Friday, May 25, 2012

#LiquorLeaks reveals Exel expansion strategy

Marrying British Columbia's liquor logistics monopoly with Alberta's, where Exel's Connect Logistics has operated since 1994, is not the only reason why an arm of the world's biggest third-party logistics corporation hired B.C. Liberal insiders Mark Jiles and Patrick Kinsella to lobby the B.C. government since 2005. It is not the only reason why Exel considered using its relationship with liquor minister Rich Coleman to try and influence the tendering process.

Exel and its parent, Deutsche Post DHL, have bigger ambitions. They are thirsty to become the major player in the movement of beverage alcohol products around North America and privatizing B.C.'s warehousing and distribution is key. 

In the U.S., beer, wine and liquor stores brought in $44 billion revenue and employed 171,892 at 41,373 businesses, according to IbisWorld market research. Statistics Canada figures for 2009 show the retail booze industry was worth $17.4 billion north of the border. The wholesale and distribution side of the Canadian industry was worth $3.9 billion in 2009, according to StatsCan.

The latest instalment in the #LiquorLeaks series, excerpted from the Exel Logistics Oct. 6, 2009 Project Last Spike internal memo, is the Exel expansion strategy in a nutshell. 

Strategic Rationale 
The LDB is a provincial agency responsible for the importation, distribution and retailing of beverage alcohol in the province of BC. Exel serves the Alberta Gaming and Liquor Commission (AGLC) through its member company Connect Logistics. This pursuit is consistent with Exel's desire to grow its alcohol beverage distribution business within Canadian provinces and US states where the importation and distribution of beverage alcohol is controlled. 
In April 2008, the Canadian operations of DHL Express, DHL Global Forwarding, Exel, and ETS conducted a CIP (Bob note: capital improvement plan) workshop. The workshop developed strategies to pursue opportunities that leverage the capabilities of the DHL Deutsch Post companies. One strategy formulated was the Importing of Beverage Alcohol Finished Goods into Canada. Expanding the LDB mandate to offer importing and consolidation services for products destined to other provinces in Canada is a major step in executing this strategy. It combines the service offerings of DHL Global Forwarding, Exel, and ETS.

Exel's Ohio-based Americas division boasts $4.1 billion in revenue, 42,100 workers at 456 facilities encompassing 111 million square feet. That's equal to 1,031 hectares; imagine one big warehouse, two-and-a-half times the size of Vancouver's Stanley Park. In 2011, it sold ETS to Hub for $83 million, but industry observers say its liquor industry strategy remains otherwise the same. 

A company this big isn't infallible. Exel Inc. was fined $283,000 by the U.S. Department of Labor for workplace health and safety violations in Pennsylvania. Exel is appealing. Various Exel-affiliated companies were named in a massive European Commission antitrust investigation. The DHL and Exel companies escaped fines because they cooperated with investigators. Closer to home, there was the February 2011 closure of a Burnaby, B.C., warehouse operated by Exel-owned Summit Logistics on contract to Canada Safeway. One person died in the decommissioning, almost 400 people were laid-off and their pensions were much less than what the workers expected.  

Full coverage in Business in Vancouver

NDP blasts liquor privatization process

Thursday, May 24, 2012

#LiquorLeaks reveals Exel's contract terms

In this edition of #LiquorLeaks -- an excerpt from the Exel Logistics Oct. 6, 2009 Project Last Spike internal memo -- the Commercial Terms that Exel wants in the deal to privatize the B.C. Liquor Distribution Branch's warehousing and distribution.

LDB put the contract out to tender on April 30, 2012. In the May 8 edition of Business in Vancouver, I revealed how Exel pondered using its relationship with B.C. liquor minister Rich Coleman to influence the writing of the request for proposals in its favour and discussed the possibility of buying out ContainerWorld, which has a business relationship with Exel sister company Giorgio Gori.

