile assets. “If you believe in our agenda,” David said, “which is to create industry pools, then you have to say to somebody: you may not think we can manage your containers any better than you can, but when we combine 62 percent of the containers in the country, it’s a given that we can manage them better. We have more opportunities. We can buy them differently, we can maintain them differently, we can do the load balancing differently.”

    “Two things drive our customers,” David said. “Capital repatriation is the first (buying the customer’s containers). You can’t underestimate the impact of TrenStar writing the big check to a customer at the initial contract signing. It’s a huge benefit to our customers. The second factor that drives our customers is that they understand they are creating an asset network, where they can fill a container in Edinburgh, ship it to London, and then not have to worry about it anymore. The asset really becomes a ‘ship and forget’ thing.

            The more success TrenStar has in convincing customers of the power of ‘ship and forget,’ the more unforgettable the impact it will continue to have in the mobile asset management marketplace.

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