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Mild GDP Growth, M&A, Asset-Light Activity, Brokers Getting
Bigger and “Disruptive” Tech Startups: What To Expect in 2014
January, 2014
@CarrierDirect
CarrierDirect
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2
The 2014 Market Outlook
Happenings in the Industry and What’s On the Horizon
Strategic Priorities Leadership Should Be Adding To Their Agendas
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3
Tonnage Has Been Strong, With Moderate GDP Growth Forecasts for 2014
Freight levels are consistently exceeding pre-Recession levels, though not all of the pricing power from
that growth may fall back in the hands of the truckers as more shippers turn to 3PLs
ATA Monthly Truck Tonnage Index (2007 – 2013)
What to Expect in 2014
 The industry will continue to exceed
Pre-Recession freight levels
135
Consistently exceeding
pre-Recession freight levels
Truck Tonnage Index (2000 = 100)
130
125
120
Multi-year freight
tonnage growth before
the drop
 We’ll see moderate GDP growth in
2014 of 2%-3%, a bit higher than 2013
 The industry is not likely to experience
a major “capacity crunch” without GDP
growth well above common consensus
Crawling back from
the Great Recession
110
 Some areas may have shortages due
to isolated growth, but the broader
market will remain balanced
105
 Some pricing power may go to Truckers,
though it could be offset by shippers:
115
− Turning to other modes or practices
to dampen effects (e.g. Intermodal)
100
95
2007
2008
2009
2010
2011
2012
2013
− Partnering with 3PLs to standardize
transportation processes and maintain
prices through bigger buying power
Source: Journal of Commerce, Bloomberg, American Trucking Associations
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4
Transport and Logistics Were A Good Investment in 2013
The Asset guys had a great year in the stock market after digging out from the Great Recession, and
3PLs and Asset-Light carriers continued to award investors for their loyalty
400
Stock Index (1/1/2013 = 100)
350
ABFS
(LTL)
300
SWFT (TL)
250
XPO (3PL)
200
RRTS (AL)
150
100
HTLD (TL)
50
FWRD (AL)
UTIW (3PL)
ODFL (LTL)
0
2-Jan-13 Jan 2-Feb-13 Feb2-Mar-13
ODFL (LTL)
Mar2-Apr-13 Apr2-May-13 May2-Jun-13 Jun 2-Jul-13 Jul 2-Aug-13 Aug 2-Sep-13Sep 2-Oct-13 Oct 2-Nov-13Nov 2-Dec-13Dec
ABFS (LTL)
HTLD (TL)
SWFT (TL)
UTIW (3PL)
XPO (3PL)
FWRD (AL)
RRTS (AL)
Source: Google Finance
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5
Though, Managing a Portfolio With YRC’s Stock Was A Full-Time Job
YRCW had aggressive swings of high’s and low’s during 2013 and at the outset of 2014 due to quick
changing news stories highlighting the successes and troubles of the spotlight carrier
Reports weak Q2
results to the market
All the talent attrition over the past few years
may leave YRCW without the intellectual
property to re-build for the future
$35
6,000,000
Labor union rejects
contact; S&P puts YRCW
on negative credit watch
$30
YRCW Closing Price
7,000,000
5,000,000
$25
4,000,000
$20
Reports making
money in Q1 for first
time in 6 years
$15
3,000,000
2,000,000
$10
$5
$0
1,000,000
Announces raising
$275M in capital
Jan
Feb
Mar
Apr
May
Jun
Jul
Stocks Traded
Aug
Oct
Sep
Volume of Stocks Traded in Day
$40
Nov
Dec
Jan
0
Closing Price
Source: Google Finance, YRCW Investor Reports
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6
M&A Was A Hot Topic in 2013 With Rising Deal Prices
Some of the gains in stocks were driven by ongoing M&A in the market, with many companies deciding
it would be less costly to buy market share and capabilities than to grow organically
Late in the year acquisitions
Date
Announced
12/30/13
12/10/13
11/11/13
10/31/13
10/02/13
09/26/13
09/23/13
08/06/13
07/12/13
03/19/13
02/12/13
with high prices may set the
tone for 2014
Target
Buyer
Vitran Corp.
TransForce Inc.
Landstar SCS
XPO Logistics
Gordon Trucking
Heartland Express
Clarke Transport Inc.
TransForce Inc.
Wheels Group Inc. (TSXV:WGI)
Difference Capital Financial
USA Truck
Knight Transportation
Vitran Corp.
Matthew Moroun
Central Refrigerated Service, Inc.
Swift Transportation
3PD
XPO Logistics
Open Mile
Echo Global Logistics
Vitran Corp.
