Trends in 3Pl / Customer Relationships

DIGITIZATION: THE CONVERGENCE OFTRENDS MODERN FREIGHT IN BROKERAGE, DIGITAL3PL /FREIGHT CUSTOMER MATCHING, AND AUTOMATION IN DOMESTIC TRANSPORTATIONRELATIONSHIPS MANAGEMENT

June 2020

November 2016

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Contents The Macro Environment for U.S. DTM 1 The Evolution of DTM in the U.S. 2 Special Aspects of U.S. DTMs 6 Current DTM Operating Models 7 Current U.S. Freight Broker Practices 10 Digital Freight Matching 11 Digitalization, The Next Evolutionary 13 Step in Freight Brokerage Part I: The Digital DTM/Freight Brokerage Environment 14 Digital DTM/Freight Broker Key Performance Metrics 14 Digital Freight Brokers Operating Characteristics 15 Digital Freight Broker Core Functionality Areas 16 Part II: Digital Transformation 16 Capacity Management 17 Visibility System Platforms 18 Back-Office Automation Systems 20 Load Boards 21 Other Systems of Note 22 3PL Merger & Acquisition Activity 23 A&A’s Top 100 DTMs/Freight Brokers 25

The Macro Environment for U.S. Domestic Transportation Management

In 2019, the U.S. Third-Party Logistics (3PL) market had total gross revenue of $212.8 billion. Of that, the non-asset based Domestic Transportation Management (DTM) segment accounted for $83 billion or 39% of total 3PL Market revenue. DTM focuses on the management of truckload (TL), less- than-truckload (LTL), and intermodal rail shipments managed on behalf of shippers of freight using motor carriers and railroads to perform the underlying transportation. DTM splits into two primary subsegments. Freight Brokerage which accounts for 83% of total segment revenues and Managed Transportation which accounts for 17%.

Figure 1. Percentage of DTM Gross Revenues by Subsegment - 2019

17%

DTM/Freight Brokerage DTM/Managed Transportation

83%

In 2019, slack demand, abundant carrier capacity, and corresponding lower truckload rates drove DTM segment gross revenue down 4.1% from 2018 and net revenue (gross revenue minus purchased transportation) decreased 0.3% to $13.4 billion. 2019 was the DTM segment’s only decline since the great recession of 2009 when gross revenue fell 15% and net revenue was down 11.4%. It was a stark contrast to 2018 when extraordinary domestic carrier demand during the inventory buildup prior to Trump’s import tariffs being implemented, led DTM to a whopping 20.7% gross revenue increase.

The first quarter (Q1) of 2020, especially March, saw significant demand for consumer products and a rapid increase in truckload volumes for items going into the COVID-19 pandemic stay-at-home orders. Entering Q2, as the orders went into effect and the economy slipped into recession, we estimate Q2 DTM revenues declined 15% from Q1. The impact has been uneven going into April and early May, with small shipper and manufacturing LTL transportation demand declining, intermodal rail being off significantly, and demand from Automotive, Industrial and Consumer Discretionary industries falling to the wayside. Bright spots for DTM demand have been Food & Grocery, Beverages, E-commerce, and consumer related High-Tech, as consumers went into quarantine to avoid COVID-19. Non-contractual, spot-market truckload business saw the greatest decline in April since the great recession of 2009.

As the economy begins to more fully open in Q3, we anticipate a need for more expedited transportation as shippers look to quickly fill backorders and replenish inventories. DTM volumes and gross revenues should bounce back and we estimate a 4-8% increase in DTM gross revenue from Q2. Q4 should build upon the positive revenue trend and we anticipate ending 2020 with an overall 6% decline in DTM gross revenues and a lesser decline in net revenues.

The Evolution of Domestic Transportation Management in the U.S.

Current DTM 3PLs look vastly different from the original “one man with a desk and phone” manual- process based freight brokerage model. The evolution of manual-process based freight brokerage to DTM and its core offering—information systems-based freight brokerage with a host of value-added services—stems from the federal deregulation of brokerage licenses. Governmental control of freight brokerage licenses eased dramatically in 1980 as part of motor carrier deregulation. There were 14 freight brokerage licenses before deregulation. After deregulation, the only major constraint to obtaining a license was the requirement for a $10,000 surety bond.

The number of licenses issued grew dramatically and reached a peak in the late 1990s with more than twice the current total of ≈15,500. The surety bond minimum was raised to $75,000 at the start of 2013. The number of license holders dropped to the current level after years of slow change as freight brokerage consolidated and major providers developed into systems-based third-party logistics Domestic Transportation Managers (DTMs).

Of the remaining licensed DTMs, there were 63 that had net revenue (gross revenue/turnover minus purchased transportation) of $20 million or more in 2019. Armstrong & Associates, Inc. (A&A) estimates that there are another 250 DTMs having gross revenue of $20 million or more. The Top 100 (Appendix A) account for 74% of DTM 3PL segment revenues.

Figure 2. Size of North American Domestic Transportation Managers

There are approximately 3,000 DTMs with fairly sophisticated skills, but with revenues of less than $20 million.

Industry leading DTMs have evolved quickly, developing sophisticated skills based on human capital, technological platforms, and process management capabilities. All DTMs have invested in or developed a Transportation Management System (TMS) which functions as its core operating system. A TMS allows DTMs to efficiently manage thousands of truckload, less-than-truckload, and intermodal rail shipments daily. The TMS maintains individual shipper and carrier profiles, shipment lane histories, and carrier and shipper rate libraries.

Larger DTMs receive customer orders electronically (via email, electronic data interchange (EDI), systems integrations, Application Programming Interfaces (APIs), web portals, etc.). Shipments are then similarly electronically tendered to carriers which are given a short time window to accept them. Once accepted, all parties are notified. Shipments are then picked up and delivered. Exceptions are primarily dealt with electronically and, as a last resort, by phone.

Before carriers are utilized by a DTM, they are qualified by providing insurance, operating authority, and other basic company information. Rates for desired traffic lanes are often furnished.

Most of the top DTMs/Freight Brokers have tight, quality-controlled operations split between carrier procurement and account management to efficiently handle large transactional business volumes.

Large Managed Transportation customers of DTMs — “Enterprise Accounts”— are often treated separately from smaller, more transactional freight brokerage customers. Enterprise accounts contract with DTMs to provide managed transportation services and tender large volumes of orders daily to the DTMs, often for multiple locations in shipper logistics networks. DTMs optimize the daily order tenders from enterprise accounts utilizing a core TMS for transportation planning to systematically consolidate LTL shipments into truckloads and develop end-to-end truckload matches to select the best cost/service carrier routings. These Managed Transportation shipment transactions often follow repetitive contractual patterns. Pure spot market transactions without either pre-negotiated carrier or customer rates, are a small part of the total and may be handled by a DTMs freight brokerage operation, or by another provider. Daily Transportation Management Figure 3. DTM / TMS Managed Transportation Optimization Process Flow Optimization Process Example

ORDER/SHIPMENT INPUT

STRIPOUT/FILTER SHIPMENTS Rail box cars, UPS, expedited loads, etc.

RUN CONSOLIDATION ROUTINE Package to LTL, LTL to TL Using real rates (mode shifting optimization)

RUN MATHEMATICAL RUN MIXED NETWORK FLOW INTEGER PROGRAM To isolate TL carriers by available capacity To find end-to-end “best routes”

EXPORT RESULTS For logistics engineer review

According to research done by William Greene’s team at Morgan Stanley, 48% of large shippers use two to five freight brokers, and 38% of large shippers use six or more freight brokers. DTMs now manage an estimated 20% of all LTL and TL shipments in North America. Large shippers look to freight brokers to provide transportation options in lanes which are hard for asset-based carriers to cover and especially during periods of tight trucking capacity. In normal years, trucking demand exceeds supply on a periodic basis in the U.S., especially during peaks in late summer and fall. In these times of “tight” carrier capacity, shippers are increasingly choosing reliable freight brokers to cover transportation needs. Many shippers have added brokers to their core carrier list to ensure ongoing capacity.

