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Hub Group enters LTL consolidation sector with $255 million acquisition of CaseStack

(Photo: Hub Group)

Intermodal services firm to boost presence in consumer goods sector with acquisition of LTL consolidator and brokerage.

Hub Group (Nasdaq: HUBG) is moving into less-than-truckload and warehousing with the acquisition of third-party logistics provider CaseStack for $255 million in cash.

The deal brings in a new set of a customers for the Oakbrook, Ill.-based Hub as it seeks to capitalize on the growing number of consumer goods hitting store shelves and the penalties faced when shipments fail to meet expectations.

CaseStack provides consolidation services to small and mid-size consumer goods companies, which may not have sufficient volumes for full truckload.

Hub’s chief executive Dave Yeager said the CaseStack acquisition will allow Hub to offer LTL services to its network of large consumer goods producers and will diversify Hub’s service offerings.

“These guys have the expertise, the structure, and the people that can allow us to offer a LTL brokerage to our client base,” Yeager said. The acquisition “brings us into the LTL consolidation sector, it brings us into warehousing, as well as LTL truck brokerage.”

A key issue driving the use of consolidation services such as CaseStack are the penalties that retailers impose on shippers when deliveries are not what was originally agreed upon.

Over the last two years, Walmart and Target started imposing “On-Time, In-Full” (OTIF) penalties of between 3% and 5% of the invoice price when shipments are late or smaller-than-expected.

Through its roughly 3 million square feet of leased warehouse space, CaseStack sells consolidation services to these these smaller consumer goods makers and ensures they avoid OTIF penalties. CaseStack also offers LTL brokerage services to those customers.

Hub Group chief executive Dave Yeager says CaseStack’s business is being helped by the increasing array of brands offered through both ecommerce and brick-and-mortar retail, and the concomitant need of retailers to manage those inventories

“Retailers have become much more sophisticated on inbound transportation,” Yeager said.  CaseStack “gets goods to distribution centers in a more timely fashion with less damage, and also less expensively than traditional less-than-truckload services.”

Casestack has roughly 500 customers in the consumer goods space, with many of those in non-refrigerated food and beverage. Yeager says an even larger customer base could be served by CaseStack eventually as retailers become more strict with shipper deliveries.

OTIF penalties are “definitely not going away not going away,” Yeager said. “I would anticipate retailers’ requirements will become more and more stringent.”

CaseStack saw revenue of $242 million last year with 80% of that coming from consolidation services and the remainder through its LTL brokerage services. The business saw operating income excluding interest, taxes and depreciation of $22 million last year.

Hub says the acquisition will add between $0.40 to $0.45 per share in earnings for 2019, which are expected to $2.96 per share.

CaseStack, based in Santa Monica, Calif., has 280 employees, with its truck brokerage based in Fayetteville, Ark. Its warehouses are in Southern California, Dallas, Atlanta, Chicago, Pennsylvania, Ontario, Canada and the Pacific Northwest.

Other companies offering consolidation services include Roadrunner Transportation Systems’ (Nasdaq: RRTS) Prime Distribution Services and RJW Transport. But Yeager says CaseStack has about double the market share of these other players.

CaseStack also stands out for its in-house software and technology solutions, including that for truck brokerage.

Their LTL brokerage software “is very, very slick from what we’ve seen,” Yeager said. “There’s some applications for it to act in our truckload brokerage as well.”

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Michael Angell, Bulk and Intermodal Editor

Michael Angell covers maritime, intermodal and related topics for FreightWaves. His interest in transportation stretches back several generations. One great-grandfather was a dray horseman along the New York waterfront and another was a railway engineer in Texas. More recently, Michael has written about the shipping industry for TradeWinds, energy markets for Oil Price Information Service, and general business topics for FactSet Mergerstat and Investor's Business Daily. When he is not stuck in the office, he enjoys tours of ports, terminals, and railyards.