LEGACY Supply Chain
Source: Company Filings, Internal CD Analysis
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Transaction Notes
TransForce, a Canadian LTL carrier, purchases the remaining Canadian assets from Vitran for $88M,
or a 15.6x EBITDA multiple
XPO Logistics purchased Landstar's Supply Chain Solutions group for $87M at a 7.5X EBITDA multiple
Heartland Express Gordon Trucking creates the 5th largest nationwide carrier buying Gordon Trucking’s
assets for $300 million at a 5.0x EBITDA multiple
TransForce acquires Clarke Transport and Clarke Road Transport, an LTL carrier and TL carrier for
$97M (EBITDA multiple unknown)
Difference Capital acquires 1,000,000 Common and 1,000,000 Preferred Shared in Wheels Group,
a leading Canadian 3PL
Knight Transportation made a bid to acquire USA Truck for $242 million, a 9.0x EBITDA
multiple as USA struggles with unprofitable operations and multiple execution risks
Matthew Moroun, the majority owner of Central Transport, purchased Vitran's American
assets for $2 million including the assumption of liabilities; the multiple was non-material
Central Refrigerated Service, the nation's 5th largest reefer FTL carrier, agreed to be acquired by
Swift Transportation for $225 million with an EBITDA multiple of 4.5x and $504 million in revenue
XPO Logistics purchased 3PD, a last mile delivery 3PL for $365 million
Echo Global acquired Open Mile, an East Coast TL brokerage
for $2M; EBITDA multiple was undisclosed
Vitran Corp. sold it's managed supply chain solutions
New capabilities
division to Legacy Supply Chain For $97M
were bought, often
Some M&A was driven
by technology needs
and “buying talent”
Lots of M&A driven
by consolidation
goals
at very high prices
7
Logistics M&A Will Continue To Heat Up and Get Costlier for Buyers
The M&A activity in 2013 suggests for higher deal values in 2014, with likely leaders of acquisitions
being XPO and other publicly-traded companies with growth commitments to uphold to shareholders
Select Logistics Acquisitions During 2012 and 2013
Logistics Companies Getting Pricier
 Deal values seemed to increase in price
between 2012 to 2013 in the domestic
Logistics space
XPO acquires
3PD for $365M
14.0
EBITDA Multiples
12.0
 XPO led many conversations about industry
consolidation, though their activity at the end
of 2013 (and with Pacer in 2014) suggests
their strategy is different from simply
“rolling up the TL brokerage industry”
10.0
8.0
6.0
XPO buys
LSCS for
$87M
4.0
UACL buys Linc
for $315M
2.0
0.0
12/23/11
04/01/12
2012
07/10/12
10/18/12
01/26/13
05/06/13
…Deal Size
2013
08/14/13
11/22/13
03/02/14
 Watching the activity has led many small
and mid-sized Logistics companies to
consider the worth of their business and
their terms to sell
 Companies slow to the M&A space may
find acquisitions significantly costlier than
they had originally planned due to hot
activity in 2013
Source: Capital IQ, Company 8K Filings, Management Presentations
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8
Companies Increasingly Look To Asset-Light Models
Asset-Based and Non-Asset companies are looking to Asset-Light models as a way to tap into new
capacity options outside of traditional hub-and-spoke carriers or build their own Asset-Light networks
As a capacity solution
or their own network
to move freight
Bringing together the best of the
Asset and the Non-Asset worlds
Asset
Asset-Light
Non-Asset
Company owned assets
used exclusively for the
performance of freight moves
Company and subcontracted
partner assets with strict service
level requirements (i.e. more
than interline agreements)
Brokered assets to handle freight
moves with minimum
requirements, but no service level
commitments
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To complement their
asset-based networks
9
Non-Asset Brokerages Continue To Build Out Their Service Portfolios
The Top Freight Brokers are continuing to expand their services, with many having the
opportunity to become emerging leaders in a mode where they aren’t currently competing
Company Name
C.H. Robinson Worldwide
Net Revenue Gross Revenue
(millions)
(millions)
$1,300
$9,700
Landstar System
$276
$1,200
Total Quality Logistics
$225
$1,400
XPO Logistics
$169
$801
Echo Global Logistics
$143
$527
Freightquote Inc.
$118
$574
Yusen Logistics
$96
$746
Mode Transportation
$93
$780
Coyote Logistics
$92
$786
Unishippers
$87
$393
Worldwide Express
$80
$530
Transplace, Inc.