In the U.S., there are approximately 3.7 million shippers. Of those, an estimated 750 of the largest shippers have total transportation spends greater than $100 million, the next 5,000 have spends of $30 to $100 million, the smaller 50,000 shippers have spends of $1.5 to $29.9 million, and the remaining 3.6 million shippers have total transportation spends less than $1.5 million.

Figure 4. U.S. Transportation Spends of Domestic Shippers

The American Trucking Associations (ATA) estimates that there is a shortage of 35-40,000 truck drivers in the U.S., which in turn creates a carrier capacity shortage. Despite pay increases and better scheduling, this capacity limitation continues from year to year. Shippers see the need to develop solid DTM relationships which will protect them during tight trucking capacity times. Larger modern DTMs, with greater carrier capacity and transparency based on IT capabilities and improved operational performance, provide customers with better service allowing them to have a competitive advantage over smaller freight brokers with limited carrier capacity and less automated business models. The best freight brokers are careful to provide capacity to their large customers first. Many have also agreed to provide on-time service at the quoted or contracted price, even if the freight broker must take a loss on the shipment because of increased carrier charges due to strong demand.

The current DTM/Freight Brokerage market is dominated by truckload dry van shipments. Truckload accounts for 85% of revenue. Less-than-truckload and intermodal have grown to 9% and 6% respectively.

Figure 5. 2019 DTM / Freight Brokerage Revenue by Mode

6% 9%

TL LTL IM

85%

Sources: Armstrong & Associates, Inc.; American Trucking Associations

Dry van traffic accounts for 78% of truckload revenue. Refrigerated is 13%. Flatbed/Platform is 5%, and others including bulk and specialized account for 4%.

Figure 6. 2019 DTM / Freight Brokerage Truckload Revenue by Equipment Type

4% 5%

13% Dry Van Refrigerated Flatbed/Platform Bulk & Specialized

78%

Sources: Armstrong & Associates, Inc.; American Trucking Associations

Special Aspects of U.S. DTMs

DTMs have “coopetition” relationships with major trucking companies. Competition is direct for the same customers, while carriers regularly supply capacity to DTMs. As pointed out, most major shippers now use two or more freight brokers. Often these freight brokers are included as “core carriers” by shippers. Shippers need to ensure that they have available capacity during high demand periods and often turn to freight brokers to ensure coverage. As a result, DTMs now control the tendering, routing, and delivery of 20% of LTL and TL shipments in North America.

Regulatory barriers of entry into freight brokerage are minimal. A $300 application is filed with the Federal Motor Carrier Safety Administration (FMCSA) via its website to secure operating authority and the applicant must have a $75,000 surety bond. However, to be successful, DTMs must have a threshold level of competence to participate in this increasingly competitive market.

A core TMS such as 3GTMS, McLeod, and MercuryGate are relatively inexpensive. MercuryGate, a leading TMS used by GEODIS, Kenco, Ryder SCS, Transportation Insight, Trinity Logistics, and many others, can be purchased for a base price of $30,000 and $3.40 per transaction. There are no installation fees with MercuryGate.

Table 1. Top TMS of U.S. - Based DTMs (N=190)

TMS* Number of DTMs Proprietary 83 McLeod 28 TMW Systems 25 MercuryGate 22 Descartes "Aljex TMS" 14 No TMS 11 Unknown 9 CargoWise 7 Oracle "OTM" 7 Quantum Edge Technology 5 3GTMS 4 TransCore "Keypoint" 3 Appian "Direct Route" 2 BluJay Solutions 2 *Only TMS with two or more DTM users are listed.

In addition to off-the-shelf TMS, many of the top 10 DTMs including C.H. Robinson, Coyote Logistics, TQL, and Echo Global have developed proprietary transportation management systems to run their businesses.

While modern DTMs need to have threshold levels of sophistication to compete, none can control pricing monopolistically. For the U.S., prices are adjusted as shipper demand and carrier supply dictate. Also, major constraints on raising prices too high are long-time memories of customers. The constant competition between DTMs and their regular “coopetition” with truckers builds higher price elasticity of demand and shippers are responsive to changes in price.

Current DTM Operating Models

Modern DTM can be grouped into three operating models:

1. Managed Transportation (Highly-automated, systems-based network transportation management) 2. Transactional freight brokerage 3. Pure spot market freight brokerage

Managed Transportation (Model 1) grew out of the merger of freight bill payment and transportation routing optimization with carrier procurement. DTMs in this space are IT heavy with robust TMS and systems augmentations for additional digital automation. Most communications are electronic. Phones are used to handle exceptions to standard systematic process flows. The basic services are defined contrac- tually between shippers and DTMs. Contracts are normally for one to three years.

Figure 7. DTM / Freight Brokerage Operating Models

MODEL 1 MODEL 2 MODEL 3 Managed Transportation - Transactional Pure Spot Market Systems Based DTM DTM / Freight Brokerage Pre-Approved Relationships

Truckloads

Company Company Hub Group/Unyson, Company Headquarters & Headquarters & TMC (CHRW Division), Offices Sales Agents Operating Agents TMS / DFM Transportation Insight – DAT Truckstop C.H. Robinson MODE Stand alone or 130+ NA Small to Medium Transportation, separate office space Offices Sized Brokers Landstar Available Capacity - Drivers & Trucks TQL 60+ NA Offices

Managed Transportation focuses on optimizing transportation networks for customers. DTMs receive large order volumes daily from shippers. These DTMs utilize a TMS for transportation planning to optimize the orders, consolidate them into larger LTL and truckload shipments using least cost/best service carrier rate and performance information, and select and build optimal carrier routings. Electronically, DTMs send shipment information/load tenders to carriers. Carriers respond within short time frames accepting or declining load tenders. The overall percentage of tender rejects to accepts is a key carrier performance metric tracked by DTMs.

The minority of shipments not systematically routed and tendered to carriers are handled by email and phone usually to overcome rate and capacity issues.

Once agreement is reached for a shipment and the tender is accepted, the shipment is picked up and delivered. Performance failures in the physical handling of shipments, such as carrier equipment break- downs in route, are dealt with by customer service personnel. Detailed reporting and measurement of activities are standard for systems-based DTMs.

In some cases, large shippers negotiate contracts directly with carriers using their volume clout. DTMs then are engaged to manage the daily transportation planning and execution, typically for a management fee. DTMs often charge a fee equating to 5-7% gross margin for these services. Some DTMs also allow shippers direct access to their transportation management systems. In those situations, lower management fees may be charged. However, exceptions for unplanned carrier capacity are usually charged for under separate fee schedules. In the end, shippers usually find it easier to let the DTM manage the daily transportation planning and execution. The relationships under the Managed Transportation centric DTM model are often referred to as FUM (freight under management).

Figure 8. FUM Characteristics

Primarily systematic network transportation management relationships

Shipper holds contracts with core carriers

Shipper contracts with a 3PL which gets a management fee

Significant network TM providers: C.H. Robinson’s TMC Division, Penske Logistics, Ryder SCS, Transplace

DTMs which provide Model 1 Managed Transportation services, most often split their business internally into a Managed Transportation/Enterprise account management operation and a pure transactional freight brokerage operation. Usually Enterprise business is managed by customer teams with a dedicated account manager, carrier salespeople and customer service representatives. In our experience, DTMs having business mixes which are 40% Enterprise and 60% Transactional produce solid gross profit margins and are less impacted by supply and demand peaks. The Enterprise shipments provide lane density and greater predictability; the Transactional business traditionally produces higher gross profit margins of 13% or more.

Model 2 involves traditional transactional freight brokerage. Operations tend to focus on personnel supported by a TMS to improve operational efficiency. Shippers and freight brokers usually have pre- approved simpler contracts. Freight brokers have a base of pre-approved carriers. Carrier pre-approval is based upon operating authority and insurance possession, credit worthiness and ongoing performance measurement. Key Performance Indicators (KPIs) such as on-time pickup and delivery, tender rejects, and damage claims metrics are tracked.

