(Article originally published in Nov/Dec 2014 edition.)
***From Nov-Dec 2014 Edition of The Maritime Executive magazine***
As head of the company founded by his grandfather, Sean Fernstrum is acutely aware that family-owned businesses often fail with the third generation. Not to worry. The company’s line of products is a global leader, and Fernstrum – together with his father and brother – has a steady hand on the wheel.
Jack O’ Connell: What’s it like being the third generation of leadership in a family company? Is there added pressure to succeed?
Sean Fernstrum: Any family business is a difficult environment to work in. You have to be able to keep the family dynamic and work dynamic separate and ensure that your emotions are in check at all times. I’m also keenly aware that most family businesses fail with the third generation. I’m fortunate in that my brother Todd and I work very well together, and our talents complement rather than compete. We have the added advantage of working with our father, Paul, who is a wealth of knowledge. Our transition in leadership over the past several years has made it much easier to take the helm from the previous generation.
JOC: OK, good to know. Now tell us about the early history of the company. It came out of World War II, right?
SF: Yes. During the war my grandfather was Chief Engineer for a company called Gray Marine, which made the engines for the LST landing craft. Prior to D-Day, the Army staged a mock assault in Iceland and found that half the landing craft malfunctioned because of faulty cooling systems. My grandfather was asked to design a new closed circuit system that was not subject to clogging. It took him six months, and he came up with the basic keel cooler design that is still used today. Over the years that design, known as the GRIDCOOLER® Keel Cooler, has been refined and modified so that it has almost limitless variations. And the company has earned more keel cooling-related patents than anyone else.
After the war he returned to Menominee, Michigan and founded R.W. Fernstrum & Company in 1949. Our sales early on were to the U.S. Army and Navy, later to the Corps of Engineers. By the mid-to-late ‘50s we had added shrimpers in the Gulf and started to book business with the push boats and tugs on the inland waterways. While we have modernized and expanded over the years, we are still on the same site today.
JOC: Prior to the invention of the keel cooler, how were marine engines cooled?
SF: Raw water with pumps, strainers and seacocks were the preferred method of cooling in the industry. A desire to eliminate the maintenance of these systems and gain greater control of the coolants used in the engines led to homemade closed-circuit designs, then to kits, and finally to manufactured systems like the packaged keel-cooling systems Fernstrum provides.
JOC: Is the Navy still a big customer?
SF: Today the Navy and government are a smaller part of our business, approximately five percent of sales.
JOC: Who are your biggest customers, and what types of vessels do you service?
SF: Today our largest market segment is the offshore industry (PSVs, OSVs, tugs). Generally speaking, we serve the inland and offshore industries. Our products are engineered to cool commercial fishing vessels, tugs, ferries and workboats.
JOC: What do the three diagonal gold bars in the Fernstrum logo represent?
SF: The copper lines in the Fernstrum logo represent our tubing, a nod to our old logo. They also represent our three product lines (GRIDCOOLER® Keel Coolers, WEKA Boxcoolers and Tranter® Heat Exchangers). And they stand for the generational qualities of R.W. Fernstrum & Company.
JOC: Tell us about the three product lines and your partnerships with WEKA and Tranter. How does a boxcooler differ from a keel cooler?
SF: Boxcoolers are roughly the European equivalent of our GRIDCOOLER Keel Coolers. While they do have their differences in design, construction and application, they are both closed-circuit cooling systems. I’ve compared them to belts and suspenders in the past. People tend to prefer one or the other and, while they have their differences, they basically do the same thing.
WEKA Boxcoolers B.V. is a Dutch company with whom we have had a relationship going back to the late 1980s, and this past April the Fernstrum family purchased WEKA, which will continue to operate as an independent company. As for Tranter, which is based in Texas, we started partnering with them four years ago to sell their open-circuit heat exchangers in the North American market. Tranter Heat Exchangers complement the Fernstrum line, and we are currently finding success with their Platecoil applications for cargo hold heating, such as in sulfur carriers. Tranter has an interesting history. It was founded by Ransom E. Olds, the father of the Oldsmobile and the REO.
JOC: Explain for our non-technical readers how these products work. They’re like the radiator in a car, right?
SF: Yes. A car’s radiator transfers the engine’s heat from the coolant flowing through the engine to the air moving around the car. Our keel cooler transfers the waste heat from the coolant to the water moving around the vessel.
JOC: How large is the company in terms of number of employees and facilities? Are all the products manufactured in Menominee, Michigan?
