Consultant Insight: 3PLs seeking capacity find acquisition targets in freight brokerages

Freight forwarder and logistics provider Geodis recently acquired U.S.-based freight brokerage firm Velocity Freight Transport. This acquisition comes at a time when U.S. shippers are experiencing transportation capacity constraints amid strong demand for goods. [caption id="attachment_69752" align="alignright" width="298"] Cathy Roberson, Cargo Facts Consulting senior consultant and Air Cargo World columnist[/caption] Velocity provides freight brokerage services that include refrigerated and temperature-controlled freight, flatbed and less-than-load (LTL) trucking, intermodal, van and specialty options. Velocity will help “meet the increased customer demand for more transportation alternatives to ensure their supply chains remain agile and effective,” according to Geodis’ announcement. Indeed, it’s been more than a year since the demand for inventory replenishment sky-rocketed and creating bottlenecks at U.S. ports. Delayed supplier orders due to COVID-19 as well as the jump in e-commerce sales drove this mad dash, creating a scramble for ocean containers in all geographic regions that further delayed shipments. Expectations are that inventory replenishments will continue well into 2022 along with international delivery delays. Like dominos, the delays at ports have expanded inland. According to the latest Cass Freight Index , a monthly index that measures the expenditures and number of intra-continental freight shipments across North America, shipments are hindered by truck driver shortages, trailer shortages for both truckload (TL) and less-than-truckload (LTL) movements, and chassis shortages that are hampering intermodal capacity. As a result, the Cass Freight Index noted that expenditures grew at their fastest pace on a year-over-year basis in June, up 56.4%. In May, expenditures increased 49.9% year-over-year. According to the market research firm Vanson Bourne, on behalf of technology firm Interos, global supply chain disruptions cost large companies, on average, $184 million a year. Along with delivery delays, disruptions include cyber breaches, financial risks, and environmental, social and governance (ESG) transparency issues. Freight brokerage The spotlight is on freight brokerage firms as shippers look for transportation capacity at reasonable rates in order to ensure timely inventories to sell online, in stores, or use in manufacturing. While these firms are increasingly becoming acquisition targets for logistics providers, many freight brokerage firms are also expanding their reach and capabilities. The largest freight brokerage firm, C.H. Robinson, noted during its first-quarter earnings call that it added 6,900 new TL carriers onto its platform, a 72% increase year-over-year. In addition, the company saw “record use and adoption of its carrier-facing digital products, Navisphere Carrier and Navisphere Driver”. In XPO Logistics’ first-quarter earnings call, the company described the U.S. truck brokerage market as “white hot.” For the quarter, XPO Logistics reported an 83% increase in brokerage revenue, while net revenue was up 132%. One-stop-shop for capacity Geodis is not the only 3PL to acquire a U.S. freight brokerage firm, and nor did the trend begin during the pandemic. Back in 2015, Kuehne+Nagel acquired ReTrans to provide end-to-end logistics and transportation services for its customers in the U.S. and Canada. ReTrans is a non-asset brokerage provider of intermodal transportation and also full and less-than-truckload (FTL and LTL) services in the United States and Canada. Despite unloading asset-based UPS Freight earlier this year, UPS is expected to lean heavily on its own 2015 acquisition of non-asset-based freight brokerage subsidiary, Coyote Logistics, for trucking capacity. Freight brokerage capabilities are useful for more than mitigating capacity constraints in trucking and intermodal, though. The last mile is becoming more demanding as more consumers and businesses embrace e-commerce and omnichannel services. As such, freight brokerage firms are incorporating last-mile options into their offerings. For example, freight broker and logistics provider Redwood Logistics recently acquired Skipjack Supply Chain, an online parcel platform, and Proactive Global Logistics, a non-asset-based parcel service provider. Redwood will combine the two acquisitions with its existing services to launch an integrated parcel solution under Redwood’s broader online Logistics Platform as a Service offering. Another example is the GlobalTranz and Worldwide Express merger, which was announced in June and will create a top 5 U.S. freight broker and the largest reseller of UPS services. While Geodis’ acquisition of Velocity is a smart move, it too offers last-mile delivery services in the U.S. via its City Delivery solution, which utilizes third-party delivery providers via partnerships with separate technology platforms. It may make sense to eventually add parcel capacity to its Velocity acquisition to simplify transportation options for its customers.

Consultant Insight: 3PLs seeking capacity find acquisition targets in freight brokerages

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