Shippers notify the freight broker of shipments available by email, EDI, fax, or phone. Many carriers have account management teams which actively solicit loads normally by email or phone. Most mid- to larger-sized freight brokers including Coyote, Echo, and Nolan Transportation have separated account management from carrier capacity/procurement in a split “Buy/Sell” business model. Account management gets the shipment (“sell”) and carrier procurement supplies the truck (“buy”) coordinated via a TMS.

Figure 9. The Split Buy / Sell Freight Brokerage Model

Digital Platform = TMS + Augmentations

Customers Carriers

Account Carrier Sales Management

Other freight brokers including TQL utilize teams or “pods” which handle both account management, carrier procurement and customer service (appointment setting, track & trace, etc.). There are also still plenty of smaller freight brokers using the more traditional “Cradle to Grave” business model, where the same person who gets the load finds a carrier to cover it.

Due to labor specialization, the Buy/Sell side freight brokerage business model is more scalable and can generate more loads per person per day versus the traditional “Cradle to Grave” approach. Buy/Sell side models typically staff more brokers on the buy side securing carrier capacity and can generate up to 15 truckloads per person per day. The traditional “Cradle to Grave” brokerage model, where one person is working both the buy and sell sides, usually caps out a 5-6 truckloads per person per day.

Model 3 is the pure spot market. Spot market activity is basic freight brokerage. It matches an available load to an available truck. Spot market activity is engaged in by every freight broker in Model 2 and on a targeted basis in Model 1. It is what you do when you don’t have other carrier capacity options or are trying to maximize gross margins as a freight broker to capitalize on favorable supply and demand market conditions.

DAT, Truckstop, and other systems providers have developed load boards to help match carrier demand with supply in the spot market. Many freight brokers have also built individual load posting boards within their own websites to help secure carrier capacity in more difficult “out of network” lanes, or to find better rates on a given shipment.

Pricing in the spot market freight brokerage operating model is very efficient and follows demand closely. In times when carrier capacity is tight, such as during produce season in Florida or California, prices escalate. The table below details the various DTM customer and carrier relationships and related gross profit margin risks due to marketplace changes in carrier capacity.

Table 2. Types of Traditional DTM Customer and Carrier Relationships

Pricing Relationship Type Gross Profit Margin Market Risk Shipper Carrier Transactional Spot Market Spot Market Efficient – Daily Supply & Demand Spot Market Contractual Increasing Carrier Capacity Enterprise Contractual Spot Market Tightening Carrier Capacity Contractual Contractual Significant Carrier Capacity Shifts Generally enterprise business provides volume and lane density, transactional customers drive margins.

Given the different DTM models and variability in customer volumes and operating sophistication, larger DTM Enterprise customers having large order/shipment volumes and good IT capabilities can often be automated. Given their size and level of digital automation, the resulting gross margins for these Enterprise accounts are less than those of smaller, more transactional customers. The typical gross margins we see by customer size are shown in the table below. The gross margins are also impacted by the modal mix used to manage a customer’s transportation. Use of more intermodal lowers gross margins whereas truckload and LTL increase gross margins.

Table 3. Typical DTM Gross Margins by Customer Size (All Modes)

Typical Gross Margin Customer Rank Ranges Top 500 5% to 12% 501-1,000 10% to 16% 1,001-2,000 12% to 18% 2,001+ 15% to 25% Current U.S. Freight Broker Business Practices

Freight brokers have learned that compensation programs and “work hard/play hard” cultures can drive the right behavior for success. New college graduates placed in these operations often excel in these “fraternity” types of cultures and enjoy working in an industry where there is after-hour’s comradery.

Most freight brokers have about 30% of their employees involved in sales (account management) and 50-60% involved in carrier procurement (sourcing carrier capacity). Typically, freight brokers operate in desirable major U.S. cities for new college graduates such as Chicago and form recruiting relationships with multiple colleges and universities. Newly hired graduates are normally paid $40,000 to $50,000 a year in base salary but can make significantly more through variable compensation tied to sales efforts. The most successful account managers can make $250,000 or more after two to three years on the job and will have opportunities to become managers or team leaders. Hours are long, cell-phone coverage on/off times are a necessity, and luck has to be on your side. Turnover rates are often 25-30%.

New employees usually receive four to six weeks of classroom instruction for customer/carrier sales and ongoing “on the team” and in some cases, targeted sales training. Most freight brokers start in carrier sales (procurement) and move into customer account management once they are acclimated to the business and trained in sales. Normally, offices are in attractive places that fit young college graduate lifestyles. Chicago has been a mecca for C.H. Robinson, Coyote, Echo Global, and others.

Most companies encourage supportive, youth-oriented cultures for college graduates. Hiring and training are ongoing processes in most companies and the flow of applicants is steady. There is no need for DTMs to pirate regular account management employees if they are being proactive on recruiting and training.

Having a robust IT platform is an absolute necessity for efficiency and effectiveness. The trend with large companies is to use proprietary TMS. Smaller companies have been drawn strongly to MercuryGate and McLeod which provide low-cost solutions. EDI and mode optimization for LTL to truckload consolidation are becoming more standard. The levels of load and capacity visibility make end-to-end load matching easier.

DTMs can produce large margins. Good operators have EBIT/net revenue margins of 30% or more. Return on Invested Capital (ROIC) and Return on Equity (ROE) tend to be high. As a result, private equity companies and strategic buyers have been actively pursuing DTMs. Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA) purchase price multiples for sizable DTM acquisitions ($100m+) run at 10 times or more.

The big players have developed skills with multiple transportation modes - LTL, intermodal and private fleets. Refrigerated, flatbed and specialized shipments can also be covered. Large players can reengineer/redesign multifaceted domestic transportation networks. Along with the breadth of modes handled, the ability to systematically optimize transportation via a TMS and supporting systems augmentations tends to be a competitive differentiator. Digital Freight Matching

Since our first report on Digital Freight Matching (DFM) in 2016 where we dubbed the term “Digital Freight Matching”, there has been significant focus on DFM companies which have been seen by investors as disruptors to the DTM/Freight Brokerage 3PL Market Subsegment. DFMs aim to match shipper demand with carrier capacity via digital (web or mobile-based) platforms, usually in the form of applications. Key functionality includes:

• Communication via app • Track-and-trace • GPS-based alerts for nearby loads • Automated pricing • Task automation • Digital document storage • Two-party interaction • Push notifications

Figure 10. DFM Companies

From 2011–2019, $1.37 billion has been invested in U.S.-based Digital Freight Matching (DFM) companies. 2018 and 2019 were characterized by $406 and $558 million in investments, respectively. This equates to a compound annualDigital growth Freight rate for Matching investment Venture/Equity of 102% over the eight-yearInvestment term. by Year (US$ Millions) Figure 11. DFM Venture / Equity Investment by Year (US$ Millions)

$558.2

$405.9

$189.0

$72.3 $91.9 $2.0 $18.0 $23.5 $9.7

Sources: Armstrong & Associates, Inc.; CrunchBase

DFMs primarily include two categories of companies: Load Boards such as DAT and Truckstop, and Digital Freight Brokers such as Convoy, Loadsmart, and uShip (we include revenues from Digital Freight Brokers in our DTM 3PL Market Segment estimates, but not those from Load Boards since they do not fully broker shipments.)

Digital Freight Brokers (DFBs) look a lot like their modern freight brokerage brethren but have focused on automating transactional freight brokerage in three major areas: 1. Pricing, 2. Load/Carrier Matching, and 3. Shipment Tracking and Tracing. Customers can receive upfront pricing for a shipment, once the shipment is tendered the DFBs system which automatically matches the shipment to a motor carrier, and the shipment is automatically tracked until delivery.

The “Big 3” DFBs Convoy, Transfix and Uber have 2019 combined gross revenues of $1.4 billion with an overall net loss. These three DFBs grew at a Compound Annual Growth Rate (CAGR) of over 325% from 2014 to 2019 and Transfix and Convoy have received just under $800 million in funding, while Uber Freight’s growth has been internally financed. Convoy raised $647 million from 2017 through 2019 alone. Intermodal drayage centric DFB Next Trucking comes in third with $124.3 million of total funding.

