Episode Transcript
[00:00:02] Speaker A: You're listening to the Zipline Logistics Truck. Yeah. Podcast where we explore all kinds of hot topics in the logistics industry.
Get ready to learn, laugh and get your freight on.
Ladies and gentlemen, welcome back to another edition of the Zipline Logistics Podcast. My name is Jesse Jewett. Joined with me as always, our director of Training development, Teddy Lee Knox. Teddy, good afternoon.
[00:00:35] Speaker B: Hello. How are you?
[00:00:37] Speaker A: Wonderful. We got a special guest, one of our most listened to podcasts, our favorite president, Mr. Andrew Lynch. Andrew, how are we doing?
[00:00:48] Speaker C: We're doing great. Am I still a special guest? I. I feel like I'm on, you know, I'm on often enough that I can, I can just be called a regular guy.
[00:00:55] Speaker A: Yeah, we might be calling recurring guest or.
I don't know what I'm trying to think of like a, an arc on a TV show or something like that. Like a.
[00:01:03] Speaker B: Your cameo.
[00:01:04] Speaker A: Yeah, but he's more than a cameo now. Either way, he's back. Yeah. You're. Yeah. A special crossover episode on ABC after family shows. After.
Anyways, we got another hot topic to discuss. Back in the fall of 2023, Andrew came on and discussed Convoy being sold to Flexport. Slash kind of shutting down I guess in, in October. And we just had another domino to fall recently.
Is that UPS sold Coyote Logistics. That was in June 23rd. They announced to sell Coyote to RXO for $1.025 billion. That's a billion with a B. It's on track to close by the end of 2024, which will turn RXO into the third largest provider of brokered transportation in North America.
Coyote. You know, for those of us who have been in the industry for a while, they are, we are very, very familiar with their growth. It's been exciting to watch over. I guess it's like 15 years or so and to see this is the second time they've been sold. Is that right, Andrew?
[00:02:19] Speaker C: Yeah, yeah. Number two.
[00:02:21] Speaker A: Yeah. So let's just kind of start there. I know they're based in Chicago, but how do you think this is going to impact the freight market?
[00:02:29] Speaker C: Yeah, I mean, you know, from, from everything I've read about the transaction and the, and the, you know, the synergies and details behind it, which, which are kind of limited as of, you know, today. But the understanding I've got was that there was, there was a surprisingly small amount of customer crossover for them and that that made the deal a bit of a no brainer for the RXO team. You know, at the end of the day, similar to what we Talked about convoy and how is that going to impact the freight market? The numbers sound really splashy. You know, a billion dollars or billions of dollars in top line revenue.
[00:03:07] Speaker A: Right.
[00:03:07] Speaker C: Without contextualizing that the freight market itself is close to a trillion dollars, it'd be really hard for any one company or one transaction to make a huge market wide impact.
Yeah, I think that these questions are going to start to get answered when we start to understand how RXO services their client base differently than Coyote and how RXO goes to market differently than Coyote. So I don't know, I think that's kind of a tbd, but I wouldn't imagine that we're going to see massive ripples outside of the set of sort of giant sized mega brokers that seem to share and trade customers between one another.
[00:03:50] Speaker A: Right, right. You know, for those who haven't listened to our market update on quarter three, I mean we're, I like to call it a seasonal market right now. So it's relatively stable, but there are pockets of disruption. Right. We're currently, you know, in July of 2024, we're kind of on the tail end hopefully of the produce kind of push from, from tax day through now. We're starting to see, you know, imports into Southern California are up. So there's a little bit of disruption there in Southern California, but for the most part we're on a two year cycle of, of either compression or, or relative stability as far as rates are concerned. There are signs, Right Andrew, you would say there's, there's signs of disruption pending.
[00:04:37] Speaker C: Yeah, I mean, you know, I think that right now the unfortunate position of a person trying to read the tea leaves, it's a lot of feel. Yeah. There's not a lot of, a lot of great robust data to back up what's going on out there. Right. We see the tender rejection sticking up and certainly see the barrier population starting to shrink a little bit faster. And certainly there are signs that small carrier population that bloomed enormously during COVID is starting to shrink much faster. Yeah, those will both know, those will correlate right as that that population strength, tender rejections will climb faster. You know, that tends to be a kind of a virtuous cycle depending on which side of the inflation deflation when you sit on. But other than that, you know, I think that we're starting to see at least, you know, on sort of the business development front, we're starting to see some of our larger competitors that are maybe a little bit less specialized and a little bit less Equipped to deal with high service ability freight. Yeah, we're starting to see those service metrics come down and we're seeing those, those customer bases a lot more open to, you know, true solutions providers.
[00:05:55] Speaker A: Speaking of customers. So I guess this is relevant to our recent acquisition but as far as our producer is concerned, we can cut this out if we don't. But as for Coyote customers, right. They're, they're probably not similar to our customers of our recent acquisition back in April, March.
