UPS Expands Into Brokerage to Tap Fast-Growing Sector

Rip Watson
Transport Topics
22, 2014
View the original piece

UPS Inc. said it is pursuing an expansion of truck brokerage through its Freight unit, adding new capabilities in a fast-growing sector where the company does not currently have a major presence.

Ken Burroughs, vice president of strategy for UPS Freight, outlined the company’s plans for Transport Topics during an exclusive Sept. 16 interview.

He said, “We have put an emphasis on growing the brokerage capability. We have been assigned the corporate responsibility to grow the business. Brokerage is growing, and we see this as a natural evolution of the products the company can offer.”

Truck brokerage revenue, as measured by the consulting firm Armstrong & Associates, has grown more than 25% over a four-year period to become almost a $50 billion business.

When asked about revenue and profitability targets, Burroughs answered that “the sky’s the limit,” without elaborating. UPS does not disclose details about business volume or revenue beyond what is stated in its quarterly financial reports.

The corporate profile for UPS, which ranks No. 1 on the Transport Topics list of the 100 largest U.S. and Canadian for-hire carriers, provides a size perspective. UPS Freight’s truckload revenue of $190 million through the first half of 2014 contributed just 0.7% of total corporate revenue.

“We want to grow as much as we possibly can,” Burroughs said, targeting what he termed double-digit annual growth “indefinitely.”

“We recognized the revenue — and profit opportunity. We look at both,” Burroughs said.

He explained that UPS has been in the brokerage business “to a certain extent” for about six years, functioning as part of its Freight unit whose primary business is less-than-truckload service.

The move by UPS is coming at a time when truck brokerage markets are changing with the ongoing acquisition strategies at companies such as Echo Global Logistics and XPO Logistics that are increasing the size of some industry participants.

XPO ranks No 45 on the Transport Topics list of the largest U.S. and Canadian logistics companies. Echo Global ranks No. 5 on the TT Top 25 Freight Brokerage Firms list.

“We are not as big as some others,” Burroughs said, describing the UPS operation as a “relatively small brokerage. We’re nowhere near the Coyotes or TQLs.”

His reference was to two brokers: Total Quality Logistics, with annual revenue of $1.4 billion, ranks No 42 on the TT Logistics 50 list; and Coyote Logistics, with revenue of $786.4 million that puts it at No. 9 on the Freight Brokers list. UPS Supply Chain Solutions and Freight unit rank No. 5 on the TT Logistics 50 list, with annual revenue above $9 billion.

UPS’ brokerage business currently has a base of about 10,000 carriers, with more than 100 people working on brokerage opportunities.

Burroughs said more carriers and workers would be added as business grows.

“We want to see if we can provide a differentiated type of service to our carrier partners,” Burroughs added, while underscoring that UPS Freight has a stringent carrier qualification process. “We want to develop a relationship with them.

“Our real intent here from a longer-term strategy is to be able to handle any type of service the customers need,” while seeking to capitalize on technology, the UPS official said.

One technological tool he cited was the ability to offer price quotes to customers for either heavy LTL freight [more than 10,000 pounds], truckload or intermodal.

Burroughs emphasized that the brokerage unit isn’t being used to cover loads that can’t be handled by the truckload business. Most UPS truckload freight is moved through dedicated contracts, he said, and brokerage business is transactional.

Burroughs also said the move is part of an effort to expand UPS without using much capital.

Another consideration, he said, was the fact that UPS customers have indicated their interest in using multiple products when available, such as the brokerage option.

The initiative is separate from other existing activities in the Supply Chain and Freight unit, such as distribution or international freight management, Burroughs said.

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