While they are growing fast, we estimate all DFBs in the U.S. have a combined market share of just over 2% of the total DTM 3PL segment which had total revenues of $83 billion in 2019. These leading DFBs are very small relative to the top five DTM segment leaders C.H. Robinson, XPO Logistics, Coyote Logistics, TQL, and Hub Group which have combined gross revenues of $25 billion for a collective market share of 30%.

The total potential market for DTM services in 2019 was $414 billion and the corresponding DTM market penetration rate is 20.1%. DTM is still a very fragmented market with good growth potential.

Figure 12. U.S. DTM Segment Potential Market Penetration by Year

22% 20.9% 20.1% 20% 19.1%

18% 17.1%

16% 15.7%

14.3% 14% 13.6%

12.5%

Market Penetration % 11.9% 12.0% 12% 11.4% 10.4% 10.6% 10% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020E

Year Source: Armstrong & Associates, Inc. Digitalization, The Next Evolutionary Step in Freight Brokerage

One thing new Digital Freight Broker market entrants such as Uber Freight, Convoy, and Transfix have done is to place an emphasis on “digitalizing” DTM operations. While managed transportation has been highly automated for years via TMS, EDI and other systems interfaces, most freight brokerage operations still have many manual account management, carrier sales/procurement, and back office processes.

The next sections detail the current state of freight brokerage digitalization, key aspects required to become a Digital Freight Broker, and areas of systems augmentation beyond a core TMS operating system to become a Digital Freight Broker.

Part I: The Digital DTM / Freight Brokerage Environment

The future of the DTM 3PL market segment is becoming centered around creating digital experiences, workflow automation, and optimizing customer and carrier focused service performance. Freight Brokerage is made up of carriers and customers, both who want a mix of the best price, service performance, and user experience. Pressure to evolve and digitalize increases as freight brokerage competitors adopt strategies centered around automating operations and improving customer/carrier experiences via digital platforms.

Serious action is being taken by approximately half of the Top 50 DTMs/Freight Brokers to build a digital freight brokerage platform. These freight brokers are responding by either building technologies in- house, buying from third-party software vendors, or a mixture of both. However, of the freight brokers we analyze, very few have developed and implemented a long-term strategy to achieve full digital transformation.

In terms of digitalization, it is relevant to discuss how the digital freight brokerage environment looks today, both from a feature set and competitive landscape perspective. One fact is certain, the attrac- tiveness of implementing digital tooling and infrastructure produces a significant return on investment if done correctly. The traditional rule of thumb for freight brokers was to generate annual gross revenue of $1 million per person. Through a well implemented digital transformation, our new benchmark is $4 million in gross revenue per person per year.

As a result, freight brokerage executives and teams are looking to adopt technologies to improve load booking experiences and operating metrics. Key digitalization success metrics include, but are not limited to, increasing carrier reutilization (capacity “stickiness”), revenue per employee, percent of freight real-time tracked, and percentage of freight digital bookings (full lifecycle from load available to booking and dispatch). Digital DTM / Freight Broker Key Performance Metrics

• Carrier Reutilization • Revenue per Employee • % of Freight Real-Time Tracked • % of Digital Bookings

This demand for improved experiences and more efficient operations has produced the emergence of new DFB entrants into the DTM market. To effectively compete for customer freight and carrier capacity in this digital era, freight brokers must strategically plan out a digitalization roadmap to stay competitive in sourcing carrier capacity, and in acquiring and retaining customers.

The DTM/Freight Brokerage industry in North America is trending toward digital initiatives. By 2025, we estimate there will be over 50 truly digitalized DFBs in North America which will account for over 60% of total DTM segment gross revenues.

Digital Freight Brokers are defined by a set of distinct operating characteristics:

1. Intelligent Capacity Systems: Digital freight brokerage operations are centered around what we define as “Intelligent Capacity Systems”. At a given moment, millions of information points touch a freight brokerage. Data points such as traffic, weather, historical carrier transactions pricing and performance, third-party capacity markets, and other variables make the task of decision-making complex. Processing carrier capacity data, making real-time routing decisions, and facilitating digital bookings is creating a new category of systems used to augment TMS which we call “Intelligent Capacity Systems”. Intelligent Capacity Systems use artificial intelligence and machine learning to perform transportation planning, routing, and carrier selection functions traditionally managed by carrier sales staff in a buy/sell side freight brokerage model.

2. Intelligent versus Rule-Based Systems: Digital Freight Brokers that are on the right side of the paradigm shift away from rule-based systems to A.I. and machine learning centric intelligent systems efficiently accounting for multiple data streams, and continuously learning and matching shipments to carrier capacity in the cloud.

3. Digital User Experiences are Critical to Stickiness and Automation: Best-in-class digital user experiences are becoming expected by motor carrier partners, and shippers. Automated functions such as search, pricing, booking, and payments are becoming expected. Freight broker digital experiences are expected to be on-par with consumer digital experiences, and the digital platforms are exploit- ing this gap. Straight-forward, user-friendly digital experiences help build sticky carrier capacity and create more liquidity on a freight broker’s platform allowing them to transact and execute bookings more easily. Early adaptors, who build liquidity, will reap rewards in the form of valuable freight platforms with readily available carrier capacity.

4. Visibility Management Systems to Improve Customer Experiences and Exception Management: What we define as “Visibility Management Systems” are further systems augmentations to core TMS which provide real-time tracking information from multiple sources. Adopting these systems improves the percentage of freight which is real-time tracked and is an important customer success metric. In a digital freight brokerage environment, it is expected that shipments will be tracked in real-time, and in-transit exceptions will be highlighted and resolved as they occur.

5. Connectable Digital Carrier Capacity Networks: With key automated workflows such as pricing, carrier capacity management, and load booking, DFBs can embed their carrier capacity networks into shipper transportation management systems and routing guides to gain a competitive advantage in procuring freight.

We anticipate a not-so-distant future in Digital Freight Brokerage where shippers seamlessly tender shipments to DFBs at a contractual or an automated spot price via interfaces between their TMS and a freight broker’s Intelligent Capacity System. The Intelligent Capacity System will then select the optimal carrier based upon detailed and data-rich smart carrier profiles, lane history, and multiple other data points; it will then tender the load to a carrier, handle tender acceptance/rejects (re-tendering), and book the load in the freight broker’s TMS. Using the TMS, an appointment will be scheduled if needed. This will trigger the Visibility Management System to initiate transit status updates until de-

livery where back office automated proof of delivery information is uploaded into a TMS and freight bill payment/carrier settlement is triggered. Transactional freight brokerage is getting closer to the automation levels seen in Managed Transportation.

6. Feedback Loops: The focus on digital experiences helps companies collect more capacity information leading to better freight matches, more bookings, and carrier capacity information. Each transaction builds upon itself laying the groundwork for increasingly optimal future transportation planning and execution.

7. Carrier Experiences are Key: Positioned around personalized digital user experiences, Digital Freight Brokers are spending time on building straight-forward, user-friendly digital experiences with carriers. Every Digital Freight Broker is focused on data-collection to continuously drive im- provements in its carrier experience and freight matching. In addition, they have built out automated document handling and freight bill payment/carrier settlement processes.

The digital freight brokerage environment continues to progress rapidly. The demand for digital experiences, both on the shipper/customer and carrier sides, are increasing demand for digitalized freight broker platforms. Below are some core functionality areas which are requisite components to be a Digital Freight Broker. Digital Freight Broker Core Functionality Areas

• Automated pricing • Capacity Management: Digital carrier experiences and automated execution • Instant booking experiences • Visibility Management: Real-time tracking and exception handling • API-based network • Communication via web or mobile client • Workflow and back office automation • Automated detention monitoring and settlement Part II: Digital Transformation - Steps to Becoming a Digital Freight Broker

Digital transformation should be at the forefront of every DTM’s strategy. A&A has summarized its conclusions and what we have seen regarding best practices. Our key findings are around technology infrastructure and the importance of having a sound digitalization technology strategy in parallel with a modern freight brokerage operating model. For infrastructure, all DFBs have deployed a core TMS operating system. So, for this section we will skim over TMS since it is “table stakes” and focus on parallel applications which augment the TMS and are core to digital transformation.

