Landstar to start warehousing business
Trucking powerhouse Landstar System Inc. plans to enter the warehousing business this fall, as well as expand into international freight forwarding, using the same contractor model that allows it to run a fleet of 30,500 trucks without owning a single piece of equipment, Chief Executive Henry Gerkens said.
Speaking at the Bear Stearns investor conference in New York this week, Gerkens said Jacksonville, Fla.-based Landstar will develop a network of affiliated warehouse owners and serve as a clearinghouse for shippers that need storage and handling of their goods.
The move is prompted by customers for Landstar’s trucking services, who have asked the company to provide warehouse capacity, Gerkens said after his presentation. It is another example of how shippers are seeking to reduce the number of logistics providers in favor of companies that can provide multiple services.
The independent warehouse operators that sign up to provide capacity for Landstar will receive 90 percent of the revenue from any transaction, while the agent that books the business and Landstar will split 2 percent and 8 percent of the revenue, respectively, Gerken said.
By comparison, under the existing motor carrier revenue-sharing plan 75 percent of the revenue goes to the independent trucker, 8 percent to the agent and 17 percent to Landstar, which acts as the dispatcher. The company has more than 19,000 owner-operators under contract.
Landstar is flush with cash and has the ability to go after acquisitions, but has soured on many trucking outfits it has checked out because it would have to disqualify 40 percent of their driver force because of poor records behind the wheel, Gerken said. The company would consider buying a motor carrier if it provides access to a new region, he added, noting that Landstar is interested in the intra-Canada trucking market.
Another area the company is actively pursuing, Gerken said, is international freight forwarding.
“If there was a freight forwarder that made sense for Landstar that we could fold into our system, we’d look at that,” he told investors.
Landstar provides air, ocean and intermodal transportation management, as well as expedited delivery and truckload brokerage, through its Landstar Global Logistics group.
A forwarder “would be the one thing that would expand our product offering,” Gerken said afterwards, noting that much of the import/export service is handled by agents. “We’d like to expand our presence here or in Europe.”
Forwarding “is a small part of our business, but it’s an area where we think we could apply our model,” he added.
Landstar’s growth is actually led by the non-traditional parts of the business such as air and ocean services, which increased $386 million, or 55 percent, in 2005 and accounted for 43 percent of the company’s revenue.
In addition to changing its service mix, Landstar’s strategy is to grow its network of agents who can bring in new revenue. The virtual trucking and logistics provider now has 1,200 agents, of which 466 generated more than $1 million in revenue for Landstar itself and accounted for 94 percent of the company’s revenue, Gerkens said. Last year, Landstar opened 293 agent locations that brought in $123.7 million in new revenue.
Landstar also has ambitious financial goals. The company, which generated $2.5 billion in net revenue in 2005, wants to be a $3 billion company by 2008 and recently set a new long-term target to be a $6 billion company by 2013, Gerken said.
The company had $610 million in revenue in the first quarter, up 21 percent from the same year-ago period.
Landstar has a diversified revenue base, with its top 25 accounts such as C.H. Robinson, representing 40 percent of its sales. The top 100 customers accounted for only 55 percent of revenue last year. No customer other than the U.S. government accounts for more than 5 percent of revenue.
Landstar received $276 million last year under a federal contract to provide transportation services in support of relief and recovery efforts for hurricanes Katrina and Rita.