A few more words about the strength of the truckload brokerage market

Last week in the news section of this site, I filed a story about how M&A activity is running at a very brisk pace, with an emphasis on large truckload brokerages that typically are widely viewed in the industry as 3PLs whom have a strong brokerage component built on things like excellent carrier and shipper relationships, carrier bases, and, not to be overlooked, excellent technology in the form of TMS functionality.

In case you missed the story, the myriad and recent high-profile deals are here. These deals include: UPS’s acquisition of Coyote Logistics for $1.8 billion; Echo Global Logistics’ acquisition of Command Transportation for $420 million; and C.H. Robinson buying Freightquote.com for $365 million.

And, as previously mentioned, truckload brokerage services are in high demand by shippers, and this comes at a time in which diesel prices have been dropping for more than two months, coupled with available truckload capacity looser than it was a year ago at this time, which ostensibly creates some rate relief for shippers at times.
In short, even with capacity not as tight as it was a year ago, coupled with a fairly ordinary outlook regarding volumes on a year-to-date basis, it is still a very good time to be in the truckload brokerage market, especially one of the larger ones.
Thom Albrecht, managing director of transportation equity markets at BB&T Capital Markets explained that in many cases, some of these recent deals had their own set of motivations.

Both FreightQuote and Coyote had considered going public but for various reasons concluded that wasn’t the best route, so M&A became enticing,” he explained.  “UPS wants increased access to the TL market, both for linehaul purposes to support its parcel and LTL operations, but also to have access to a much larger market than their core domestic markets.  Secondly, CH Robinson wanted to beef up its LTL brokerage offering so FQ made perfect sense.  FQ actually had more customers than CHRW despite being a much smaller company so it was an intriguing opportunity to enlarge the customer base and over time, promote increased cross-selling.  This would be domestic and internationally, given CHRW’s Phoenix forwarding unit.”
 
And in terms of Coyote, its largest shareholder, Warburg Pincus, also wanted to best monetize its initial investment and in terms of Command, perhaps its biggest criteria was finding the right cultural fit, he said. 

“Culture is very big to Command and Echo met that goal.  Both are Chicago-based and Echo has gone from a step-child in the brokerage world 7 or 8 years ago to a top-notch legitimate freight broker,” noted Albrecht.  “Command was always going to be overwhelmingly just TL, so Echo gives them a chance to get into LTL, intermodal and parcel.  On the other hand, Echo was a mid-tier TL broker, being much stronger in LTL, but getting Command elevates Echo up the routing guide of many shippers.

For shippers, how they leverage brokers comes down to the long-held historical debate of how they want to run their transport networks, with seasonal surge shippers always having needs for brokers, while more steady shippers tend to use brokers for problem lanes and overflow situations, said Albrecht.

Providing a shipper perspective, Jeff Brady, director of transportation & logistics for Harry and David, the specialty gourmet food retailer, observed that there is no sign that the need for large truckload brokerage services will abate anytime soon.

“I believe this trend shift is largely accurate,” he said. “Depending on the industry or size of the shipper in question, or other factors such as geography, seasonality, etc. there has always been a need for a brokerage player or two, in a well-balanced domestic trucking network.However, there is a wide disparity historically, in the perception of value and the perception of quality, control, etc. when it came to brokerages or asset-light players. That said, the industry is changing. With the last few years of changes in the industry to tighten things up, maintain better drivers, and moving to electronic log books; this has helped to drive a higher quality offering.”