Monday, July 15, 2013

XPO Logistics and 3PD - An End Run Around Coyote Logistics?

Back in November of 2012 I reported on XPO Logistics and their "insane" growth pattern.  The company, and its CEO Bradley Jacobs, seem to have no lack of money or desire to expand and acquire. In that post I said you should watch this company and time will tell. 

Today supported my claim I made back in November in a big way.  They have purchased one of the premier home delivery or "final mile" companies in the Country - 3PD.  This puts XPO in an entirely different league than most brokerage houses because it puts them squarely in the middle of a growing trend:  Final Mile Logistics. 

I have reported on FML extensively as well and now it appears there is a marriage made in heaven.  It will be interesting to see if the two can be brought together.  One thing this acquisition does prove is XPO logistics is not just about "dialing for diesels" but rather they want to get into the heavy lifting of logistics.  I think it also shows incredible foresight as the mega trend story for sure is the massive growth of this final mile segment.  Will a broker model win out over an asset based model?  Do they serve the same customer?  Can XPO overcome the inherent high costs of home delivery?  

All of this is yet to be seen and I can say however it appears that if anyone can do this right it will be XPO Logistics. 

Now the question is where does this leave the fast growing upstart, Coyote Logistics and the old guard of brokerage C.H. Robinson?  Coyote has grown rapidly and shown a great skill set in putting new and innovative technologies to use.  However, this move by XPO Logistics appears to be an "end around" around, over, and through Coyote's model.  Does this leave Coyote to be just "another broker" while XPO logistics is now branching out into more innovative services?  The initial reaction would be yes however I do think time will tell.

As far as C.H.Robinson is concerned, I think they will continue to be the "broker to the stars" - meaning a big brokerage house for huge industrial shippers.  I am not sure they will compete in this space with XPO Logistics or even want to.  

Finally, I must say the reaction of the market is ludicrous.  If I were a gambling man I would short the hell out of this stock.  Right now we are talking about a company (XPO) that is losing money and losing a lot of it.  Even with this purchase and even if 3PD is wildly profitable it does not change the fact that the base business is losing money.  Further, there is a real question if there are any core synergies between a truck brokerage company and 3PD beyond the fact that they do not own assets.  I just cannot in my wildest dreams comprehend how this purchase could or should add 15% to the value of the company.  

But, again, as I am fond of saying... we shall see. 

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