3PL Summit Q&A: Doug Waggoner, Chairman and CEO of Echo Global Logistics

At last week’s eyefortransport 3PL Summit in Chicago, LM Group News Editor Jeff Berman caught up with Echo Global Logistics Chairman and CEO Doug Waggoner. The pair covered a wide range of subjects, including market conditions, capacity, and Echo’s recent $420 million acquisition of Command Transportation. A transcript of the conversation is below.

Logistics Management (LM): Echo’s recent acquisition of Command was easily the biggest acquisition the company has ever made. What were some of the drivers behind the deal and what made them attractive to Echo?
Doug Waggoner: We have never really previously had an appetite to make a big deal. We had been happy with our smaller tuck-in acquisition strategy. In my opinion, Command is the best and most well run truckload broker out there that is not already public. When we looked at Command and all of the other privately-held larger truckload brokers, I felt like they were in a class by themselves, and its founder Paul Loeb, I jokingly call him the “Godfather” of modern day truckload brokerage. He started American Backhaulers in 1980, automated the brokerage process and built a business based on carriers’ backhauls and sold it to CH Robinson in 1999. Command is very profitable and very good at execution, and carriers love them. They probably have the best reputation among asset-based carriers. And combined altogether, Echo and Command are a $1.1 billion company and a force to be reckoned with…we have density, we have scale, and good coverage. The other thing we liked about Command was that they have really dense business and coverage in the Northeast and Southeast, where we are stronger in the upper Midwest and the East coast. You put that together and it is a great fit. There is also a lack of shipper overlap, with only about 400 common customers out of thousands.

LM: What are some of the key synergies this deal brings to the table?
Waggoner: We do as much LTL as we do truckload, so they are very excited about getting LTL capabilities and getting more intermodal capabilities and also the managed transportation service we offer, which sell multimodal transportation solutions, including their truckload customers possibly leveraging our intermodal offerings. It really is a match made in heaven in that the geographies and cultures fit, and they are only eight miles from our office, making it easy to meet up and form an intimacy between our two campuses, which I think is going to grow into something special.

LM: Shifting gears, what is your take on the current state of truckload capacity? Most people maintain it is not as tight now as it was a year ago at this time.
Waggoner: It is still tight on a relative basis but not tight compared to the fallout from the Polar Vortex in the winter of 2013-2014. Last year, was kind of an anomaly that is hard to compare to, but generally speaking truckload capacity is not overly tight, nor is it overly loose. It is manageable, with rates staying firm, and I am actually having some difficulty deciding if the economy is slowing down or speeding up. Things remain inconsistent.

LM: That said, how do you think the overall freight economy is doing at the moment as it relates to mainstream metrics like retail sales, housing, industrial production, among others?
Waggoner: There are two ways we judge the economy. One is based on our own business lines, which I cannot comment on, although we have always outgrown the market. But on the other hand, in talks with shippers and carriers, it seems like the general consensus has been that the first part of the second quarter was soft but has since picked up like it was expected to, with people uncertain of it would continue. But the thing is I can tell you what happened yesterday, but I cannot tell you what will happen tomorrow.

LM: Is it too early at this point to see any early semblance or formation of a traditional Peak Season this year.
Waggoner: It is still too early. The produce season has been a little soft due to the weather patterns, with damaged crops. Some of the fruits that would be flowing right now are not that strong yet, as an example. My general sense is the economy is getting better, but there is still outside noise, like fuel and tough annual comparisons, and produce season being hard to predict. There are no signs or indications, though, that there is anything “bad” coming up, but there are also no real signs that things are about to explode either. The current supply and demand dynamics are pretty balanced, with things still relatively tight. And we know the driver shortage is only going to get worse.

LM: The driver shortage is a great example of something that is truly hindering overall industry productivity, as well as myriad industry regulations. What is your view on things like this?
Waggoner: The hours-or-service restart took some capacity out of the system, when it was suspended, but I don’t think it is anything compared to the pending ELD mandates. Today, large carriers are already running ELDs and playing by the books, whereas many smaller carriers are not abiding the same rules. But when they are forced to do so, it will take capacity away. It will level the playing field and be cost-prohibitive for smaller carriers, with extra costs they don’t want to pay or cannot afford. In the name of safety, I don’t like overregulation but regulating safety is a good thing.

LM: Given Echo’s visibility into intermodal and the recent service-related issues that were experienced over the last year, it seems like things are improving, but is it happening quickly enough?
Waggoner: They are improving. For us, the bigger challenge is that because we don’t own containers and long-term pricing with the railroads or the fluctuation with the pricing by the railroads. Railroads are always trying to dial in intermodal rates on a relative basis to what they believe truckload rates are, so it is always a moving target and it can be hard to build an intermodal business around that.

LM: How does Echo’s intermodal business specifically operate?
Waggoner: We don’t have any containers. We basically rent them from the railroads. We do have our own contract drayage network in any given city and know people to call to take a container to or from a rail terminal, and we then get rates from all the major Class I railroads. When we are quoting on an intermodal shipment, we are not going to be competing against JB Hunt or Schneider on big box retail accounts. Instead, our sweet spot is working with a smaller, mid-sized truckload shipper that does not have a lot of intermodal experience, and we are giving them an intermodal option. I can tell a shipper that it will cost them $5,000 to move a shipment from Los Angeles to Boston via truckload or it will be $4,000 with an extra day or two of transit time built in or more, but in the past it was much longer, which is where the unreliability hurt us and we could not sell that way. Now, as it becomes more reliable, we can give the shipper two options. It is nice in that way to have variable speed and price.

LM: What is new in terms of IT for Echo?
Waggoner: We are doing a lot of work on our managed transportation technology so that we can sell that to larger companies in the market, which is potentially 100 percent outsourcing of the transportation function. We do that today for companies that spend between $1 million-$30 million per year on transportation. With some of the enhancements we are making, we think we can go to market and offer that same service to bigger companies and add more capabilities they need and that combined with our brokerage capabilities makes us a great partner for much bigger shippers. The other thing we are working on is the integration of Command’s truckload brokerage technology. The Echo technology is very broad and does a lot of things, and Command’s is not as broad but it is very deep in terms of truckload capabilities. We think incorporating their functionality into our platform gives them the breadth to sell all that Echo offers and makes us a better truckload broker.