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LSC High Hopes

LSC’s HIGH HOPES

PICO RIVERA, Calif. — Marine One, the presidential helicopter, hovers above Redding, Calif., while President Bush surveys the damage caused by this summer’s wildfires in northern California. A sleek, jet-black B-2 bomber cruises the night sky, undetected by enemy radar. The Blue Angels, the U.S. Navy’s flight demonstration squadron, performs a choreographed aerobatic maneuver at an annual air show, in part to promote Navy and Marine Corps recruiting efforts.

These are just some of the vital missions that rely on lubricants from Lubricating Specialties Co., the largest independent lubricant manufacturer on the West Coast.

Although they represent a small slice — 4 to 5 percent — of the 40 million gallons of lubricants LSC produces annually, military lubes are one of the firm’s most important operations. It produces and supplies engine oils, transmission fluid, gear oils and hydraulic fluid to all five branches of the U.S. military.

“We get calls from Andrews Air Force Base,” Rob Kress, vice president of business development, told Lubes’n’Greases during a visit in June. “LSC takes its mission as a supplier to the military as more than a business opportunity. We see it as a partnership with our troops.”

That partnership, Kress said, began around 1985 when the company realized that the military had only one West Coast lubricants supplier. Most of the military’s oil products at that time were sourced from the East Coast and Midwest.

Technolube, LSC’s exclusive line of military lubes that is also its only brand, began as a research project in the 1980s between LSCand the U.S. government. The collaboration developed a “high-quality, super-clean” synthetic lubricant.

Securing a government contract then, like today, wasn’t any easy proposition. Government specifications and rigid procedures must be met before a company can even qualify to bid on supplying lubricants to the military. LSC has been awarded 81 defense contracts from 2000 to 2007, valued at almost $17 million.

Technolube products now are found in tanks, trucks, jeeps, humvees, ships, submarines and jets that operate in war-torn regions, and those on peacekeeping missions around the world. The company sells directly to the military, to military contractors and to foreign nations that use U.S.-made weapons and equipment.

“While Technolube is a minor part of the LSC business model, it is important that the military be supplied on the West Coast and the Asia Pacific region in a timely manner,” said Kress. “[It also helps] to have multiple suppliers scattered around the U.S. so that if a natural disaster were to strike like a hurricane or tornado and such, the military is assured supply in their critical mission.”

Shhhh, We’re Private-label Visible as Technolube is, the other 95 percent of LSC’s business is virtually unseen. That’s because its core business is blending, packaging and distributing private-label lubricants — products marketed under brand names owned by others, including major U.S. oil companies.

Headquartered in this industrial town near Los Angeles, the $150 million firm produces finished automotive and industrial lubricants, food-grade lubricants, heavy marine engine oils and grease. It also provides terminalling and distribution for some of the major chemical and additive companies.

“One of the things that sets us apart is all the services and segments we are in,” said LSC President Stephen Milam, during a tour of its lubricant operations.

Black railcars and white and gray storage tanks line the perimeter of the main 7.5-acre Pico site and the nearby 5.5-acre Vernon, Calif., plant, both of which are ISO 90001:2000 certified. An assortment of drums and totes at each sit stacked in neat rows.

Railcars, each with capacity to hold up to 25,000 gallons of mineral and synthetic base oils and high-performance additives, arrive in a steady stream at the facilities. Trucks also haul in raw material. Collectively, the company has 197 storage tanks at Pico Rivera and Vernon, providing it ample space for storing raw materials and finished lubricants.

Steve Miller, vice president of manufacturing, explained, “LSC is a batch blender. None of the processes are automated because of the need for flexibility.”

Batch blending at LSC can involve volumes ranging from 220 to 50,000 gallons, and requires adding individual raw materials in a prescribed orderly fashion, one ingredient at a time, according to the product recipe. Specific procedures and processes must be followed for each ingredient that is added, and testing may be required between steps, as well. A sample of each batch is submitted to the quality laboratory before it’s released.

From a 5-acre distribution center in Pico Rivera (separate from the manufacturing facility), the firm’s products go out to 300 customers, domestically and internationally. It serves the Western United States from California to as far as Phoenix, Las Vegas, Salt Lake City, Washington and Montana.

“We do as much distribution as manufacturing,” said Miller. “We ship products in containers sized from 8 ounces to railcar.” Aiming at Asia Each year, half of its products are exported to clients in Asia. Ten years ago, however,nobody at LSC could have predicted that business in the Asian market wouldbe possible.