$71
$609
England Logistics
$69
$316
Access America
$69
$455
Command
$62
NA
Dry Van
Truckload
Source: Transport Topics, Internal Company Analysis
Legend
…Established Foundation
…Emerging Leader
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…Opportunity for Growth
Reefer
Flatbed /
Truckload Heavy Haul Intermodal
Biggest opportunity for
brands like FQ and WWE to
expand beyond core modes
…Limited Opportunity for Growth
LTL
CHR has the largest
end-to-end suite of
freight services
Int’l
Parcel
Very few have strong
barriers to entry, like
some do in Parcel
10
Many 3PLs Will Spread Out Their Carrier Base As They Grow
The more progressive brokerages will develop strategies to mitigate the risk of relying too much on any
one carrier by tapping into additional capacity providers
< $25M
Brokerage* Revenue
$25M - $75M
Brokerage* Revenue
Carrier 1
33%
Carrier 2
Carrier 4
Carrier 5
3%
Carrier 5
Carrier 6
3%
Carrier 6
Carrier 7
10%
Carrier 4
11%
8%
Carrier 5
9%
5%
Carrier 7
2%
11%
Carrier 3
13%
Carrier 4
10%
13%
Carrier 2
18%
Carrier 3
14%
Carrier 1
20%
Carrier 2
30%
Carrier 3
Carrier 1
> $75M
Brokerage* Revenue
3%
7%
Carrier 6
5%
Carrier 7
5%
Carrier 8
1%
Carrier 8
2%
Carrier 8
5%
Carrier 9
1%
Carrier 9
2%
Carrier 9
5%
Carrier 10
1%
Carrier 10
2%
Carrier 10
Other Carriers
Other Carriers
3%
0%
10%
20%
30%
% of Revenue Carrier Hauls
(~15 LTL Carriers)
40%
Other Carriers
15%
0%
10%
20%
3%
30%
40%
% of Revenue Carrier Hauls
(~30 LTL Carriers)
28%
0%
10%
20%
30%
% of Revenue Carrier Hauls
(~60 LTL Carriers)
*Determined by sampling of brokers of revenue range and their mix of non-contractual LTL reselling across carriers
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11
Profit Margins Will Drop For Some Brokers, But Not All
The self-fulfilling prophecy of “yield compression” is coming true in Truckload and LTL, but the best
brokerages are learning how to gain more margin through sales or operations training and technology
Truckload Brokerage Margin Compression
Why It Happens
Strong
Relationships
with Carriers
Chasing
“Distribution
List” Loads
Knowing Swings
of Freight Markets
and How To
“Hedge” For
Overall Higher
Margins
Winning
Consistent
Lanes with
Large Shippers
10%
12%
Why It Happens
How Some Are Avoiding It
Only Posting
to Load Boards
8%
LTL Brokerage Margin Compression
14%
16%
18%
Gross Margin On Loads
(Old Vs. New Normal)
20%
22%
24%
How Some Are Avoiding It
Pushing
Accounts to the
TMS and Not
“Right–Sizing”
the Margins on
Account
Advanced
Knowledge of
LTL Carriers
Advanced Yield
Management Tools
in TMS
Deep Customer
Relationships
Beyond “Price
Shopping”
Competing with
Other 3PLs
Solely on Price
12%
14%
16%
18%
20%
22%
24%
26%
28%
Gross Margin On LTL Shipments
(Old Vs. New Normal)
Source: Internal CD Analysis
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12
Industry Maturation and Inefficiencies Will Attract New Tech Startups
As small and mid-sized companies scale they will bring on new professional managers and investors to
the industry, which will direct capital for new tech-oriented startups who will try to “disrupt” the market
2006
2010
2013
Today
Growth of Mid and Large-Sized
Asset and Non-Asset Companies
MBA’s and Investors
Flood the Industry
 Companies grow to $150M-$1B,
to create a “middle class” of
transport and logistics companies
 Company successes attract the
professional managers (i.e. the
MBA’s) and the investors from
other industries (e.g. Brad Jacobs)
 Young people see how to bring
technologies from other
industries and apply them to
freight inefficiencies
 They see the enormous
opportunity in the $400B industry
to standardize and consolidate
inefficient and bloated companies
 Managers and investors look for
ways to address efficiencies,
creating a market conducive for
tech startups to join and change
current practices and dogmas
 Employ a lot young people and
establish fundamental practices
for doing business
 Train talent to identify and fix
inefficiencies well enough to
keep the business growing
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Environment Created for
Disruptive Tech Startups
13
Some Tech-Startups Started in 2013 May See Big Growth This Year
A few tech startups, like the ones below, have interesting platforms and goals to create efficiency
and add value to companies in the Asset, Asset-Light or Non-Asset sectors of freight
Services  Electronic log tracking for
drivers and fleet management
tools for dispatchers
 Connecting shippers to trucking
companies in their area
 Efficient truckload pricing
processes with LoadDex tool
using internal and market data
 Small shippers and carriers
 Small / mid-sized brokers
 Optimizing trucker asset
utilization and immediate
capacity access for shippers
 Ability for small and mid-sized
brokerages to improve carrier
procurement efficiencies
 Los Angeles, CA
 Chicago, IL
 2013
 2013
Platform  Android / iPhone
 Web Application
 Web Application
Website  www.keeptruckin.com
 www.cargomatic.com
 www.logisticallabs.com
Target Market  Small / mid-sized truckers
What’s  Data gathering on freight
Interesting
movements and efficient
About It
shipper-trucker connections
Headquarters  San Francisco, CA
Year Started  2013
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14
Though, Entrance of Exchanges Could Be Trouble for Low-Value Brokers
Logistics companies who provide little value to shippers are at risk of being replaced by tech startups,
though those who establish relationships and provide value-added services are less likely to be affected
High-Value Logistics
Value-Added
Transportation
Services
Transactional Rate
Reselling
Non-Commercial
Freight Moves
“We’ll handle all
your freight from our
facilities. We’ll take care
of everything.”
