Two strategic acquisitions over the past couple of years have positioned Kenan Transport Company to be more than just another petroleum hauler. The company is evolving into a nationwide provider of inventory management and distribution services for the petroleum retailing industry.

A sophisticated customer management system makes it possible to serve more than 5,000 convenience stores in 30 states, and deliveries are handled by a fleet that includes 1,044 tank trailers. The Chapel Hill, North Carolina-based company has become the fifth largest tank truck carrier with revenues in excess of $138 million.

"Our objective is to be the dominant petroleum hauler in the United States, and we are on track," says Lee Shaffer, president of Kenan Transport. "We want to be the carrier of choice in all markets. Further, our strategy is to be the low-cost, high-quality transport provider using the same model developed by Southwest Airlines. Our emphasis is on human resources and customer service.

"Petroleum marketing is no longer a mom-and-pop business. Only well-financed companies will remain, and they are actively consolidating operations and outsourcing services such as transportation. Price is very important, but it depends on how efficient the customer can make our operation. Price must be based on return on investment and our ability to achieve high driver utilization rates. The customers in the markets we are targeting understand this.

"We estimate the total size of the petroleum transportation market to be in excess of $2 billion annually. It's bigger than the chemical transport sector, and it is still very fragmented. We continue to find good opportunities to expand by taking over private fleet operations."

Broad Expansion From its traditional base in the Southeast, Kenan Transport has spread across the Southwest and into the Midwest and West Coast. Shaffer points out that these areas comprise 75% of the gasoline-consuming market.

The expansion has been quiet and methodical, for the most part. Kenan Transport is a low-key company, where managers focus on achieving objectives over creating headlines. The low-key approach is part of the corporate culture built by founder Frank Kenan, who started the company in the early 1960s.

Shaffer joined the company in 1965 after four years as a professional basketball player. Following stints with the NBA's Syracuse Nationals and Philadelphia 76ers, Shaffer was hired by Kenan as chief operating officer.

During 34 years at the helm of Kenan Transport, Shaffer achieved a solid record of success. The publicly owned company posted good financial results year by year and recorded steady growth. However, big changes started two years ago.

After years of generating most growth through internal efforts, Kenan Transport made a couple of major acquisitions that doubled its size and extended its reach to convenience stores from the Atlantic to the Pacific. It started with the purchase of Transport South Inc, a Smyrna, Georgia, company whose customer list included RaceTrac Petroleum, one of the South's largest petroleum marketers. Then in February 1998, Kenan Transport bought Petro-Chemical Transport (PCT), the petroleum hauling unit of Citgo.

"We got bigger to serve the gasoline marketing sector nationally," Shaffer says. "We felt that this was the way we had to go. This was the right time for a national petroleum delivery provider. Someone else would have done it if we hadn't."

Customer Management In addition to the larger customer base that came with the two acquisitions, Kenan Transport gained something that gives it a distinct market edge. PCT brought its buyer a sophisticated inventory control and management system that keeps track of refined product supplies at retail locations and orders deliveries when levels get low.

The computerized system is managed through the customer service center that was set up in what used to be PCT's main office in Carrollton, a Dallas, Texas, suburb. The software has been in place since 1991, when PCT was still a Citgo subsidiary. The in-house-developed software was significantly enhanced two years ago. It runs on an IBM RS6000 mainframe computer.

Currently, the customer service center is staffed with 26 workers, who deal with customers and Kenan Transport drivers. Besides monitoring customer inventories, which are updated on intervals ranging from once a day to every two hours, they are becoming more involved in dispatching the Kenan Transport fleet. On-board communication units from Summary Systems have been installed in well over 200 of the 700 plus tractors in the fleet.

"The customer service center is paying big dividends, because more and more petroleum marketers and convenience store chains want to turn over logistics and dispatch functions to third parties," says Jim Reid, Kenan vice-president. "They don't want the logistics burden anymore. They want to focus on their core competencies.

"We serve customers of various sizes, some with as many as 1,500 locations. With the technology that is currently in place, we can triple the current activity levels just by adding staff. Eventually, we'll have the on-board communications units in all of the tractors in the fleet.

"We provide a premium service for a competitive price. Many of our customers realize that there is no longer any reason to have full storage tanks at service stations and convenience stores. That's the result of poor inventory control. Today's marketers need flexibility to take advantage of price swings on refined products.

"Our objective is to build long-term alliances that enable us to recover our investments. This is especially true for dedicated equipment. Quite a few customers want branded trailers and dedicated drivers handling their deliveries. These arrangements benefit customers because the drivers take ownership of the business. We're getting three- to five-year contracts with these arrangements, and it can't be less than that."

Fleet Variety Dedicated vehicles are still a minority in the fleet, which consists of 771 tractors and 1,044 tank trailers. Most of the tank trailers are MC306/DOT406 petroleum transports, but Kenan Transport also has 100 MC331 propane trailers and 100 stainless steel chemical trailers.

"Our propane and chemical operations are run as separate business units," Shaffer says. "We have five terminals dedicated to propane hauling, and we serve customers throughout the Southeast.

"Two terminals are dedicated to chemicals hauling, and most of the business comes from the textile industry. Cargoes include elevated-temperature materials. We acquired the chemicals business in the mid-1970s, and it was managed separately from the start. It has generated a very good ROI (return on investment)."

Petroleum operations are conducted out of 70 shipping points, some of which are terminals. Terminals are set up when equipment and personnel levels in an area reach a point where permanent infrastructure is needed. "The customer service center gives us a start with operations as small as one or two trucks," Shaffer says.