Capacity Management - “Digital Freight Planning and Execution Platform”

Capacity Management is the most important and core area of functionality to become a DFB. It focuses on the need to prioritize and build carrier capacity platforms based upon detailed and data-rich smart carrier profiles. Detailed carrier profiles are key in performing intelligent freight matching across multiple systems and digitally executing capacity across carrier networks. Capacity management at its core helps to manage digital experiences for carriers and create and execute bookings on digital capacity networks. In addition, integrations with load board marketplaces, carrier regulatory monitoring, and TMS are allowing capacity management systems to become the hub of capacity decisions and execution. It functions as the “brain” while leveraging the extensive database and transportation execution functions of a TMS.

Characteristics:

• Open platform, with the ability to integrate multiple data sources to improve workflows and experience. • Load board – to integrate load posting and management of capacity rules. • Pricing integrations – to interface pricing data for workflow execution and pricing automation. • TMS integrations – to integrate historical, and transportation data sources. • Digital booking management • Full automated carrier lifecycle • Cloud-based carrier capacity matching • Intelligent routing • Out-of-network management • Digital carrier capacity network • Customer facing capacity booking. • Automated capacity pricing. • Capacity network accessible via API.

Key Conclusions:

• Capacity management as a function is increasingly important as the core value proposition of a DTM is to manage and execute carrier capacity. The core technology needed to make a digital transformation is centered around capacity management.

• Vendors are integrating around capacity management, including load boards, pricing applications, and TMS.

• Carrier capacity reutilization continues to be at the center of freight broker strategy, using automation technologies and creating digital experiences helps improve carrier stickiness, and collect capacity information to improve experiences.

• Digital freight matching and bookings directly reduce sales, general and administrative costs, and drive significant increases in revenue per employee metrics.

Recommendations:

We have worked as an advisor to DTM A.I. provider Parade for two years. Parade has developed technology to automatically read, format and import carrier truck lists and shipper load lists into a TMS. In 2018, McLeod integrated Parade’s email extraction solution into its TMS. In addition, Parade has the capability to automatically match trucks to loads and tender shipments to carriers using multiple datapoints and smart carrier profiles. In-turn, carriers can accept tenders triggering an automated booking within a DTM’s TMS.

Figure 13. Using A.I. to Identify Carrier Capacity, Match Loads, Tender and Book Shipments

Unformatted Load Data From Unformatted Capacity Data from Shippers Carriers

Capacity System

Carrier DTM/Freight Broker Selection Transportation Management System & Tender

Lane Carrier History Profiles Carrier Tender Acceptance or Rejection

When fully utilized, a DTM can automate transactional freight brokerage to a point where it can reduce the number of carrier sales people required by approximately 20-25% and begin to move from our traditional gross revenue benchmark of $1 million per person in a freight brokerage operation to $4 million. This technology is disruptive.

In our opinion, Parade’s “Capacity Management Platform” has the most robust functionality of the few capacity management systems on the market with over 35 active DTM customers. Other up-and- coming applications are being developed by Cargo Chief (“C4”), TruckerTools (“Smart Capacity”), and KeepTruckin (“Dispatch and Workflow”). Visibility System Platforms

Visibility System Platforms are another core pillar driving the value proposition of a digital DTM. Visibility systems monitor data to help improve service performance in areas such as on-time pickup and delivery, in-transit status updates, and service exception alerts. Increasingly, visibility platforms are evolving with new feature-sets and integrations to help DTMs drive competitive value propositions.

Characteristics:

• Open platform, with the ability to integrate multiple data sources to improve workflows and experience. • End-to-end visibility of carrier capacity/assets. • Predicative status updates. • Customer portals. • Predicative recommendations, including but not limited to, arrive, departure, transit risks. • Open platforms, with variety of integrations; temperature tracking, social media, third-party information sources, and others. • Appointment integrations for self-service scheduling.

Key Conclusions:

• Customer demands driving visibility, stemming from cost reduction and supply-chain optimization efforts. As shippers compete on price, transportation is a differentiating factor to drive cost leadership.

• Visibility data, available through an API, is a core driver to the optimization of capacity resources, and exception management.

• ELDs have been a change agent but onboarding onto respective platforms is a complex challenge which vendors are vigorously competing towards.

• Visibility is not the same as capacity management. Tracking is one of the many streams of data to consider. A holistic approach considering data across all systems is important to drive results.

• Customer portals are becoming standard.

Recommendations:

Project44, MacroPoint, and FourKites are leading visibility system platforms. We have seen others such as TruckerTools in operation as well.

Of these, we have had significant exposure to project44 and have written two case studies which are posted at our website: https://www.3plogistics.com/3pl-case-studies/project44-site-visits-3pl-case- study-reports/.

Since its founding in 2016, project44 has based its carrier interactions on application program interfaces (APIs) between it and carriers’ transportation management systems to pull in shipment transit status data. This was a significant departure from traditional approaches which relied heavily on EDI transactions. Project44 now provides customers with one of the largest visibility platforms across North America and Europe. The range of supported transportation modes has evolved from less-than- truckload (LTL) and truckload to include parcel, volume LTL, rail, and ocean including port and vessel automation.

Back-Office Automation Systems

Back-Office Automation System platforms are another core pillar driving the value proposition of a digital DTM. Back-Office Automation Systems focus on automating the cash-to-cash cycle from carrier tender, document collection, carrier settlement, to customer invoicing.

The Back-Office Automation System platform automates the process from capturing images of shipment documents, proof of deliveries, and freight bills and converting them into data to populate a TMS without manual data entry. All documents related to a specific shipment are indexed and maintained in a separate digital folder. Often the system can automatically pull data from carrier systems, and in more advanced systems, A.I. and machine learning are leveraged to facilitate how to digitalize a wide array of document field formats and properly import the data into a TMS.

In some cases, the Back-Office Automation System can be set to automatically audit freight charges and pay approved carriers. Exceptions are reduced through automation and where they exist, are highlighted for further investigation. Carrier freight bills are processed more accurately and on-time, and freight brokers can invoice customers faster improving cash flow.

Characteristics:

• Open platform, with the ability to integrate multiple data sources to improve workflows and experience. • Automated freight bill payment and document exception handling. • Carrier and customer specific document handling (PODs, reweigh certificates). • Customer and carrier portals and systems interfaces. • Portals and systems interfaces for carrier accounts receivable factoring companies. • Open platforms, with a variety of integrations. • Standard reporting and analytics.

Key Conclusions:

• Customers want to be invoiced once, consistently and accurately, for shipments.

• Carriers are interested in working with DTMs which pay accurately and in a reasonable period of time.

• A.I. and machine learning are being used to automate data entry tasks by converting paper documents into actionable and accurate data to pay carriers and invoice DTM customers.

• Back-Office Automation Systems have customer, carrier, and most often portals for carrier accounts receivable factoring companies.

Recommendations:

We have had the most experience with HubTran which was one of the first systems to leverage A.I./ machine learning for improved data integrity and significantly reduce back-office data entry. Triumph Pay and Truckstop Pay also have significant traction in the DTM space.

Load Boards

Digital Freight Matching load boards are a valuable part of the DFM toolkit. The primary function of load boards is to serve as marketplaces to bring carrier supply and demand together. As the industry evolves, load boards are evolving to become natively digital.

We have seen load boards used properly to handle “out of network” shipments requiring carrier capacity that cannot be handled by a freight broker’s core carrier group. In turn, we have seen extreme overuse of load boards to a freight brokers detriment in never properly developing a core group of carriers and having extremely low carrier reutilization rates. Strategically, we advise larger DTMs, with over $30 million in gross revenue, to view using a load board to secure carrier capacity as a service failure; this helps keep the focus on managing carrier capacity to meet demand with a core carrier group and reutilizing core carriers.

