Q&A: Roadrunner Transportation Systems Inc. President and CEO Mark DiBlasi

Non asset-based third-party logistics services provider Roadrunner Transportation Systems Inc. reported strong second quarter earnings results this week.

The Cudahy, Wisconsin-based company’s quarterly net income of $14 million was up 37.0 percent annually, and earnings per share saw a 15.6 percent bump to $0.37. Net income—at $104 million—was up 26 percent.

RRTS saw solid annual gains throughout its various business lines, including less-than-truckload, truckload, and TMS (transportation management systems). And it is seeing benefits from its heavy acquisition activity, too, with last month’s acquisition of Springfield, Missouri-based Marisol International LLC, a non asset-based supply chain-critical, provider of international logistics services, serving as the most recent example of its acquisition growth.

On yesterday’s second quarter earnings conference call, RRTS President and CEO Mark DiBlasi noted that this acquisition, as well as all Roadrunner acquisitions, must meet its current core acquisition profile which is to continue to build critical mass from a geographic standpoint in each of its businesses, continue to broaden its capacity to more efficiently utilize its network across all segments, seek companies with complementary service offerings, new service offerings, and with similar business models that bring additional value to customers.

LM Group News Editor Jeff Berman recently spoke with DiBlasi about the company’s acquisition strategy and current market trends. A transcript of their conversation is below.

Logistics Management (LM): What were some of the drivers behind the acquisition of Marisol?
Mark DiBlasi: We had been looking for an international company for a while, and over the last three years we have built RRTS out significantly through acquisitions. We have made 15 acquisitions in the last three years, since we took the company public in May 2010, and all of those have been on the domestic side as we went from a single service provider of long-haul LTL to a full-service transportation services provider. Marisol gives us that global footprint that we lacked prior to the acquisition, and now we can tie in all our domestic services as a carrier and provide that carrier service to those Marisol customers that have come on board with us. There are tremendous cross-selling opportunities as well…and they give us the ability to serve our domestic companies internationally and their customers can leverage domestically our TMS solutions for LTL and truckload that Roadrunner currently provides. It really was a perfect fit for us.

LM: Your acquisition playbook is going quite well. What is behind the strategy?
DiBlasi: Our strategy is a bit different than some of the companies we compete with in that we are not pure brokerages and we are a carrier with 3,300 independent contractors and are asset-light and are a carrier. We believe that by controlling—and acquiring— capacity it gives us a bit of a leg up on pure brokerage operations.

LM: Are you always on the lookout for potential acquisition targets?
DiBlasi: We have a profile we use for them. Since January 2006, we have made a total of 25 acquisitions and look for companies that are well-run and well-managed profitable businesses and non-asset or light-asset in their business model. Even though we acquire some companies with assets at times, we do look for companies that provide capacity that are actual carriers and are going to give us additional reach like Marisol did or compliment existing resources as we build out our portfolio of services and are immediately accretive. Integration is also key as we look for a very strong cultural fit between the management team we are acquiring and our management team. If that fit is not there, we will walk away from a deal; we have done that before.

LM: Shifting gears, now that we are in the second half of the year, how do you view the current state of the freight economy?
DiBlasi: In terms of July, things definitely picked up from June. June was a bit of a disappointment compared to April and May. We expect the second half to be more robust than the first half. We are a bit of a different company in that we have seen consistent growth, and we are taking market share from other people, too.

LM: How are you seeing the capacity landscape in the truckload market? It does not seem quite as tight as a quarter or two ago and the new Hours-of-Service rules are still perhaps too new to see an impact just yet.
DiBlasi: Truckload capacity has been the same for about the last two quarters. We expect the second half to tighten up a little bit along with the economy. But even without an improvement in the economy, I do believe the HOS changes are going to have a more significant impact to the industry in the latter half of this quarter and the beginning of the fourth quarter than it has yet. July is not a good month to judge it by, because the first two weeks of July are usually very soft and always have been based on normal seasonality in transportation. But as capacity eventually tightens up, it might improve pricing, not only in truckload but in LTL as well. We are on the verge of pricing improvements, and when capacity tightens carriers charge more for their services and shippers will have to pay more.

LM: What about the LTL market? It is clear that things have improved on the pricing front.
DiBlasi: We took an LTL rate increase in June as many other carriers did. It applies to about 20 percent of our account base, but the 5.9 percent rate increase stuck pretty well. Shippers understand that most carriers have not added personnel and equipment and are trying to maximize and get as much utilization out of their existing fleets, especially on the asset-based side, and that is not going to change until the economy improves to the point that asset-based carriers see value in adding equipment and that has not happened for a while. When capacity gets tight, it is going to improve pricing and that is going to bode well for our industry over the course of the next couple of years. I am anticipating that to occur, and when it does carriers will be a lot healthier than they have been over the last few years.

LM: What are you seeing in the truckload spot market? Are rates in a good place?
DiBlasi: I would not say a good place, but they are in a decent place. We have seen 1-to-3 percent rate improvements over the course of the last few quarters. I would love to see increases in the 5-to-7 percent range, but that is not the case. I believe it could be the case if things continue to tighten up.

LM: And what about the availability of truckload spot market capacity?
DiBlasi: As a carrier, we provide a lot of that capacity which is a good position to be in, in terms of controlling that capacity and be able to provide it to the shipper that is going to pay the most for it. There is plenty of capacity out there on the spot market. Certain lanes might tighten up but beyond that it is going to be deeper in the year before we see capacity reach a point where pricing improves.

LM: Regarding HOS, do you see intermodal market share possibly increasing due to the new HOS regulations?
DiBlasi: Shippers will use rail where it makes sense. In many cases, though, it still does not compete with LTL and truckload service. It has to be coordinated between the shipper and consignee for when that freight is needed and there is a long lag time, too. We use a rail in certain lanes, where the rail transit time meets our expectations, but that is a minor percent of our total dispatches per week, with maybe 100-to-150 per week, but we will use it where it can compete and provide the service we need.