Utilization levels are high for the petroleum fleet. Vehicles are available for operation virtually around the clock, and the corporate goal for 1999 is to achieve 95% utilization. Fleet standardization is a key factor that aids high utilization. "We move equipment around as needed, and drivers always climb into the same kind of tractor cab," Shaffer says. "They are familiar with the equipment, as are our company mechanics. We've developed a standard specification, and we stick with it unless major changes in technology occur."

Mack CH613 conventionals with day-cabs predominate in the fleet. However, sleeper units are specified for some activities such as chemicals hauling. Mack engines, transmissions, and drive axles make up the drivetrain. Five-compartment, 9,400-gallon petroleum trailers are from Heil. Hardware includes Emco Wheaton bottom-loading adapters, Knappco internal valves, and Civacon's ROM overfill protection. Hart Industries supplies Goodyear hoses with Civacon and PT Coupling fittings.

Employees Come First While little time is spent on equipment specifications, the 1,650 employees at Kenan Transport are another story. Shaffer makes it clear that employees come first, and they always have.

"It's part of our corporate culture," he says. "Our employees are important enough that we hired a human resources manager five years ago. This is one of the most important steps we've taken because it professionalized the way we work with our employees. We couldn't be as successful as we are today without an HR manager. It has freed up our line managers to concentrate on field operations."

John Krovic was the man hired as vice-president of human resources. Duties include directing the safety program. One of the first things Krovic did after joining Kenan Transport was revise the hiring process.

First and foremost, the carrier looks for people who want a career, not just a job. "Career people do a quality job every day," Shaffer says. "These are self-motivated, self-managed people. We treat them with dignity and respect."

Driver Retention Despite ongoing driver shortages, Kenan Transport is very selective, hiring only one in 10 applicants. Krovic and the other Kenan Transport managers work hard to ensure that drivers stay hired once selected. Proof of the management success can be seen in low turnover.

A number of factors are credited with contributing to driver retention. The carrier stays in the top 20% of tank truck carriers when it comes to driver pay and benefits. Short trips predominate, and drivers usually are home at the end of a shift. Tractors aren't more than five years old.

One of the newest elements in the driver-retention effort is a mentoring program. Line managers take special care of new employees to get them through the crucial first year when turnover is likely to occur for any number of reasons.

"Our studies have shown that the highest risk employees are those with less than one year at Kenan Transport," Shaffer says. "If they quit before the end of their first year, we want to know why. After the first year, turnover exposure drops significantly.

"We believe no one can grow in a job without being mentored. This view applies to everyone employed at Kenan Transport, not just drivers. All of our managers have mentoring responsibilities."

Hiring Program Even with a good retention program, Kenan Transport is always searching for new drivers just to keep up with the company growth. Referrals from Kenan's own drivers generate a significant number of candidates.

The selection process starts at the local terminals, where managers screen and interview applicants. Krovic's office in Chapel Hill provides the quality control that ensures consistency in the hiring process.

To qualify, applicants must be at least 23 years old and have a minimum of one year of truck driving experience and no more than two moving violations in a 36-month period. In addition to a commercial driver license, hazardous materials and tank endorsements are required.

Along with the usual drug test, physical, and other screenings, applicants are given pencil-and-paper tests to eval-uate their willingness to follow rules. The tests supplement a rigorous interview process.

Consistency is the main work attribute sought. For example, a driver who jumps from job to job is not viewed as a good candidate compared to someone who has been with another company for a long time.

Orientation and Training The evaluation process is just the beginning of any overall effort aimed at ensuring that new drivers fit the Kenan Transport system. Initial orientation lasts seven to 10 days, but training is ongoing throughout a driver's career with Kenan Transport.

During the initial training, the new driver goes through a combination of orientation at the terminal and classroom instruction. Orientation consists of six to eight hours of instruction in the company rules,policies, and procedures, and government regulations.

A wide variety of training materials are available, including videotapes produced for the industry. However, many of the written materials that focus on petroleum hauling were developed inhouse.

Each new hire spends time with one of the company's 50 driver trainers, who are scattered among the terminals. The trainers provide hands-on instruction for loading and unloading procedures. They also evaluate the new driver's skill level.

Loading and unloading receive a lot of attention because Kenan Transport drivers usually spend more time on those functions than actual driving. Loading and unloading each account for 30 to 45 minutes of each trip, according to Krovic.

Loading rack instruction is required by many of the customers served by Kenan Transport. Drivers must be thoroughly familiar with specific procedures before they are allowed to enter customer facilities on their own.

During their first 45 days, new drivers get 16 hours of classroom training, which includes an eight-hour defensive driving course developed by the National Safety Council. Another eight hours is devoted to enhanced training on Department of Transportation regulations, pre-trip inspections, and company requirements.

At the end of 60 days and a final review by one of the carrier's four safety supervisors, the new driver begins regular operations. The training doesn't stop, though. Regular refresher programs keep all drivers up to date on regulations, procedures, and technology.

Safety Focus Safety and good performance on the job are encouraged with an incentive program that includes bonuses. Each driver is eligible for a quarterly safety bonus that is based on no preventable accidents, injuries, or product handling incidents.

Drivers who show a pattern of incidents or accidents are put through a remedial training program. Problem areas are targeted and addressed. Remedial training usually includes a defensive driving refresher.

The driver program was a key factor in keeping service and productivity levels high over the past couple of years while Kenan Transport doubled in size through acquisitions and quadrupled its marketing area. The drivers remain the force behind the carrier's strategy to solidify its position as a preferred supplier to the petroleum marketing industry.