Commercial Terms 
The commercial terms of the project at (sic) outlined below: 
• Similar arrangement to Connect with the AGLC (Alberta Gaming and Liquor Commission). Key details include a rate published to industry with a floor and cap on margin. The target margin will be 10% on total costs
• If Exel achieves the stretch level for the Key Performance Indicators (KPIs), the BCLDB will pay an additional margin of 1.5% on total costs on total costs
• Exel will be guaranteed the floor of 8.5% margin. Rates will be adjusted at any point in a year if required to ensure Exel receives this margin
• Director of Operations is assigned to the operation and funded by the BCLDB. Other standard allocations are funded by the BCLDB. 
• Operating agreement is a ten year term. Neither party may terminate for convenience 
• Exel will sign the lease. Its term will be ten years. Exel will have the pre-approved right to assign the lease to the BCLDB at any time 
• Exel will fund tenant improvements if required and built into the rates 
• Exel will supply the WMS 
• Severance provisions will be built into the rates each year to cover any such costs should they arise at the end of the contract 
• In event of BCLDB default or contract expiration, BCLDB is responsible for all in decommissioning costs the remaining net book value of all assets, and all lease commitments 
• Exel is in default if it breaches a material obligation and does not commence reasonable corrective action within 15 days of notice and correct breach within 90 days of receiving notice. 
• Start-up costs will be amortized over the first five years of the agreement 
• The payment terms are structured so Exel does not maintain an A/R balance that incurs BOAC charges 
• The BCLDB owns all products 
• There is an annual damage and loss allowance of .2% of annual throughput. Exel typically operates well within this allowance. 
• Exel will carry its standard insurance coverage. $2 Million commercial general liability insurance, $1 Million automobile liability coverage, and $2 Million warehouseman's legal liability coverage. The BCLDB insures the products and provide Exel a waiver of subrogation. 
• Indemnification is mutual and excludes lost profits, indirect, incidental, or consequential losses, damages or liabilities.

Full coverage in Business in Vancouver

NDP blasts liquor privatization process

Wednesday, May 23, 2012

#LiquorLeaks -- the influence of Rich

Minister of Energy and Mines Rich Coleman, the Fort Langley-Aldergrove member, is in his fourth term. The B.C. Liberals' house leader's resume includes stints as Solicitor General, Minister of Social Development and Minister of Forests and Range. 

But they keep bringing him back into the liquor and gambling portfolio.
His latest tenure began Feb. 8 -- just 13 days before the government announced the privatization of the B.C. Liquor Distribution Branch's logistics in the Feb. 21 budget. 

Coleman also had the liquor duties in October 2009 when Exel Logistics vice-president Scott Lyons penned the Project Last Spike internal memo that serves as the playbook for the company's plan to privatize B.C. liquor distribution and warehousing. The memo discusses using Exel's relationship with Coleman to influence the writing of the request for proposals in Exel's favour. Exel concedes that ContainerWorld might try the same tactic to further its goals or to act as an ally of Exel's. (Note: I have made repeated requests to interview Coleman, but I have been denied every time.)

In this edition of #LiquorLeaks you will see the entry about Coleman from the list of "key contacts" targeted by the Exel pursuit team.

ContainerWorld -- a private bonded warehouse on contract to LDB -- is listed as a "competitor," but the Exel memo also says it has a longstanding relationship with Italian alcohol logistics company Giorgio Gori whereby Gori would someday purchase ContainerWorld. Gori is conveniently owned by Deutsche Post DHL, the same parent company as Exel. Therefore Gori and Exel are sister companies!

In the memo, Exel also ponders buying Richmond-based ContainerWorld for $24 million and concludes "an acquisition approach is overall economically viable" to eventually take over the LDB contract. 