“In 1998, Asia’s economy went in the tank, and the Indonesian and Malaysian governments fell,” said Milam. “Then the regionmade this miraculous recovery. LSC’s business took off as the economy there recovered and rebounded.

”The company sends 5,000 shipping containers of lubricants and greases a year to customers in Indonesia, Thailand, Philippines, Malaysia, China, Japan, India and Vietnam. “Due to logistics and our location, LSC is an ideal launch pad for shipping products to Asia, South America, Australia and Russia,” said Tyler Jark, LSC special accounts manager.

In addition to Asia’s growing demand, Milam says that LSC has made strides there because the local populations perceive their locally manufactured lubricants as inferior quality. “The ‘Made in the U.S.’ mantra implies quality. And we sell specialty products, mostly synthetic and semisynthetic.

“Handling containers in and out of Asia is complicated,” Milam went on. “But over the years we have developed a set of expertise on harbors, ports, duties, security and governments that enables us to handle all logistic issues adeptly.”

It also helps that some of the firm’s 225 employees are conversant in Cantonese, Mandarin (five dialects) and Japanese.

One aspect of business LSC has dealt with since its inception is operating in California.

“California is businessunfriendly, given all the government rules, taxes and regulations we deal with in relation to other parts of the country,” said Milam. “We have the most vigorous air and water standards, the highest minimum wage, the steepest taxes and fines, and it costs three times as much to operate a plant here. This makes it more difficult to compete where others do not face the same burdens for industry.

”The state already has in place the most stringent vehicle emissions standards in the nation. And in July, California regulators adopted the world’s toughest pollution rules for oceangoing vessels. The rules, which take effect in 2009, will require ships within 24 nautical miles of California to burn low-sulfur diesel instead of the heavy oil known as bunker fuel. About 2,000 vessels will be affected, including container carriers, oil tankers and cruise ships. That includes ships sailing from Asia to LSC’s home ports of Los Angeles and Long Beach, which together account for 43 percent of all marine freight coming into the United States.

But even with all the bureaucracy hanging over it, LSC has learned to cope. “We know how to exist,” Milam remarked.

Even the recent spikes in crude oil and lubricant base oils have not deterred LSC. It also has seen freight charges rise by as much as 30 percent since last year.

“For any marketer or manufacturer, including LSC, working capital is certainly higher. We have enough size, so we can weather it,” Milam said. “These are tough times and it changes the business of smaller companies. Some in the industry will face difficult times, but we’ll be okay. A lot of that comes from being around for so long.

”Built Over Time LSC’s history spans 80 years, the first 40 of which were spent as a small grease and lubricant manufacturer. That changed in 1968, when partners Armen Hampar and Michael Delaney purchased the firm. Their ambition was to make lubes for major oil companies, but they faced a crisis not long afterward when their newly purchased grease plant burned to the ground. Despite the shock, they persevered and rebuilt the plant. In time, they moved the operation to Pico Rivera and grew LSC into the largest independent blender on the West Coast. “The partners built the company into what it is today from the ground up, out of cash flow,” said Milam. “Over the years, most of LSC’s competitors dropped out as they had trouble keeping up with the firm. They (Hampar and Delaney) were the last men standing.” Milam and a group of partners purchased the company in 1998. Six years later, Milam bought out his partners and became sole owner. At the time he told Lube Report, “We have avery strong position on the West Coast, and we intend to keep it. We’re redoubling our efforts to provide all the services our customers need, and we will continue to serve big customers.”

Planning for Tomorrow Milam’s message today sounds very much the same, “We are continuously changing our facilities to match our customer’s needs.

”In fact, the company recently activated a rail line at the Pico Rivera distribution center, with 12 rail spots to meet the needs of several specific customers. In the past six months, five 50,000-gallon tanks have been added at Vernon to expand its terminalling business.

The firm seeks to expand to other markets, and hopes soon to double the volumes it sells in Asia.

Keeping an eye on the future, Milam is also addressing age, an issue that confronts today’s graying lubricants industry. He says the company has made a commitment to hire young and aggressive people.

“Age is a very serious problem for our industry,” said Milam. “Many of the decision makers are older and, by and large, closer to retirement. At LSC, we have built a young management that brings energy and enthusiasm, and is not bound by the old ways.

”That youth, Milam is confident, will help guide the company forward. “We’ve been around for 80 years. We’ll be around for another 80.”

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