SF: At Fernstrum we have approximately 40 employees and a single location in Menominee, Michigan. We have also partnered with 26 distributors and representatives domestically and internationally. GRIDCOOLER Keel Coolers are all manufactured at Fernstrum. We also manufacture WEKA Boxcoolers for the North and South American markets. Tranter Heat Exchangers are manufactured by Tranter.
JOC: Is the Fernstrum family the sole owner of the business?
SF: Yes. My father, brother and I are the sole owners of the company.
JOC: You share management of the company with your father, Paul, who is CEO, and your brother, Todd, who is Vice President. What is the division of duties, and are there other family members involved?
SF: At this time, no additional family members are involved in the company. I have three children and Todd has two. We will have to wait and see if they have any interest in joining us in the future. We manage the company as a group. I focus primarily on administration and sales. Todd’s focus is manufacturing and R&D. I like to say Paul is on the retired side of semi-retired. His focus is more as an advisor to Todd and me.
JOC: Is there a profit-sharing plan for employees?
SF: We have a fairly generous benefit package for our employees, especially for a company of our size. One of those benefits is a profit-sharing plan.
JOC: “Your Solution Is Our Commitment” is the company’s Mission Statement. What does it mean?
SF: Any manufacturer can sell a product. Here at Fernstrum we are in it for the long term. We engineer and build quality products that last and meet design requirements. Our goal is to find reliable solutions for our customers. Fernstrum is committed to finding the right solution for each customer. Each solution is different. Each is engineered to the customer’s specifications. We do not mass-produce a product.
The solution may be a new heat exchanger, or it might be the heat exchanger they already have. It’s not uncommon for some of our customers to call and ask what we know about something totally unrelated to heat exchangers. We help them with that as well. Form a good working relationship with your customers and potential customers, and the sale will come when the time is right.
JOC: How is business? What is the outlook for the next couple of years?
SF: 2013 was a terrific year and 2014 should be just as good. We see a strong commercial marine industry going forward, both domestically and internationally. Shipyards are busy and operators are ordering more and more. The current uptrend seems to be breaking with the normal three-to-five-year up and three-to-five-year down cycles we’ve historically had in the industry.
JOC: What is the biggest challenge facing the company – and the industry – right now?
SF: Skilled labor is a challenge, a challenge many face in the industry. We are fortunate in having a relatively low current demand for additional workers, but it has been an ongoing problem in our industry as well as in the majority of manufacturing in the U.S.
JOC: Do you get many calls from Wall Street about taking the company public?
SF: Oh yes, about two or three a month. I tell them all the same thing: We are happy doing what we’re doing as a family business and have no intention of changing. The employees are all part of the extended Fernstrum family, and I have an obligation to each and every one of them and to their families as well. I would never think of selling to a new owner.
JOC: You have a B.S. in Scientific & Technical Communications from Michigan Technological University and were Managing Editor of the student newspaper for two years. Did you originally want to become a writer?
SF: Absolutely not. My college prep English teachers would have me near the bottom of the list of potential writers in high school if they could choose. Who gets a Bachelor of Science degree in the Humanities Department? I started in Mechanical Engineering and found that the degree was too limiting for what I wanted my professional direction to be. Management, sales, economics, written and verbal communications combined with an engineering background was more of what I thought would be useful in my career. I still think I made the right decision.
JOC: Have your writing skills helped you in your career?
SF: It isn’t really possible to have a career in any business without good communication skills, both written and verbal. You can try to limit your liabilities, but you will never reach your full potential unless you can successfully communicate with others. Regardless of your position, in business you spend most of your time generating correspondence of one kind or another.
JOC: How would you describe your management style?
SF: I listen. I surround myself with experts and I pay attention to them when making a decision. I may not follow their advice, but I always consider it. I also let people do their work. If I hired the right person for the job, I should let them do it. If I need to micromanage someone, I obviously don’t need them.
JOC: What do you like to do in your spare time?
SF: Aside from charities and service organizations, I love travelling with my family. Reading is always good too, and I’m on a re-reading binge right now: Out of Our Minds: Learning to Be Creative by Ken Robinson and Execute…or Be Executed by Sam Geist. Creativity and strategy are high on my priority list at the moment. I’ll also play a video game here and there to blow off some steam – I was a kid of the ‘70s and ‘80s, after all. – MarEx
Jack O’Connell is Senior Editor of The Maritime Executive.
If you enjoyed this article please subscribe to receive your copy of The Maritime Executive magazine.
The opinions expressed herein are the author's and not necessarily those of The Maritime Executive.