UPS Buys Coyote Logistics - No Surprise to Readers of 10x Logistics

This week, after a few weeks of rumors, we learned that UPS Paid $1.8bl for Coyote Logistics.  This was no surprise to any reader of this blog as back in January of 2012 I wrote a post titled "The New Face of Brokerage".  In this post I opined that Coyote Logistics was something unique and new and was not the "old" brokerage company.  Great technology, great leadership and a "kick ass" attitude makes it one of the best.  This week UPS realized this.

I also questioned in July of 2013 whether XPO's purchase of 3PD was an "end around" and whether this would give XPO capabilities beyond what Coyote could provide.  In the end, for years now, I have seen a battle set up between XPO and Coyote - two new, fresh and innovative companies in the logistics space.  It is refreshing to see these companies grow and lead the industry and I think it is no accident they have taken the industry by storm and surpassed many long standing companies in size. XPO and Coyote are truly innovative and we are watching The Innovator's Dilemma play out in the logistics and supply chain industry - old "mainstream" companies cannot innovate at the pace of these two companies.

However, they now have gone two separate ways.  Through the incredible leadership of Bradley Jacobs, XPO is growing through acquisition.  They want to own and lead and they are the "hunter".

Coyote has decided (apparently) that the way to grow the company faster and gain more capabilities is to allow itself to get acquired by a much larger company in UPS.

Personally, I think XPO has the right model by keeping control of its fate.  As long as the capital is there, I say grow and compete.  Don't allow yourself to get swallowed up. Which, I fear, is precisely what will happen to Coyote.

Anyone who has been to Coyote's headquarters knows it is a unique place.  As I said above it is all about innovation, working at an incredible pace, young, aggressive and brash.  It is an edgy company.
UPS is anything but what I see in Coyote.  UPS is deliberate, slow, and measured. It is more about protecting what is than innovating into tomorrow.  Perhaps it is possible UPS will truly allow itself to learn from Coyote but business history would say otherwise.  Business history would say that UPS will swallow up Coyote and in 5 years we will wonder where it went.

UPS has a big opportunity here and I hope they take advantage of it... Let Coyote be Coyote!

Companies in This post:

Coyote Logistics:  www.coyote.com
UPS:  www.ups.com
XPO: www.xpo.com

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:  

XPO Logistics

Echo Global Logistics

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UPS In Tentative Deal to Buy TNT Express

As reported on CNBC, looks like UPS will buy TNT Express after all.  My guess is this is all about taking on DHL in Europe however I do not know for sure.  I have never been a big fan of logistics companies purchasing others unless there is underlying technology you need.

My guess is UPS does not need any technology TNT has.  It is dangerous to buy just for a "customer list".  Acquisitions are generally not a "10X idea".  They usually occur when management is out of ideas.