Chicago has been a key U.S. transportation hub for more than 150 years, aiding western expansion by rail in the 1800s and evolving to become the intermodal fulcrum for U.S. distribution in the 1900s. In the early years of this century, Chicago is becoming a virtual hub for fast-growing third-party logistics companies and freight brokers that own no assets but see Chicago as perhaps the biggest asset of all.
“Our work force here is phenomenal,” said Jeff Silver, CEO of Coyote Logistics, which has more than 1,200 employees, most of them at its Chicago headquarters. “We decided to build our business here largely because of that.”
Silver co-founded the 3PL in 2006, when it had about $21 million in revenue. Over the next six years, Coyote’s revenue surged more than 2,500 percent, reaching about $571 million in 2011 as it headed toward $800 million last year. The 3PL is on the fast track to $1 billion in annual business.
Less than five miles away, Echo Global Logistics, also founded in 2006, is expanding rapidly. The 3PL’s revenue soared more than 1,700 percent through 2011, hitting $603 million. Echo even expanded revenue 28 percent in the recession year of 2009. In the first nine months of 2012, the company’s total revenue climbed 24 percent to $546.5 million, a year-over-year gain of more than $100 million.
Echo CEO Douglas R. Waggoner expects the publicly owned 3PL’s sales to approach $1.5 billion in the next five years. “We have a significant opportunity to grow share within a very large market,” Waggoner told investment analysts during an earnings conference call last year.
Of course, fast-growing logistics companies are located in many parts of the country. Inc.’s list of the fastest-growing 5,000 U.S. businesses in 2012 included 151 logistics and transportation companies, with eight companies increasing revenue more than 1,000 percent during a three-year period that included the recession. BlueGrace Logistics of Riverview, Fla., increased revenue 7,368 percent over three years to $63.6 million in 2011, making the company the fastest-growing logistics and transportation company in the U.S., according to Inc.
The largest truck brokerage operator, $10.3 billion C.H. Robinson Worldwide, is based in Minneapolis but has strong roots in Chicago.
Non-asset logistics companies seem unusually concentrated in Chicago, home not just to Coyote and Echo but also DSC Logistics, AFN Logistics, Strive Logistics, Command Transportation and Unyson Logistics — a subsidiary of intermodal operator Hub Group — among others.
“Chicago is in the center of everything,” said Rob Nathan, co-founder and CEO of Load Delivered Logistics, located less than a mile from Echo Global Logistics. Nathan started Load Delivered in 2008, just as the global financial crisis unfolded. Today, the 3PL has 65 employees and is on track to do $65 million in business this year.
“If you look at Fortune 500 companies, where do many of them have their distribution centers? Near the rail hubs and interstate highways in Chicago,” Nathan said. Non-asset 3PLs don’t need to locate near railyards or truck terminals, however, and many of Chicago’s logistics companies are based downtown near Chicago’s Loop.
“We decided to relocate from (suburban) North Grove where we first started to right in the heart of Chicago,” where Nathan said many technology and logistics companies are setting up shop. “They’re calling the area Silicon Prairie,” he said, as startup companies compete with California’s Silicon Valley and New York City for technology talent.
There were 197 digital startups in Chicago in 2011, a 97 percent increase from 2010, according to Built in Chicago, an online community for technology entrepreneurs. The University of Illinois late last month said it plans to build a privately funded technology research center in downtown Chicago to help the city stem the flow of IT talent to West and East Coast companies.
Logistics providers such as Load Delivered, Echo Global and Coyote are part of a wave of businesses relocating to downtown Chicago, said Jim Giblin, a senior associate at Occam Consulting Group and chairman of the Traffic Club of Chicago’s Education Committee. They are being enticed by tax credits and incentives — and on occasion some personal diplomacy from Chicago Mayor Rahm Emanuel — available real estate and the young, educated work force that thrives on life in a big city. Emanuel last year said 20 technology companies had committed to creating 2,000 more Chicago jobs by 2015.
“The Loop has come back as a center for businesses to locate,” Giblin said. “I think one of the best signs of this is that Motorola Mobility is moving back into the city from Libertyville, a suburb. We were able to secure Boeing (which moved its headquarters to Chicago from Seattle in 2001) and GE Transportation Services is coming to Chicago (relocating corporate headquarters from Erie, Pa.).”
Chicago and surrounding communities such as Evanston, Ill., also are building stronger broadband and wireless networks to support businesses. “A hundred years ago, we were building railroads and highways,” Giblin said. “Today, Chicago is laying down cable and building bandwidth for high-speed Internet access. Technology is great, but you still need the infrastructure to make it work.”
Another type of infrastructure helped support logistics expansion in Chicago: the corporate expertise built in the 1980s and 1990s by American Backhaulers, a truck brokerage founded by Paul Loeb in 1981 and sold to C.H. Robinson Worldwide in 1999 for $136 million.
“In my opinion, most of this growth is because of American Backhaulers,” Coyote’s Silver said. He spent 15 years with American Backhaulers and was executive vice president at the time of its sale. Silver joined C.H. Robinson for a period after the sale before leaving to pursue an MBA and master’s degree in logistics. “The original American Backhaulers is now C.H. Robinson in Chicago. Then there’s Coyote, and there are four or five others that came out of the Backhaulers business,” Silver said.
AFN Logistics CEO Michael Nervick, for example, started out as a carrier sales representative at American Backhaulers in 1996. He co-founded AFN in 2003.
In 2005, Loeb partnered with ex-ABH employees Danny Zamost and John Cameli to establish Command Transportation, now a $329 million freight broker and logistics company in Skokie, Ill.
“If you look at the owners of the logistics companies in Chicago, many of us grew up within five miles of each other,” Nathan said. “Paul Loeb was really the pioneer of brokerage and logistics in Chicago. What happened after he sold American Backhaulers was a diaspora, where many of his top executives started these new companies.”
That’s created a tightly knit logistics community. “We’re competitive, but we’re also very friendly,” Nathan said. “There’s mutual respect. I wouldn’t say there’s an alliance of Chicago brokers, but we all know what’s going on with each other’s business, which, I think, is positive for Chicago.”