One area where load boards have excelled is in developing pricing benchmarks for different transportation modes and lanes. Having this data in conjunction with a DTM’s lane history and customer pricing information stored in its TMS, can drive more accurate automated pricing, more business, and improved gross profit margins.

Another area where load boards are important is in carrier capacity monitoring. By seeing changes in carrier supply and demand, a freight broker can identify geographies where carriers need to be reloaded, or where demand is outstripping available carrier capacity. This information in-turn is a valuable data stream for Capacity Management.

Characteristics:

• Open platform. Integrate multiple data sources to improve platform experience. Examples include: • ELD integrations – to integrate visibility data. Drive better freight recommendations for carriers and improved freight matches for freight brokerage systems. • Capacity management integrations – to integrate with booking infrastructure, increase digital freight available to book and automate brokerage and carrier workflows. • TMS integrations – to integrate workflows. • Source of pricing benchmarks by mode and lane. • Capacity monitoring. • One click booking experiences and electronic acceptance. • Digital tooling to help carriers and DTMs make marketplace decisions.

Key Conclusions:

• Integrating with a select, trusted load board marketplace is a method to source and book out of network capacity.

• Some capacity management systems are integrating with load board marketplaces.

• ELDs add another layer of data for load board marketplaces. Incumbents may use a partner approach or create this competitive advantage, but it is important to find these integrations for your 3PL.

• Top 3PLs are creating their own digital boards, along with niche brokerages, while most choose a mixture of private network and public network (load board marketplace) to source capacity.

Recommendations:

DAT is the largest load board and is a significant provider of transportation market pricing and capacity data. Truckstop.com also has widespread use by DTMs and is a good source for lane pricing benchmarks. Other Systems of Note

Other tools and TMS augmenting systems have been developed to help digitally automate DTM operations.

Logistical Labs’ LoadDex system provides an easy-to-use dashboard interface for aggregating and analyzing pricing data from a DTM’s TMS, load boards, and transportation providers. It integrates with a number of TMS, load boards, visibility systems, and carriers.

RMIS (Registry Monitoring Insurance Services) is utilized by a lot of DTMs for carrier onboarding and compliance (insurance - auto and cargo coverage, workers’ compensation, general liability, and D.O.T. – operating authority, safety ratings, inspections) monitoring. So, it has carrier sales and back-office automation functionality. RMIS also integrates with major TMS providers.

Winmore is a cloud-based system which focuses on automating customer requests for proposal (RFPs) using standardized workflows to qualify potential business, develop bids, and track success. It electronically connects account management, pricing, and other 3PL bid participants via collaborative messaging and task assignment platform.

Carrier411 provides access to information on over 1.1 million carriers including standard FMCSA (Federal Motor Carrier Safety Administration) carrier information plus additional information. It interfaces with multiple TMS and notifies subscribers if there are changes to a saved carrier’s operating authority, insurance, or safety ratings. Carrier411 also has search functionality to find carriers in specific geographies or in specific lanes.

Kofax (previously Kapow) robotic process automation (RPA) software has be utilized by some DTMs to automate functions using digital robots to gather information from internal or external systems and “enter” it into a DTM’s core TMS. The Kofax RPA system allows users to easily program digital robots which can automate manual processes such as tracking shipments via a carrier web portal or setting delivery appointments. Robots are also being used to tender shipments to carriers and read emails.

3PL Merger & Acquisition Activity

In 2019, there were 11 trackable, large 3PL M&A deals containing purchase prices over $100 million1 , including two DTM-related deals. One deal was by DTM Redwood Logistics and the other was by Burris Logistics. Numerous undisclosed or smaller deals in the DTM space can be attributed to private-equity investors. Strategic buyers have also continued to acquire niche players to round out service offerings.

Figure 14. 3PL Acquisitions Over $100 Million (1999-2019)

18 18

12 12 11 11 10 9 9 8

6 6 5 5 5 5 5 4 4 4 3 3 3 2 2 1 1 0 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Redwood Logistics appeared on the large deal board last year. In January 2018, Redwood Logistics merged with Simplified Logistics via a CI Capital Partners majority interest investment valued at $133 million. Since then, it has made four additional strategic acquisitions. It acquired the Phoenix-based Freight Management division of ROAR Logistics in April 2018 and LTL-centric DTM LTX Solutions in January 2019. In February 2019, Redwood Logistics hit the large deal tracker again with its $100 million acquisition of freight broker Strive Logistics. And in its latest acquisition in May 2019, Redwood Logistics acquired TMS services provider Eminent Global Logistics.

Redwood Logistics’ strategic acquisitions have rounded out its offering to include truckload and LTL freight brokerage, Managed Transportation services, and transportation technology services. It has moved up from being the 25th largest DTM/freight broker in 2017 to the 17th largest in 2019.

Another sizable deal over $100 million was by refrigerated products distributor and cold storage provider, Burris Logistics. In April 2019, it acquired DTM Trinity Logistics for $280 million. Trinity provides truckload and LTL freight brokerage, intermodal, and Managed Transportation services. Burris Logistics also purchased freight broker Streamline Logistics in 2018.

GlobalTranz, with strong private equity backing, has made 11 acquisitions since 2017. Throughout 2019, GlobalTranz acquired Our Freight Guy (January), Circle 8 Logistics (April), and Global Freight Solutions (October). In January 2020, it acquired technology-driven managed transportation provider Cerasis. GlobalTranz’ consistent organic growth and strategic combinations have moved it up the top DTM/ Freight Brokerage rankings from 15th in 2016 to 11th in 2019.

Figure 15. GlobalTranz Ownership and Acquisition Timeline

Global Our Circle 8 Freight Cerasis Freight Logistics Guy Solutions

AFN AJ R SynchOne Logistics Transportation

Global Logistics Worthington Apex Freight Planning Logistics Logistics

ACQUISITIONS Source Services Solutions Group

Providence Equity Partners The Jordan Company Providence Equity Partners OWNERSHIP 2017 2018 2019 2020

In 2018, private-equity firm Gryphon Investors replaced Ridgemont Equity Partners as Transportation Insight’s majority owner. A few months later, Gryphon Investors and Transportation Insight acquired freight brokerage Nolan Transportation Group from Ridgemont Equity Partners. Nolan operates as a sister company to Transportation Insight. In December 2019, Transportation Insight purchased freight brokerage Meridian Logistics (aka FreightPros) to roll into Nolan’s freight brokerage operations. In January 2020, Nolan acquired refrigerated truckload specialized freight brokerage Eagle Transportation.

Private-equity firm York Capital Management acquired MODE Transportation from Hub Group in 2018. At the end of 2019, MODE acquired SunteckTTS, the product of the 2016 merger between freight brokers Sunteck and TTS. MODE Transportation is a major non-asset domestic transportation manager/freight broker offering truckload, less-than-truckload, intermodal, rail, ocean, air, and Managed Transportation services with over 100 offices and agents across North America.

In 2018, Universal Logistics Holdings, Inc., an asset-light provider of customized transportation and logistics solutions, made four strategic acquisitions in the intermodal space. It acquired Specialized Rail Service Inc., Southern Counties Express, Fore Transportation and the Container Connection. In 2019, it made two acquisitions (Michael’s Cartage and Roadrunner Transportation Systems’ intermodal business). Intermodal, now its largest segment, grew 55% in 2019 offsetting its Truckload segment drop of 20%.

C.H. Robinson, the leading DTM in North America, continues to pick up niche players. In February 2019, it acquired The Space Cargo Group, a freight forwarding group that expands its presence in Spain and Columbia. And in May, C.H. Robinson acquired Italian-based Dema Service to expand its DTM services across Europe. In March 2020, C.H. Robinson picked up Roadrunner’s Prime Distribution Services (PDS) in a $225 million acquisition. (Roadrunner also sold its Stagecoach Cartage and Distribution to J.H. Rose Logistics in April 2020.) PDS is a provider of retail consolidation and value-added warehousing and distribution services in North America. The addition expands C.H. Robinson’s retail consolidation business and adds some company-owned warehousing capability to its domestic service offering.

