Long-term commitments what’s best for Alaska in long run

Voices of the State

Posted: Wednesday, April 19, 2006

Thirty-one years ago, my brother and I turned two tractors into a trucking company that eventually grew into Carlile Transportation Systems. We worked hard, formed long-term relationships, hired smart people, served our clients well and made some money along the way. Almost all of our profits have been reinvested in our business.

Today Carlile provides good jobs for more than 550 people, owns 1,650 vehicles and has terminals in 10 cities, including Anchorage, Fairbanks, Kenai, Kodiak, Seward and Prudhoe Bay, along with ones in Washington, Minnesota, Texas and Alberta, Canada. We survived earthquakes, floods and escaped prisoners to become a true Alaska success story.

I’m proud of what we’ve accomplished, but we could not have grown into one of Alaska’s largest trucking companies if we had not been profitable.

Profits are good, which is why I shudder every time I read or hear someone bashing the oil industry for excessive profits. Profits are why Carlile can pay good wages and decent benefits, including a profit sharing and a 401(k) plan. Profits let us operate a modern fleet.

Profits let us grow our company. We’ve done that 12 times since 1980. Some of these acquisitions have totally redefined our business, others solidified a business line or added new capabilities to the services we offer.

We use our profits to build major facilities in Alaska and four locations Outside, including a huge expansion last year at the Port of Tacoma to better serve our customers.

Profits let us invest in Alaska, an investment that grows each year and today totals about $90 million.

Like the oil industry, we have not made money every year, which is why it’s so important to have some very good years to balance the very bad ones. Most of the 1990s was very bad for oil industry profits, with oil prices below the break-even point for nine of the 10 years.

Yet the industry didn’t turn off the tap, close down our oil fields and move to more profitable corners of the world. They continued to invest billions of new dollars to keep production high. Those dollars of investment ended up paying for basic government services like teachers for our children, policemen to take care of us and firefighters to respond to our emergencies.

My profits work for Alaska, but I was curious about what the major producers do with their profits. BP conveniently discussed where their profits go in their April Horizons magazine. It turns out half of BP’s profits are reinvested in capital projects like the $1 billion Liberty prospect on the North Slope. The remainder goes back to BP investors like me, and the thousands of other Alaska investors.

The biggest of those investors is the Alaska Permanent Fund. Oil stocks have shored up annual dividend checks ever since the fund made its first equities investment in 1983.

The fund owns 12 million shares of BP, 3 million shares of ExxonMobil and 964,348 shares of ConocoPhillips. The fund paid $134 million for these shares, which are now worth $818 million. Like I said, profit is good for Alaska.

About 80 percent of BP’s shares is held by institutions like pension funds — like my company’s 401(k) — and investment companies like the permanent fund. The remaining 20 percent is held by private individuals who mostly live in the U.S. That would be people like me.

The bottom line is that these oil companies don’t hoard their profits. They put them to work in good projects and they return them to people like you and me who have a right to earn a return on our investment. I am a trustee of Alaska Pacific University, where I received my degree many years ago. Recently, ConocoPhillips gave us $50,000. We appreciate their profits.

One last observation, the investments we make at Carlile are based on long-term financial analysis, not short-term cash flow. We go through a process similar to BP’s, where each project is stress tested with reference to an oil price of $25 a barrel to ensure it is robust against downward cycles. This type of financial model keeps us firmly focused on long-term results and stops us from straying away from our core business.

I’ve hauled milk for Matanuska Maid since 1975. I still haul milk for them because we make a decent-enough profit that allows us to hire great workers who deliver good value. Like Winston Churchhill, I believe that, “It is a socialist idea that making profits is a vice. I consider the real vice is making losses.”

Harry McDonald is president and majority owner of Carlile Transportation Systems Inc.

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