Saturday, March 16, 2013

The Rush to Brokerage

Much like the early '80s there appears to be a rush to brokerage going on in the transportation industry. While I still feel eventually the asset players will rule (eventually someone has to provide a truck or container) I do think this new breed of brokers is something to watch.

In reality, as I have written before, they are not really brokers in the old sense of the word.  While they are not full 3PLs (because most strictly deal with transportation) they are starting to get more into the over all supply chain management beyond just calling for trucks.  Some shippers are sole sourcing to these new breed of brokers as a way to essentially outsource their transportation.

One which bears watching (and I highlighted back in November of 2012) is XPO logistics and Seeking Alpha just published a great review of this company (XPO Logistics Has Huge Ambitions but Wall Street Has Real Doubts)  along with some interesting statistics about the industry.  Some highlights on the industry:

  1. A $40bl - $50bl industry
  2. Growing at twice the pace of GDP
  3. Very fragmented with over 10,000 (brokers) and the top 25 companies have less than 40% of the revenue. 
This last statistic is the reason XPO is essentially trying to grow incredibly fast through both "cold starts" but also a lot of acquisition.  My guess is there will be a lot more acquisition in the near future for this company which, as Seeking Alpha states, makes it very interesting and very risky.

The biggest risk I see in this strategy (beyond running out of money, being leveraged and what happens in a downturn) is the risk that the acquisitions will come too fast and data will be missed.  Echo Global logistics is now suing over this where they purchased a company and now believe data was misrepresented.  Also, we all know the Hewlett Packard story.  

Time will tell if this strategy is right and as I have said for a while now that the truck brokerage business is far more interesting than it has been in a long time.  However, at the end of the day, someone has to own and operate a truck which tells me this idea of "everyone being a broker" model cannot sustain itself long term.  

Perhaps we should call this what it is which is essentially the outsourcing of shipper transportation departments.  

Companies Mentioned in this Post:  

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