Key Contacts (from Exel's Project Last Spike memo, Oct. 6, 2009)

Rich Coleman

Minister of Housing and Minister Responsible for Liquor and Gaming 

Who owns relationship?:  
Mark Jiles

Coach/Influencer/Decision Maker/Gatekeeper: 
Decision Maker

Past Experience?:  
Strong cabinet minister. Premier looks to Rich, and takes on toughest portfolios -- softwood lumber, housing

Key concern?  
-Desire to transform system. Likes Alberta system, wants less government control 
-He is long in the tooth. He does not want to stick head out too far 
-Wants to understand why it is good for consumer, government, and union-Will sell it, but needs the bullets 
-Public perception 

Any relationship with competitor (Y/N)? 
Yes - Dennis Christmas (sic) of ContainerWorld is a contributor

Tuesday, May 22, 2012

Candy is dandy

Variety is the spice of life and I'm offering a little candy intermission from the posts on the brewing scandal that is the privatization of British Columbia's liquor distribution and warehousing.

That photograph was part of $3,600 of taxpayers' money blown in one afternoon by Premier Christy Clark on a ceremony closed to the public and media.

On March 24, 2012, a news release was issued at 5:30 p.m. notifying B.C. that John Yap had been sworn-in as Minister of State for Multiculturalism. It didn't say where the ceremony took place. I found out, via Freedom of Information, that audio/visual services cost $2,300 (including $100 to rent a B.C. flag and stand), a hired videographer billed $616 to shoot the ceremony and the room at the Chinese Cultural Centre was rented for $150.

This was on the second-to-last Saturday of Clark's March from hell (read about that here). It was also the second-to-last Saturday of the fiscal year in which the Office of the Premier was budgeted $9 million. Governments like to spend their full budgets instead of pump unused bucks back into the coffers. It's a "use it or lose it" mentality that doesn't respect the fact that the money isn't theirs. It's yours.

Read more in my Vancouver Courier story.

See the documents below. (And prepare yourself for more #LiquorLeaks)

FOI John Yap Swearing-In

Whither the workers in Liberal booze privatization

A key part of the Exel Logistics strategy to privatize B.C.'s liquor distribution and warehousing involves labour peace.

Getting an agreement with the B.C. Government and Service Employees' Union is a vital ingredient to the company's estimated $55 million to $95 million annual revenue haul. (That equates to $550 million to $950 million over Exel's hoped-for 10-year deal.)

Excerpted from my May 8, 2012 Business in Vancouver story:

"There are three key steps selling this project," said the Oct. 6, 2009 Last Spike internal memo, prepared by Toronto-based Exel vice-president Scott Lyons. "First, the (BC Government and Service Employees' Union [BCGEU]) must be onboard. Second, the government needs to be onside. Third, the industry cannot object in a meaningful way, and ideally supports the initiative."

"When the B.C. government awards the LDB work to Exel, the BCGEU workers and the new collective agreement will follow the work," the memo said. "Going forward the extent of the relationship between Exel and the BCGEU will be that of employer and union representing the workers."

The liquor privatization was announced on Budget Day, Feb. 21, 2012. Lo and behold, a month later on March 21, 2012, the BCGEU had a deal with the B.C. Liquor Distribution Branch for post-privatization job security and orderly separation, for those who qualify.

The BCGEU announced this deal on March 23, 2012. Just before the privatization RFP was released, the union announced a "Fight Back" campaign to stop the privatization.

The Memorandum of Agreement is below. More to come.

BCGEU LDB Memorandum of Agreement

Exclusive: Launching #LiquorLeaks

In the first instalment of #LiquorLeaks, Exel Logistics vice-president Scott Lyons explains in the Oct. 6, 2009, "Last Spike" internal memo who the executives, staff and contractors are involved in the company's strategy to become the private warehouser and distributor of liquor in British Columbia.

For reasons not yet clear, the B.C. government did not follow through in 2010 to privatize liquor logistics under then-Premier Gordon Campbell. His successor, Christy Clark, approved the privatization plan in February 2012. Clark came to power in February 2011 with the help of Liberal campaign strategist Patrick Kinsella, who was registered to lobby for Exel until March 30, 2012 -- just a month before the request for proposals was published.

Minister Rich Coleman is a key figure, mentioned several times in the Exel memo. He regained the responsibility for the Liquor Distribution Branch on Feb. 8, 2012. The privatization was announced Feb. 21, 2012. LDB general manager Jay Chambers reports to Coleman, who is a member of Treasury Board. Treasury Board is expected to approve or disapprove of LDB's recommendation for the successful bidder.

