Uptick in 3PL-based M&A activity points to shippers’ need for truckload brokerage services

Over the last several months, there has been a spate of merger and acquisition (M&A) activity centered around deals with an emphasis on large truckload brokerages.

Recent examples of this 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.  Not to be overlooked as well is the flurry of deal-making activity made by non asset-based 3PL XPO Logistics, a top truckload broker, whom has kept its foot on the acquisition pedal in a major way since its inception in 2011.

On the surface deals like these makes sense for more than a few reasons, given the vast carrier reach that the large brokerages have, coupled with strong technology platforms, and shipper relationships across a wide swath of industries.

And along with these reasons, comes the fact that 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.

Given the flurry of M&A activity this sector has seen, there could very well be more on the way, according to Mike Regan, chief relationship officer, at TranzAct Technologies.

“In my opinion, you are going to see some significant acquisition occurring within this space,” he stated. “These large deals are basically occurring, because the marketplace is demanding it. Shippers are making it clear they want to work with one provider. This leads to the issue of dealing with critical mass in that UPS and Robinson and others are buying access into the market because they feel the need to do so.”

Regan added that these large truckload brokerages excel at what he termed “execution management capabilities,” which he said are critically important, as are TMS and WMS systems and systems designed around execution, including the reporting of predictive analytics, are critically important.

Transportation Intermediaries Association President and CEO Bob Voltmann explained that the truckload brokerage market is seeing gains from an improving economy, as well as a bit of a decline in intermodal shipping, that is seeing trucking gaining share as a result in some instances.

“The lack of available capacity, due largely to the driver shortage, is going to continue and will keep rates up, which is good for everybody involved except for shippers,” he said.

With truckload shipments pacing overall annual gains in the first quarter (based on TIA data), coupled with the current still-tight capacity situation (but looser than it was a year ago at this time), it portends the ongoing proliferation of 3PLs being active on the brokerage side perhaps more than at any other period.

Voltmann said this reflects how there are more people selling the advantages of the brokerage space in the 3PL sector and a recognition that there is still capacity out there from very small trucking companies, with the best way to reach that capacity is through brokerage-based 3PLs.

“This is really the ‘golden age’ of logistics, because it is really easy for a shipper or a manufacturer to deal with a couple of really big, or key, motor carriers, rather than several smaller motor carriers and owner-operators, due to things like their investment in people, technology, and process that are economic and at a fixed cost,” explained Voltmann. “That is the main message you hear from publicly-traded companies at conferences from companies like Echo Global Logistics, C.H. Robinson, and XPO Logistics, among others. And it is the same message you hear from mid-size 3PLs and smaller ones, too.”

XPO Logistics Chairman and CEO Brad Jacobs said that even the truckload brokerage market remains fairly robust while cautioning that the spot market in the second quarter was relatively soft and still is.

“Capacity is looser than it was a year ago, and as a result rates are down on a year-over-year basis,” he noted. “Shippers this year are generally putting more of their freight on contracts rather than the spot market, and routing guide compliance by carriers is much higher now than a year ago, nearly 100 percent in some cases. Our costs of purchased transportation have improved, and we have been able to grow our business substantially in this environment. The power has shifted from carriers to shippers over the last 12 months. Extremely tight capacity, and carriers raising rates characterized the first half of 2014, but now it has turned a bit at least for the time being, but it will turn again with capacity getting extremely tight again. The long-term trend is decreasing capacity and more tightness, due to regulatory and demographic factors, with capacity being taken out. But hopefully the economy will be better and there will be more demand in the coming years.”