A&A’s Tops 100 DTMs / Freight Brokers

A&A’s Top 100 DTMs/Freight Brokers (Appendix A) vary greatly in size with DTM/FB gross revenues ranging from $76 million to $11.3 billion. The segment continues to be led by C.H. Robinson. Its North American Surface Transportation net revenues decreased 5.7% from $1,906 million in 2018 to $1,797 million in 2019 and accounted for 13.4% of the total DTM segment net revenue. While it is still the segment leader, its market share as measured by net revenue, is significantly lower than its market share of over 20% eight years ago. Part of C.H. Robinson’s 2020 strategy is to gain back some of the market share it has lost to competitors such as Total Quality Logistics with 2019 net revenue of $687 million (down 0.6% from 2018), Echo Global Logistics with $386 million in net revenue (off 8.2% from 2018), and MODE Transportation which registered $285 million in net revenue as it combined with SunteckTTS in 2019.

On the DTM “watch list” is rapidly growing Austin, Texas‐based Arrive Logistics and Nolan Transportation Group (NTG). Arrive had year‐over‐year net revenue growth of 43.8% to $69 million and 2019 gross revenue of $550 million. Its CEO Matt Pyatt and President Eric Dunigan both came from Command Transportation and founded Arrive in 2014 before Command’s $420 million sale to Echo Global Logistics in June 2015. NTG recorded solid year‐over‐year net revenue growth of 16.7% to $125 million and grew its 2019 gross revenue to $875 million. As mentioned earlier, Gryphon Investors bought a majority stake in NTG through its portfolio company Transportation Insight in December 2018.

We’ve revised the in-depth version of our Top 100 DTMs/Freight Brokers list from the one published five years ago covering 2014 operations. This year, we put focus on identifying the primary brokerage modes/ types and industries served really honing in on the dominant ones. We also included more specialized industries and markets where we feel the DTM has significant expertise.

Other notable changes over the last five years include the addition of DTMs Nolan Transportation Group, Universal Logistics Holdings, and Arrive Logistics which have since made the Top 25. Numerous companies, such as DFBs Convoy, Transfix and Uber Freight, have been added while others have been acquired, or dropped off the list due to a lack of a solid, focused DTM strategy or simply went out of business, most likely for the same reason.

Appendix A: A&A’s Top 100 DTMs/Freight Brokers (Ranked by 2019 Gross Revenue)

Primary Brokerage Types Primary Industries Served/Specializations

Company 2019 Gross 2019 Net Headquarters Revenue Revenue Rank Provider Website (City, State/Province) (US$ Millions) (US$ Millions) Dry Van TL TL Reefer TL Flatbed Dry Van LTL Intermodal Rail TMS/Managed Transportation Automotive Consumer Goods Elements Food & Groceries Healthcare Industrial Retailing Technological Industries/ Other Specializations 1 C.H. Robinson www.chrobinson.com Eden Prairie, MN 11,283.7 1,797.4 X X X X X X X X X X Produce, Cross Border 2 XPO Logistics www.xpo.com Greenwich, CT 3,895.0 876.0 X X X X X X X X X X X Last Mile 3 Coyote Logistics www.coyote.com Chicago, IL 3,600.0 465.0 X X X X X X X X X 4 Total Quality Logistics www.tql.com Cincinnati, OH 3,394.0 687.0 X X X X X X 5 Hub Group www.hubgroup.com Oak Brook, IL 2,800.0 400.0 X X X X X X X Cross Border 6 Echo Global Logistics www.echo.com Chicago, IL 2,185.0 386.0 X X X X X X X 7 MODE Transportation www.modetransportation.com Dallas, TX 2,075.3 285.0 X X X X X X X X X X 8 Landstar System www.landstar.com Jacksonville, FL 2,052.0 340.0 X X X X X X X X X 9 Schneider Logistics www.schneider.com Green Bay, WI 1,794.1 229.0 X X X X X X X Cross Border 10 Worldwide Express/Unishippers www.wwex.com Dallas, TX 1,675.0 365.0 X X X X X X X X X 11 GlobalTranz Enterprises www.globaltranz.com Scottsdale, AZ 1,532.0 275.0 X X X X X X X X 12 J.B. Hunt ICS www.jbhunt.com Lowell, AR 1,348.0 176.6 X X X X 13 Transplace www.transplace.com Frisco, TX 1,000.0 115.0 X X X X X X X X Cross Border 14 Nolan Transportation Group www.ntgfreight.com Atlanta, GA 875.0 124.9 X X X X X 3PLs

15 Universal Logistics Holdings www.universallogistics.com Warren, MI 745.0 95.0 X X X X X X 16 Uber Freight www.uberfreight.com Chicago, IL 731.0 0.0 X X X X 17 Redwood Logistics www.redwoodlogistics.com Chicago, IL 720.0 131.0 X X X X X X 18 BNSF Logistics www.bnsflogistics.com Flower Mound, TX 613.0 114.0 X X X X X Rail/Road Solutions

19 Convoy www.convoy.com Seattle, WA 600.0 0.0 X X X X 20 Allen Lund www.allenlund.com La Canada, CA 595.0 101.0 X X X X X X Produce 21 Trinity Logistics www.trinitylogistics.com Seaford, DE 579.6 101.5 X X X X X X X X X X X 22 Arrive Logistics www.arrivelogistics.com Austin, TX 550.0 69.0 X X X 23 FLS Transportation Services www.flstransport.com Montreal, QC 500.0 70.0 X X X X 24 Matson Logistics www.matson.com Concord, CA 495.0 62.0 X X X X X X 25 Werner Logistics www.werner.com Omaha, NE 489.7 78.2 X X X X X X X X Cross Border

A&A’s TOP 100 DTMs / FREIGHT BROKERS

Appendix A: A&A’s Top 100 DTMs/Freight Brokers (Ranked by 2019 Gross Revenue)

Primary Brokerage Types Primary Industries Served/Specializations

33 BlueGrace Logistics www.mybluegrace.com Riverview, FL 368.0 58.0 X X X X

34 ReTrans/Kuehne + Nagel www.re-trans.com Memphis, TN 364.0 62.2 X X X X X X Cross Border 35 Knight-Swift Transportation www.knight-swiftinc.com Phoenix, AZ 353.0 56.0 X X X X X

36 Traffix www.traffix.com Milton, ON 337.0 55.1 X X X X X X 37 TA Services www.taservices.com Mansfield, TX 330.0 45.0 X X X X X X

38 Pepsi Logistics www.pepsilogistics.com Plano, TX 324.6 34.9 X X X X

39 Priority1 www.priority1inc.com Little Rock, AR 316.0 60.0 X X X X 40 GEODIS www.geodis.com Brentwood, TN 311.5 28.5 X X X X X X X X X 41 Cornerstone Systems www.cornerstone-systems.com Memphis, TN 309.0 36.0 X X X Cotton, Wine/Spirits, Rail

42 MegaCorp Logistics www.megacorplogistics.com Wilmington, NC 308.2 47.4 X X

43 Choptank Transport www.choptanktransport.com Preston, MD 300.0 43.0 X X X X 44 NFI www.nfiindustries.com Camden, NJ 270.0 44.0 X X X X X X X

