Just what is a for-hire carrier these days? Amid rapid expansion, Ken Lucas and TCT Logistics defy definition

Five years ago, Ken Lucas was just another shrewd, sometimes irascible guy running trucks up and down the highway. “We were doing about $8 million a year in revenue, which is about the worst number you can do in trucking,” says Lucas. “Call it a 4% business and you’re making what, less than 40 grand? You’re making yourself a job, really. You want to get to $20-million. So you do all kinds of crazy things to get there, and now you’re an overextended $20-million trucking company.

“Guess what? You’re not the only one, because every week guys in exactly that position call up asking if we want to buy them. No, thanks. We’re long past that kind of scenario.”

Not that Lucas, president of Calgary-based TCT Logistics, hasn’t been in a buying mood. Last year, the company acquired Tri-Line Expressways, Daily Transport, and the dry van and reefer assets of Kleysen Transport using $100 million in loans from GMAC Commercial Credit Corp. Canada and $23 million in subordinated debt sold to the Ontario Teachers’ Pension Plan Board.

TCT Logistics — publicly traded on the Toronto Stock Exchange — now employs 2600 people, owns almost 4000 pieces of equipment, and manages more than 30 million square feet of warehouse space, the bulk of which was acquired in 1998 when TCT bought the grocery warehousing business of Livingston Group.

But for Lucas and his company, that $20-million barrier is rear-view-mirror stuff: this year, TCT will produce just under $350 million in revenue.

The company moves an array of goods but specializes in groceries, a legacy dating back five years when it bought the trucking arm of Burns Foods Ltd. It was run by Ernie Kruschel, now TCT’s senior vice-president of operations.

“We found a focus at that point,” says Kruschel. “We decided that we wanted to control as much of a customer’s inventory as we can for as long as we can. The food and grocery business is an excellent platform for that.”

The strategy is paying off. Last year, TCT secured long-term supply-chain-management agreements with both Kraft Foods and General Mills, adding to a roster of nearly 7000 logistics, warehousing, and trucking accounts.

“Our view of where the business is going is that these big multinationals are getting out of warehousing. It’s too complex,” Lucas explains. “You need sophisticated order and warehouse management technology. You need a national distribution network. You need trucks.”

TCT can provide the trucks. That was the motivation behind the Kleysen deal, for example, says TCT senior vice-president David Elder. “We paid $18 million for a $45-million chunk of incremental revenue with very little cost attached. No real estate, no terminal network — just instant customers and equipment. We’re very conscious of the need to balance our trucking base with our warehousing operations. The warehousing serves as a buffer when trucking hits slower times. When we’ve made acquisitions on either side, it’s usually to keep the two in check.”

With the trucks, TCT has been able to fashion itself as a one-stop shop, which non-asset-based logistics firms can’t do.

Perhaps the company’s most important purchase didn’t involve trucks or forklifts, Lucas says. When TCT bought Livingston’s grocery business, it acquired proprietary warehouse management technology and the people who keep it humming.

“We’re using that technology to control product from the shipping can to the shopping cart,” he explains. “We’re building and managing web sites for grocery store owners that rope them into the entire inventory management system. For us to develop that ourselves would have cost a fortune.”

Technology not only ties together trucks, warehouses, and inventory, it binds the customer to TCT.

“For a food guy to pull the pin on his warehouse supplier, it’ll cost him a half-million bucks, it’ll take 90 days to do it, and he’ll go raving mad trying to disentangle himself from your information- and inventory-management systems,” says Lucas. “You don’t go and empty out five acres of dog food just because you got mad at me. In warehousing, it takes a year to get everything set up the way you really want it. Making a switch is a multi-million-dollar decision. And that’s good. If you have a five-year contract with a customer, you’re in a highly co-operative, exceptionally collaborative, and reasonably secure relationship. You can do deep analysis. You can let wild ideas fly.

“That’s what I like about warehousing. In trucking, if I tick you off, you pick up the phone and call TransX and I’m done like dinner.”