“Based on your needs,
I recommend using CWF.
Good? Great. I’ll get this
done for you.”
“I don’t know anything
about this carrier, but
here’s your rate. Good
luck!”
“Need an armoire moved on a
no-name carrier? No problem.”
 Future tech startups will take the form
of “marketplaces” or “exchanges” who
efficiently pair shippers with carriers
 Companies who only provide rates to
shippers without a “hook” will be
replaced by these tech companies
 3PLs who offer higher value services
are less likely to be affected
 Some value-add services to protect a
3PL from obsolescence include:
− Multiple service options
(e.g. TL, LTL, International, Parcel)
− Warehousing services
− High-degree of carrier knowledge
and ability to meet a customer’s
needs on any given shipment
Legend
…High Risk
…Little Short-Term Risk
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…Very Little Risk
15
The 2014 Market Outlook
Happenings in the Industry and What’s On the Horizon
Strategic Priorities Leadership Should Be Adding To Their Agendas
All rights reserved by CarrierDirect, LLC, 2014
16
Strategic Initiatives That Should Be On Asset and Non-Asset Agendas
Asset-Based
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Non-Asset
17
Where Asset-Based Companies Should Put Their Focus
Asset-based carriers have a huge opportunity ahead to develop more flexible networks
with a “non-asset” mindset to meet the needs of customers and bridge gaps with 3PLs
AssetBased
NonAsset
What Asset-Based Companies Should Be Doing
1
Invest In Technology
Or Get Prepared to Be
Run Over By Competitors
2
Build A Brokerage
The Capability and Mindset
Will Be Invaluable
3
Buy Quickly In the
Asset-Light Space
New Companies Will Become
Very Expensive Very Soon
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 The best carriers of the future will have extraordinary visibility into where their
trucks are today and where they want them to be tomorrow
 Should drive decisions on whether company’s assets are used, partner
carrier’s assets or brokered assets based on company goals
 Create a best-in-class brokerage to understand how to optimize a network
and offer services to customers beyond one’s own assets
 Brokerage should be run separately by leadership who understands
brokerage (i.e. generally not an Asset guy) and can do what’s best for the
company, not just promoting the asset-side of the business
 Get into the Asset-Light side of the marketplace to complete a flexible
network comprised of Assets, Partner Carriers and Brokered capacity
 If the choice is to buy, make decisions quickly before some of the emerging
companies have too large of a price tag from hyper-growth
 Put in leadership who understands Asset-Light models, not Asset-experienced
leadership who “can figure it out”
18
Directives for Non-Asset Companies in 2014
Non-Asset companies should be dedicated to build advanced technology platforms,
creating high-value services and finding ways to maximize yield on customer business
AssetBased
NonAsset
What Non-Asset Companies Should Be Doing
1
Build Your
Own Technology
The Best 3PLs Will Have
Their Own Technology
2
Diversify Your
Service Offerings
Get Your Base,
Then Build On It
3
Make More Money
Than Competitors
Find Ways to Create More
Value and Make More Profit
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 The most progressive, flexible and scalable companies will have proprietary
TMS technology as the backbone of their company
 Invest in technology to allow the company to scale quickly, provide a best-inclass customer experience and dynamically bring freight to carriers
 Build a base service the company can do better than other companies, then
quickly develop complementary services to offer customers
 Go into new services with a plan for what the company wants to
accomplish; half-baked services will send customers to competitors
 Create sales channels that are skilled at knowing how to identify and meet
the needs of customers and retain their business
 Build smart Yield Management tools in the TMS to recognize shipper
buying habits and carrier characteristics to optimize gross margin
19
CarrierDirect, LLC
105 West Adams, Suite 3010
Chicago, IL 60603
@CarrierDirect
CarrierDirect
www.carrierdirect.co
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CarrierDirect
Joel Clum
Executive Vice President
[email protected]
Direct: (312) 300-7933
@JoelClum
linkedin.com/in/joelclum
20

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