45 KAG Logistics www.kaglogistics.com North Canton, OH 254.6 41.5 X Liquid Bulk/Tank

46 ITS Logistics www.its4logistics.com Sparks, NV 240.0 35.0 X X X X X

47 Radiant Logistics www.radiantdelivers.com Bellevue, WA 225.0 26.5 X X X X X X

48 Spot Freight www.spotinc.com Indianapolis, IN 223.0 25.0 X X X X

49 R2 Logistics www.r2logistics.com Dallas, TX 220.0 28.0 X X X X X X

50 Circle Logistics www.circledelivers.com Fort Wayne, IN 198.0 38.3 X X X

51 Patterson Cos. www.pattersoncos.com Plant City, FL 195.0 33.0 X X X X X Perishables

51 Watco Supply Chain Services www.watcosupplychain.com Springdale, AR 195.0 31.5 X X X X X X X Rail/Road Solutions

52 Triple T Transport www.triplettransport.com Lewis Center, OH 189.0 30.6 X X

Company 2019 Gross 2019 Net Headquarters Revenue Revenue Rank Provider Website (City, State/Province) (US$ Millions) (US$ Millions) Elements Industrial Reefer TL Reefer TL Flatbed Automotive Industries/ Other Transportation Consumer Goods Retailing Dry Van LTL Intermodal Rail TMS/Managed Healthcare Specializations Dry Van TL Technological Food & Groceries

53 U.S. Xpress www.usxpress.com Chattanooga, TN 185.9 24.0 X X X

54 ROAR Logistics www.roarlogistics.com Buffalo, NY 178.0 21.7 X X X X

55 RPM www.loadrpm.com Royal Oak, MI 168.4 25.9 X X X

56 Sunset Transportation www.sunsettrans.com St. Louis, MO 168.0 24.0 X X X X X 57 Logistics Plus www.logisticsplus.net Erie, PA 160.0 20.0 X X X X X

58 Solistica www.solistica.com Monterrey, NL 150.0 18.0 X X X X

59 USAT Logistics www.usatlogistics.com Van Buren, AR 147.0 21.0 X X X X

60 Veritiv Logistics Solutions www.veritivcorp.com Atlanta, GA 145.0 15.0 X X X X X X X

61 Genpro www.genproinc.com Rutherford, NJ 140.0 16.0 X X X X X Produce

62 Covenant Transport Solutions www.covenanttransport.com Chattanooga, TN 138.6 18.2 X X X X X

63 U.S. Logistics www.uslfreight.com Cincinnati, OH 138.0 21.0 X X X X Military, Government

64 Diversified Transportation Services www.dtsone.com Torrance, CA 130.0 20.0 X X X X Trade Shows, 3PLs

65 Freight Management www.freightmgmt.com Anaheim, CA 128.0 12.3 X X X X X X

66 ISG Transportation www.isgtransport.com Brampton, ON 127.0 19.5 X X

67 LoadDelivered www.loaddelivered.com Chicago, IL 125.7 17.0 X X X

68 D&L Transport www.dandltrans.com Overland Park, KS 125.4 20.0 X X X X X X Trade Shows

69 Buchanan Logistics www.buchananhauling.com Fort Wayne, IN 123.4 20.4 X X X

70 CRST Logistics www.crstlogistics.com Cedar Rapids, IA 118.0 21.0 X X X X

71 Ruan www.ruan.com Des Moines, IA 117.0 18.5 X X X X X X X

72 Leonard's Express www.leonardsexpress.com Farmington, NY 113.6 19.5 X X X X X

73 TransCorr National Logistics www.transcorrlogistics.com Grandville, MI 112.0 17.0 X X X X

74 Mid America Logistics www.midamlogistics.com St. Louis, MO 111.9 12.9 X X X X X X X Highly Sensitive Perishables

75 Scout Logistics www.scoutlogistics.com Toronto, ON 110.0 7.0 X X X Produce, Perishables

76 Marten Transport www.marten.com Mondovi, WI 108.9 18.2 X X X

77 Amstan Logistics www.amstan.com Liberty Township, OH 106.9 11.6 X X X X

78 Blue Ribbon Transport www.blueribbontransport.com Indianapolis, IN 102.0 9.0 X X X Produce

79 Dupré Logistics www.duprelogistics.com Lafayette, LA 101.4 13.4 X X X X Chemicals, Liquid Bulk/Tank

80 East Coast Transport www.eastcoasttransportllc.com Paulsboro, NJ 100.0 13.5 X X X X X

80 Transfix www.transfix.io New York, NY 100.0 12.5 X X X X X X

Appendix A: A&A’s Top 100 DTMs/Freight Brokers (Ranked by 2019 Gross Revenue)

Primary Brokerage Types Primary Industries Served/Specializations

Company 2019 Gross 2019 Net Headquarters Revenue Revenue Rank Provider Website (City, State/Province) (US$ Millions) (US$ Millions) Elements Industrial Reefer TL Reefer TL Flatbed Automotive Industries/ Other Transportation Retailing Dry Van LTL Intermodal Rail TMS/Managed Consumer Goods Healthcare Specializations Dry Van TL Technological Food & Groceries

81 Odyssey Logistics & Technology www.odysseylogistics.com Danbury, CT 99.0 16.0 X X X Chemicals, Liquid Bulk/Tank

82 Averitt Express www.averittexpress.com Cookeville, TN 96.7 15.0 X X X X X X X

83 Axle Logistics www.axlelogistics.com Knoxville, TN 96.6 14.5 X X

84 Fitzmark www.fitzmark.com Indianapolis, IN 95.0 15.0 X X X

84 Eagle Transportation www.eagletran.com Hattiesburg, MS 95.0 12.0 X X X X X

85 M2 Logistics www.m2logistics.com Green Bay, WI 90.0 12.0 X X X X Paper Products

86 Bay and Bay Transportation www.bayandbay.com Eagan, MN 85.9 13.0 X X X X X X X

87 Koch Logistics www.kochlogistics.com St. Paul, MN 85.0 12.5 X X X X

88 Syfan Logistics www.syfanlogistics.com Gainesville, GA 84.4 14.8 X X X Perishables, Poultry

89 ODW Logistics www.odwlogistics.com Columbus, OH 82.0 14.3 X X X X X X

90 Beemac Logistics www.beemaclogistics.com Beaver, PA 82.0 12.0 X X X X X X X

91 Magellan Transport Logistics www.magellanlogistics.com Jacksonville, FL 81.7 14.7 X X X X X X X Military/Government, Education

92 Visible Supply Chain Management www.visiblescm.com Salt Lake City, UT 80.0 12.0 X X

93 Great Plains Transport www.greatplainstransport.com Mapleton, ND 78.4 19.2 X X

94 Knichel Logistics www.knichellogistics.com Gibsonia, PA 78.0 8.0 X X X X

95 Becker Logistics www.beckerlogistics.com Glendale Heights, IL 76.4 12.2 X X X X X

96 PAM Transport www.pamtransport.com Tontitown, AR 76.0 4.0 X X X X

Sources: Armstrong & Associates, Inc. Who’s Who in Logistics Online 3PL Guide; Company Reports

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INCREASINGLYTRENDS IN STRATEGIC: TRENDS3PL / CUSTOMER IN 3PL / CUSTOMER RELATIONSHIPSRELATIONSHIPS

May 2020

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Increasingly Strategic – Amazon Logistics – First Wave Pick – Trends in 3PL / Customer Market Estimates, The Business of Warehousing in Relationships Benchmarking, and Predictions North America - 2018

This definitive analysis is an expanded This comprehensive report analyzes This major market research report update of Armstrong & Associates’ best- e-commerce logistics, its major logistics on North American warehousing selling report. From its analysis of over competitors and Amazon’s impact provides updates on facility sizes, 7,700 current 3PL customer relationships on transportation and warehouse capacity, revenues, pricing (including in 44 countries, totaling nearly 21,000 management, and the overall 3PL markets. e-commerce rates), and commodities services, the report identifies and Benchmarks for capital expenditures, handled. Operating margins are provided details key trends in outsourced third- warehousing and fulfillment, air freight, for contract warehousing operations. party logistics provider (3PL) customer vehicles and drivers, and 3PL services and Expected operating margins and relationships. Armstrong & Associates related assets are provided. profitability measures are compared to has been tracking and analyzing 3PL/ actual results. Statistical analyses detail Customer relationships for over a decade the effects of open book relationships with ever-increasing detail. and leasing, versus ownership on overall warehouse profitability. E-commerce logistics costs, 3PL revenue, growth rates, and for the first time, e-commerce fulfillment benchmark rates are also covered.

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