By Jeff Berman
The freight brokerage market has another behemoth in the mix, with the recently announced definitive merger agreement of two non asset-based third-party logistics (3PL) service providers Chicago-based Coyote Logistics and Access America Transport (AAT), which is out of Chattanooga, Tenn.
Financial terms of the deal were not disclosed.
AAT was founded in 2002 and handles multimodal transportation, including LTL, truckload, intermodal, flatbed, and specialized freight. Coyote was founded in 2006 and provides LTL, truckload, and intermodal brokerage services and transportation management services.
Coyote and AAT officials said that when this merger agreement is completed, the combined company, which will be operated under the Coyote Logistics brand, will have a run rate revenue of more than $2 billion, 17 locations in North America, roughly 40,000 contracted carriers, and about 1,750 employees. The company will be led by Jeff Silver, CEO of Coyote Logistics, and AAT President Chad Eichelberger will serve as president of brokerage.
Coyote Logistics Chief Strategy Officer Chris Pickett told LM that since Coyote was created it has operated under the belief that there is a lot of power and leverage that comes with network scale and network density.
“In our world, that is really a function of the number of carriers we have access to and the number of pieces of equipment and freight that we have available to load those carriers,” he explained. “The more trucks we have in more places, the better our chances are of finding a truck that is right on top of where our shippers’ load is picking up. This shortens deadhead miles, which leads to more competitive freight rates and improves the chances of picking up on time as a lot less can happen in 15 miles than 500 miles. With the fragmented nature of the asset-based trucking industry, the way you get access to a lot of great carriers and shippers is by leveraging technology to keep track of everything.”
While neither Coyote nor AAT necessarily needed to make this transaction to continue growing, Pickett said that when looking at each company’s business, along with scale and density, there were many complementary service lines when the companies were viewed collectively.
As an example, he cited how Coyote can leverage AAT’s flatbed and LTL service and AAT can leverage Coyote’s proprietary technology to add value to their customer base.
In terms of how the companies will be integrated when the transaction becomes finalized, Pickett said they will mesh in a meaningful from an operational, technology, and cultural standpoint, with the primary objective being to bring the two organizations together and doubling down on growth.
This deal comes at a time when over-the-road capacity continues to be tight for a variety of reasons, including difficult winter weather, an ongoing driver shortage, federal regulations like Hours-of-Service and CSA, and a relatively slow economic recovery. As capacity has gotten tighter, brokers have been more in demand in helping shippers secure capacity.
“The non asset-based model works best in times of volatility, with the same volumes shipping over the same lanes,” said Pickett. “Those are conditions that make working with asset-based carriers work really well and realize utilization on those assets needed to maintain a viable business. The reality is we are working on the opposite end of that and don’t see that changing anytime soon. The uncertain economy creates a lot of unknowns in terms of how shippers are planning product launches or building or not building inventory and managing their business. This creates opportunities for non asset-based companies that have access to a network of carriers and equipment and makes them especially valuable.”
Evan Armstrong, president of supply chain consultancy Armstrong & Associates said that this merger is a very significant development in the domestic transportation management/ freight brokerage market, in turn creating a “mega” broker to further rival C.H. Robinson Wordwide.
“And with other major competitors such as TQL and XPO Logistics, the already hot competition will continue to heat up,” he said. “In the end, it will probably mean further consolidation within the small freight broker ranks in an attempt to gain the requisite market scale and a competitive level of transportation spend within those companies.
Just when you think Coyote is focused on organic growth in freight brokerage due to its relatively unique centralized operating model, they make this type of deal. AAT is very different operationally than Coyote. It works in pods/teams which manage both sales and carrier operations in a traditional “eat what you kill” freight brokerage model, where Coyote leverages a split buy/sell operational model for transactional business (different people focus on getting loads and getting trucks). The split buy/sell model tends to be more scalable and has the advantage of managing more loads per person per day. It will be interesting to see how the plan to integrate these two different operating approaches into one organization plays out.”