The "Last Spike" memo is the basis for the exclusive May 8, 2012, Business in Vancouver story Logistics giant targets lucrative LDB contract

Pursuit Team (from Exel Logistics "Last Spike" internal memo, Oct. 6, 2009)

This is a highly confidential pursuit. The pursuit team is led by Scott Lyons, VP of Business Development (right; Linkedin), and includes Rob Madore of Carvel Consulting, Mark Jiles President of The Bluestone Group, and Greg Foreman VP of Operations of Connect Logistics.

Rob Madore was the Director of Operations of Connect Logistics and established the original contacts with the BCGEU over five years ago. In January 2008, Rob retired from Exel and set up a consulting practice. He is under contract to Exel. Rob provides relationship management support with the AGLC on behalf of Connect Logistics. He also assists with Canadian business development activities in the beverage alcohol arena.

Mark Jiles (right; B.C. Children's Hospital Foundation/Andrew Chin) is the founder and President of The Bluestone Group. Mark is a professional lobbyist and very closely tied to the current Liberal government in BC. Mark also has close ties to Jeff Fox who is the Director of Business Development for the BCGEU and President of the BC NDP party.

Greg Foreman is the VP of Operations at Connect Logistics. Greg will have operational responsibility for this business.

Sarah Farrell is a Senior Director of Business Development. She will providing business development support.

The pursuit team consults regularly with Larry Sylvester, Regional Director of Human Resources, Adrian Kumar, VP Solutions Americas, and Robert Rujevcan, Director Finance.
The pursuit team will need to expand to include representation from IT, contracts, real estate, construction, and project management. It is not recommended to expand the team until Exel and the BCGEU to present an outline of how an arrangement would work to Rich Coleman and Rich Coleman signals a desire to move forward.

Monday, May 21, 2012

Exclusive: Libs keep lid on privatization plan

British Columbia Finance Minister Kevin Falcon revealed on Feb. 21 that the B.C. Liquor Distribution Branch's warehousing and distribution would be privatized. I reported on that day in Business in Vancouver that this was a priority for B.C. Liberal-connected lobbyist Patrick Kinsella and his client, Exel Logistics.

Then I became curious. What is the business case for this? Does a cost/benefit analysis exist? Is this a good deal for taxpayers?

On May 17, I got my answer. It is not satisfactory to me and it should not be satisfactory to you.

I received a Dec. 5, 2011 report to Cabinet and a Jan. 18, 2012 report to Treasury Board. Both are heavily censored and only contain information that is already in the public domain, via LDB service plans and financial reports. Bottom line: the government is keeping secret the reasons to justify selling off a key part of a profitable public asset. That is, if it has reasons to justify the measure beyond making Kinsella and his fellow lobbyist Mark Jiles happy.

Before you read the full FOI release at bottom, I want you to compare these two documents first.

"Exhibit 1" (with the Exel letterhead) is an excerpt from the Oct. 6, 2009 "Last Spike" internal memo by Exel Logistics vice-president Scott Lyons. The memo was Exel's playbook on how it wanted to privatize the B.C. Liquor Distribution Branch's warehousing and distribution. "Appendix C" is from the Cabinet documents, released under my FOI request.

Except for the headlines, both the Exel memo and the Cabinet submission employ an eerily similar font and warehouse icons.

The question I have is this: why would the B.C. cabinet have a document that looks (to my eyes, at least) so similar to one contained in an internal memo previously created by the company that has spent so much time lobbying the government to privatize liquor logistics?

BCLDB Model Mackin

Here are the heavily censored Cabinet and Treasury Board documents.

