Brokering Logistics Growth

Brokering Logistics Growth

Chicago, the hub around which so many of the nation’s transportation assets spin, is home to two non-asset transport operators whose rapid growth underscores a significant shift in how U.S. shippers move freight and how carriers tap into shippers’ money.

Echo Global Logistics and Coyote Logistics do not own a single 53-foot trailer, power unit, forklift or domestic intermodal container. But the rival logistics companies combined command more than $1 billion in transportation spending a year.

Both are on the way to becoming billion-dollar companies within a shockingly short time frame. How short? Neither company existed six years ago.

Both were founded in 2006 and have recorded astounding growth by brokering massive amounts of truck freight, securing capacity for shippers and expanding their role in a shipping economy even as the economy itself has stumbled and contracted through the worst recession in decades.

Since 2006, Coyote has increased its revenue more than 2,500 percent, from $21 million to about $570 million in 2011. Privately owned Coyote ranked 221 on the Inc. 500 list of fastest-growing companies in 2011. It was the largest of eight freight-related logistics and transportation companies on the top 500 list.

Over the same period, publicly traded Echo Global’s revenue soared more than 1,700 percent, from $33 million to nearly $603 million.

Echo grew 118 percent in 2007, 112 percent in 2008, 28 percent in the recession year of 2009 and 64 percent in 2010 as truck traffic and rates began to recover. And there’s room for more growth, CEO Douglas R. Waggoner said. “I believe that our results to date provide meaningful evidence that our approach is working to bring about sustainable long-term growth,” he said. “We have a significant opportunity to grow share within a very large market.”

Echo’s goal is to reach $1.3 billion to $1.5 billion in revenue over the next five years, Waggoner and CFO David B. Menzel said during a Feb. 14 conference call.

They expect Echo’s revenue to rise 23 to 29 percent in 2012 to $740 million to $780 million, but that’s already looking conservative. In the first five weeks of the year, typically a slow period for shipping, revenue was up 35 percent.

Where is that revenue growth coming from? Partly from higher volume and rates, but Echo also is getting new business from existing customers and new customers.

The company apparently picked the right place and the right time to tap into changing supply chain trends. Logistics spending by shippers in 2010 jumped $114 billion to an estimated $1.2 trillion, according to the Council of Supply Chain Management Professionals’ 2011 State of Logistics report. Fortune 100 and Fortune 500 businesses continue to outsource more transportation and logistics functions to third-party logistics companies, using multiple 3PLs in a complex array of domestic and international networks.

In the U.S., shippers increasingly rely on freight brokers to secure capacity and constrain rising transportation costs. Cincinnati-based Total Quality Logistics tripled its revenue over the past five years, passing the $1 billion revenue mark in 2011. At $10.3 billion C.H. Robinson Worldwide, the largest U.S. freight broker, net truck revenue rose 14.9 percent in 2011 to $1.2 billion —86 percent of C.H. Robinson’s total net transportation revenue. C.H. Robinson added about 1,000 shipper customers in 2011, bringing its customer base to some 37,000 shippers. The company’s shipment volume increased 8.7 percent to approximately 10 million shipments last year.

Echo hopes to add 20 to 40 enterprise customers in 2012, after gaining 29 customers last year for its contract transportation management services. Transactional truckload and less-than-truckload brokerage still accounts for 68 percent of Echo’s revenue, but the company is determined to expand its contractual logistics management business. Echo had 177 enterprise clients by the end of 2011, a 19.6 percent year-over-year gain. The enterprise business creates a foundation for future growth, Waggoner said. “We are keenly focused on expanding this portion of our customer base and capturing a larger share of wallet from them,” he said.

It’s clear Echo is capturing more truck freight. Its truckload revenue was up 44 percent in the fourth quarter, and LTL revenue, 45 percent. Truckload rates increased 15 percent on a 25 percent increase in volume. LTL rates rose 8 percent in the quarter as volume increased nearly 30 percent year-over-year. “A significant element of our long-term strategy is the expansion of our truckload capabilities,” Waggoner said. “You can expect to see more in 2012 as we continue to evolve as a full third-party provider of logistics services.”

-- Contact William B. Cassidy at wcassidy@joc.com. Follow him on Twitter @wbcassidy_joc.