Coyote News

[Bloomberg] August 18, 2011 — When Heineken wanted a new company to haul its brew in the U.S. last year, it hired a Chicago upstart that didn’t own a single tractor-trailer. What Coyote Logistics offered instead was the undivided attention of founder Jeff Silver, a 48- year-old trucking industry veteran who promised to get the beer from ports to distribution centers less expensively than the competition would. Although the Dutch brewer was his biggest client yet, Silver was confident he could deliver. “It’s really as simple as doing what you say you are going to,” he says.

Today the beermaker’s shipments are among 1,850 tractor-trailer loads that Coyote schedules each day. The 720-employee company, founded in 2006, uses software to match shipments with a network of 19,000 contracted carriers. Silver, who holds a master’s in logistics from the Massachusetts Institute of Technology, designed the system with fellow MIT graduate and Chief Strategy Officer Chris Pickett. In addition to arranging pickups and deliveries, the software also handles the complexity of setting rates offered to truckers, which fluctuate according to how many carriers are available, the distance to be traveled, the size and type of cargo, and other conditions. The automation lets Silver divide his workforce into two groups — one that finds and logs shipments and another that locates truckers. As a result, Coyote arranges for 15 to 20 truckloads a day per worker, instead of the more typical six to eight loads found in most logistics companies, where one person handles an entire transaction, says Evan Armstrong, president of Stoughton (Wisc.)-based Armstrong & Associates, a supply- chain research-and-consulting firm.

Backed by private-equity firm Warburg Pincus, Coyote has shaken the industry by snatching business from less-efficient, smaller players in a fragmented market. Only about 20 logistics companies have more than $200 million in revenue, says Armstrong, and only three have more than $1 billion: C.H. Robinson Worldwide, the Hub Group, and Landstar System. “They have built a fairly disruptive business model,” he says of Coyote. The company now has 2,500 clients. Silver says revenue reached $320 million last year and he expects more than $500 million this year. About 60 percent of Coyote’s business comes from food and beverage companies, which pay from $1 to $4 a mile, plus roughly 50 cents a mile for fuel. The market has also been growing by an average of 8 percent a year since 2000, Armstrong says, to $37 billion this year.

The challenge for a company growing as fast as Coyote will be staying profitable, especially if the economy lapses into another recession and shipping volume falters, says Armstrong. “While it is important to scale up and grow rapidly to be competitive, Coyote must continually ensure that it is making sufficient margins,” he says.

SHRINKING MARGINS

Even as the market expands, the industry’s average profit margin shrank by nearly 3 percent in the first quarter of this year, to 14.9 percent, due to rising fuel costs and price resistance from shippers in a slow economy, according to the Transportation Intermediaries Assn., an Alexandria (Va.)-based trade group. Coyote’s margin is a couple of percentage points lower because the company loses money on roughly 5 percent of the shipments it handles. The company takes the losses in order to generate future business by building relationships with shippers and truckers, Silver says.

Silver wants to be an aggressive competitor and he looks for staffers who can thrive in a high-pressure office. Coyote hires mostly recent college grads, recruiting heavily from Big 10 schools such as Michigan State University, University of Iowa, and Indiana University. From 30 percent to 40 percent of the company’s new hires are athletes, and Coyote sponsors intramural teams in hockey, softball, baseball, soccer, and lacrosse. “These kids come in and they’re competitive, but in a team way,” says Silver, who was too small to play college football after playing at Clayton High School in Clayton, Mo.

Before starting Coyote, Silver co-founded American Backhaulers, which became the second-largest third-party logistics company in the U.S. before it was sold to market leader C.H. Robinson in 1999 for $136 million in cash and stock. Unable to return to the industry for five years under a noncompete contract, Silver earned an MBA at the University of Michigan and attended MIT. He invested several million dollars of his own money to start Coyote and brought in Warburg Pincus in 2007 as his sole investor. Silver, who won’t disclose how much Warburg Pincus has invested, expects to take Coyote public after it tops $1.5 billion in revenue.

Silver believes Coyote can grow much larger by continuing to grab business from less- efficient competitors, including thousands of mom-and-pop operations. In addition, shippers are choosing to work with fewer brokers in order to simplify operations, which favors larger, more efficient companies, Silver says: “We’ve really just gotten started.”

To contact the reporter on this story: Antone Gonsalves at antonegonsalves@gmail.com

To contact the editor responsible for this story: Nick Leiber at nleiber@bloomberg.net