There shouldn't really be any disruption for them. Right. It's probably going to be status quo. Just maybe has a new letterhead on top of it.
[00:06:24] Speaker C: Yeah, I would think so. Again, you know, it really depends on how, you know, how rxo, you know, philosophically stands on customer service. I think, you know, generally if, you know, if you're someone who was working with Coyote under, under the UPS flag, you're probably someone who buys to pass through that mega broker kind of service providers and you know, not to denigrate that value set, it's a different one than the one that we operate on.
[00:06:54] Speaker A: Sure.
[00:06:54] Speaker C: I wouldn't imagine that there's a huge difference between the two. What I think, you know, is, is interesting about the deal and was a little bit surprising to me that you know, Coyote from my seat, from someone who competed with them at a large broker and then, you know, certainly competed against them in their, in their early years pre UPS and Zipline, you know, they had a, they had a reputation that, that, that went along. Looking back at their strategy which was incredibly aggressive pricing backed up by fantastic service and you know, I think those of us that were, that were on the outside looking in at that organization had a hard time understanding how they were doing this. Yeah. And you know, sort of post UPS transaction we all slowly started to learn that they were actually doing it because they weren't making any money.
[00:07:45] Speaker A: Right.
[00:07:46] Speaker C: From a bottom line perspective as an organization, which is what made the, the valuation they got ups, you know, so kind of wild.
And, and also when you look at the transaction price was from RXL, it's almost $800 million left.
[00:08:04] Speaker A: I was gonna say. Yeah, so for reference, that was, they were sold initially, I forget the, the time frame but you know, seven to 10 years ago for 1.8 billion bought by UPS and then sold recently for 1.025 billion. So yeah, quick math, it's gone down by $800 million.
[00:08:22] Speaker C: So not a great result. And, and you know, that, that I think at the end of the day, you know, sort of goes back to this compensation of a reality check for you know, the, the entire transportation marketplace, shippers, carriers from that, you know, when money's not free anymore, which, which it's not and it, and it probably won't be again for a very long time.
[00:08:43] Speaker A: Right.
[00:08:44] Speaker C: You know, you really can't operate a business at low single digit margins on the top line the way that most of us understand Coyote, our boy Transfix at all we're doing those days are own. Right. And so if I think about the broader Coyote customer, I think they might have been better served by that company being taken private by someone again and getting back to a place where they could have, you know, maybe a little bit more command and control over the service. Mark. Because you know, RXO and I have nothing but respect for that organization here. Nothing but great. We work with them as a warehouse and have a good experience.
But they're a publicly traded company. It, you know, at the end of the day service has to come second to shareholder value.
[00:09:35] Speaker A: Right.
[00:09:35] Speaker C: And what I think will be interesting for Coyote customers as all this starts to play out will be to get an understanding of how much patience there is for thin or zero margin business at the expense of good service for yet another publicly traded parent company.
[00:09:54] Speaker A: Absolutely. Well, correct me if I'm wrong. They've gone through.
RXO is now on a probably fifth or sixth iteration of their company's name.
So they've gone through a number of these types of acquisitions. Correct?
[00:10:09] Speaker C: Yeah, yeah. You know, they've, they've, they've been, you know, pieced together but, but you know, by, by Brad Jacobs.
[00:10:16] Speaker A: Right.
[00:10:17] Speaker C: Who is, you know, arguably one of the greatest of all time with, with roll ups and integration. So the last thing I would want to do would be to bet against their ability to effectively integrate and, and probably one step back to bet against their ability to evaluate a high quality integration.
[00:10:35] Speaker A: Right.
[00:10:35] Speaker C: I have to assume based on the track record of the acquirers that, that this is going to go really, really well for rxl. That doesn't mean it's going to go really, really well for all of Coyote's customers. You know, for those folks, you know, they should now and, and if they haven't already, you know, evaluated whether or not their value set the way that they want to buy transportation services actually align with the partner that they have been with and you know, ostensibly continue to be written.
[00:11:04] Speaker B: I often wonder when we see articles like this if shippers and customers are viewing it the same way that we're viewing it. Like when first thing I thought was are they thinking about the market the way that we're thinking? Are they just like oh cool, another story and pass by it like there's a lot that obviously from what you do, just talking about, there's a lot that can be understood and learned through this acquisition about the market, about what's coming next and what if a shipper has one partner versus various that they're constantly quoting. Like what would this mean to them differently than how we're looking at it, which is the aspect from our customers, their retailers in the market. Like one sided view could potentially open up some other avenues for you as a shipper.
[00:11:45] Speaker A: Yeah, absolutely. I mean I think we're, like I said before, you know, I think we're seeing it obviously on a much smaller scale. But you know, these are, I think from a shipper's perspective the question is always going to be how am I? Like what's going to happen to me then? Yeah, right. And you know, hopefully, and I think we've done this really, really well is that we're going to be delivering on, for Zipline's acquisition, we're delivering on some, you know, additional services that are going to improve the overall experience with our customers that weren't working with us previously.