Heavily censored cabinet reports on liquor distribution/warehousing privatization

Read my full coverage in Business in Vancouver to learn more about this developing story:

May 8: Logistics giant targets lucrative LDB contract

May 15: NDP blasts liquor privatization process

May 15: Alberta’s experience: product diversity booms, costs balloon

May 22: Industry irked over Liberals' push for liquor privatization

Sunday, May 20, 2012

"Vice Minister" Coleman wants more sports betting

Rich Coleman wants single-event sports wagering in British Columbia.

The so-called "3-B" Vice Minister, whose portfolio includes booze, betting and a bordello (yes, read about it here), wrote in April 2010 on behalf of the B.C. Lottery Corporation to Federal Justice Minister Rob Nicholson, supporting a proposed amendment to the Criminal Code to allow single-event wagering.

Windsor, Ont., NDP Member of Parliament Joe Comartin's private member's bill is expected to soon become law with the support of the Conservative majority in the House of Commons and Senate. B.C. is planning a major relaunch of its SportsAction and PlayNow products this summer after hiring Irish sports betting giant Paddy Power.

"Provincial lottery corporations and Canadian casinos cannot compete for the potential Canadian sports betting," wrote Coleman. "Without the ability to offer the types of bets prohibited by the Code, lawful gaming offerings in Canada cannot compete with online gaming offered from outside Canada or Nevada tourist destinations like Las Vegas."

Coleman argued for a "level playing field" for lawful entities to compete with the plethora of online gambling entities that take an estimated $2 billion in bets a year. He said legalized, single-event sports gambling would "bring higher standards in responsible gambling, player protection, fairness, integrity and security to this aspect of the gaming industry as well as offer a lawful alternative to Canadian sports bettors."

"Moreover, legalizing single event betting would allow in depth and current reporting to regulators facilitating the response to suspicious activity. This would provide a much more effective way to detect and prevent attempts to 'fix' sporting events."

The text of the Coleman letter is in an Oct. 11, 2011 briefing note to Justice Minister Shirley Bond, whose portfolio included gambling until Coleman regained the responsibility on Feb. 8, 2012.

It is not known how much revenue this would bring provincial coffers, though it is likely to lead to problems. B.C. has enough problem gamblers to fill B.C. Place Stadium almost three times. Sports gambling on the Internet was pinpointed as a gateway to trouble for teenage males, according to the B.C. Problem Gambling Prevalence Study of 2008.

Five other gambling-related ministerial briefing notes are contained in the Freedom of Information documents obtained by me.

Lottery Retailer Undercover Investigation
Jan. 18, 2012 (updated Jan. 19, 2012)
"(Gaming Policy and Enforcement Branch) Investigations and Regional Operations Division has been carrying out an undercover investigation into lottery retailer theft of winning lottery tickets across the province."

Vernon Casino Patron Robbery
Dec. 2, 2011
"At 8:23 p.m. on Dec. 1, 2011, a female patron was mugged at the Vernon Lake City Casino. A male suspect stole the victim's purse and knocked her to the casino floor. The suspect then fled out an emergency door which triggered a silent alarm."

Lottery Retailer Undercover Investigation
Jan. 17, 2012
"GPEB's Investigations and Regional Operations Division has just concluded a provincewide undercover investigation into lottery retailer theft of winning lottery tickets. On Wed. Jan. 18, 2012, GPEB investigators will interview four individuals in connection with these findings."

DRAFT: Hastings Racetrack Horse Deaths
Dec. 7, 2011
"(GPEB) has received a request for "Veterinary medical reports and/or autopsies regarding all equine fatalities recorded at Hastings Racecourse in Vancouver… The response package contains 20 post-mortem, final reports from the Ministry of Agriculture's Animal Health Centre."

Harness Racing BC Concerns: 2012 Racing Season and Financial Allocations
Sept. 12, 2011 (Updated Dec. 2, 2011)
"On Aug. 29, 2011, Harness Racing BC (HRBC) CEO Doug McCallum wrote to the BC Horse Racing Management Committee, advising that HRBC had voted to reject racing dates the committee recently added to the standardbred schedule for six months in 2012. The tone of the letter suggests HRBC may approach the media with their concerns."

B.C. Government gambling issues notes

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