[00:12:20] Speaker C: So yeah, you know, our Wally, our CEO for the listener, he talks about, about acquisition and our philosophy to it that, that you know, it's, it's not something we're interested in approaching unless the customer, the carrier and the, the acquisition target, their people are all going to be better served by the combination. If we, if we can't say that is true about all three of those populations, then we're not interested in doing it right. One is pragmatically there's risk but also because it would water down our stated value proposition. Like we land on the spar service end of the spectrum. Right. And you know, somebody like Coyote landed on the, on the far price end of the spectrum. I think, you know, to your, to your point on, on the perspective and the questions, you know, RXO has from what I understand, developed outstanding technology. They've, they've invested a ton of capital into building out a really wonderful tech stack. And I think that, that you know, also from what I understand, Coyotes was, was kind of left to rot a little bit under the UPS flag. So you know, I think if I'm a, if I'm a Coyote customer that, that buys on the Coyote value set and I was happy with Coyote, then I'm probably going to be happier with rxl. Right. I'm going to be, I'm going to be pleased with new technology and new resources. You know, the, the, the, the issue that stands out for me when I think about the set of people that we serve is that RXO, similar to C.H. robinson, similar to, you know, most of that kind of mega broker population, they talk an awful lot in their quarterly earnings reports about the, the high percentage their freight that is moved without a human intervention. Right. That, you know, 95 of our transactions are fully automated. And, and that I believe is our, those statistic. And you know, look again, that's, that's great for a lot of folks. There are a lot of people that just, you know, get it from A to B as cheap as humanly possible. And if that means automating every single step in the, you know, capacity qualification and shipping and tracking process, you know, let's go send it. But for the folks that we serve, you know, there's an awful lot of, you know, I think false messaging around, you know, this, that, that being the equivalent service level to a hand to hand creating better, you know, weaponizing our critical thinking skills and our problem solving skills. It's not about removing the person from the equation.
And I just see that as a recipe for really, really challenging performance numbers for folks that supply retail or food distribution or any sort of consumer marketplace.
[00:15:02] Speaker A: Nailed it.
[00:15:03] Speaker B: I agree. Because I think in an intangible service, if you don't have some customer service or some trust there, everything else just becomes difficult. And Canopy does not allow us to lie. It is too transparent. So I think that that just backs it. Going to your point that the technology should enhance, it should facilitate what we're doing. It shouldn't take it over because again, that technology can't bag its way into, into Costco or into Sam's Club. When your driver's 30 minutes late, guess what? You're rescheduled two weeks later.
[00:15:33] Speaker A: Yeah, absolutely.
[00:15:35] Speaker C: Yeah. I recently met a guy at a warehouse. He works for a warehouse provider and he was explaining to me that their largest customer is a big national brand, a grocery brand, and they let a big box broker move all the freighting. So this guy runs the warehouse and a big box broker moves all this freight into retail and the brand is, is 98 on time and full. Their OTIP numbers are great. And what he was explaining to me was that this big box broker is less than 60 on time to pick up. Right. And so the reason that this brand is able to be 98 on time in full is purely because this warehouse has operators and problem solvers that are willing to be flexible and dynamic and work drivers in, you know, in between other drivers and, you know, accept folks that show up two or three or four hours late and work, you know, a little extra time in order to get as truck loaded. And you know, we can apply all the technology and, and all the data we want to this industry.
It's not going to create that.
It's simply not going to create flexibility and find, you know, the opportunity to be dynamic and, and meet performance kind of come what may. Yeah. Way that human beings that understand the business and leverage the technology to their advantage will continue to be able to do.
[00:16:59] Speaker A: Boom. Great. Andrew, thanks for joining us. Thanks for keeping your cuss words to a minimum on this one.
[00:17:07] Speaker B: I was gonna say, do you want to throw a couple in right now?
[00:17:10] Speaker A: All right.
So yeah, it, you know, very, very interesting topic. I'm sure we're gonna see a handful of these, if not more in, in towards the end of 2024, certainly into 2025 and beyond.
So again, thank you for joining us. For all those listeners out there, please like and subscribe. Leave a five star review on where you listen to your podcasts.
[00:17:34] Speaker B: Teddy, I hope all of our truck yesters actually have a partner where they can go and like decipher this stuff from. If not, make sure that you let us know what you want to hear next so we can actually continue to help and educate.
[00:17:45] Speaker A: Absolutely.
[00:17:45] Speaker B: Obviously very passionate to me. So keep us posted.
[00:17:48] Speaker A: Leave reviews will keep us rolling. Thanks for joining us on another edition of the Zipline Logistics podcast. See you next time.
