Q&A: Frank McGuigan, Transplace CEO

Logistics Management Group News Editor Jeff Berman recently caught up with Frank McGuigan, CEO of Dallas-based Transplace, a non asset-based third-party logistics services provider. McGuigan offered up his observations on various topics, including the company's aproach to M&A, the impact of the COVID-19 pandemic on logistics, inventory management, and the upcoming Transplace Shipper Symposium, among others. (Editor's Note: The original transcription has been edited for clarity and length.)  

LM: Not every company makes three acquisitions in a year, especially a year dealing with a generational pandemic. But Transplace has made three alone in 2020; what is the company’s approach to M&A?

Frank McGuigan: We average about one acquisition a year. In 2018, we acquired Yusen’s intermodal assets. We did not make an acquisition in 2019, but we were working on some of these deals over the last year. We worked on all three of these [2020] opportunities prior to COVID-19, in addition to a few others. Some of the [possible deals] fell through for a variety of different reasons. During COVID, we had a chance to really test the resilience of our three recent acquisitions, Lanehub, ScanData and LeanCor.

LM: In what ways?

McGuigan: In terms of how their businesses were performing during a once in a generation pandemic. The markets and the North American supply chain were in complete disarray and we became more educated about the purchases in good times and bad times. That said, not a lot of people are making acquisitions this year, and we felt strongly enough about these companies enhancing our platform both technically and operationally. When you think about what is next for us, that is the filter for identifying opportunities. We are looking at enhancements for the global shippers that sit on our platform, whether it be for mode, geography, a technical opportunity or an operational expertise they bring to the table. All three acquisitions that we made this year brought something unique [to Transplace].      

LM: Does Transplace have a standard sort of benchmark integration process, of sorts, for the companies it acquires, for onboarding and things like that?

McGuigan: Transplace has 2,700 people in 26 locations throughout North America, with locations in Europe as well. Most of our revenue comes from the platform side of our business, with $3 billion on our top line and about $11 billion rolling through the platform altogether. Different products and services go into different parts of our business. The LeanCor acquisition, for example, fits very neatly into our transportation management business, for managed transportation services. Both the ScanData and the Lanehub acquisitions fit in very cleanly into what we consider our Transplace Platform Services, which is our technology stack that we make available to shippers in North America. There are very standard processes, as it relates to integrating the technology, people and the finances, including how they receive bills, among other things. And then there is the operational and customer integration that needs to occur as well. We tell the CEO of every company we buy that we take a Hippocratic oath, in the sense that we don’t want to negatively impact their people or customers. We get excited to acquire companies, not only because of what they will bring to us but also because they have excellent people. We are very careful about how we communicate.  If their first day at Transplace is on a Monday, their job is the same as it was the previous Friday, and that is continue to serve their customer base. And what we do is slowly layer in our new processes so as not to disrupt anything.

LM: What do Transplace’s current M&A plans look like?

McGuigan: We have a head of business development that works very closely with TPG, our private equity sponsor, and we continue to work on our M&A strategy. M&A is an important part of our innovation and our growth, but it is not the most important part. We are growing at record levels as an organization in 2020, as we did in 2019, even though we are in a pandemic. We understand where we are moving the platform and see ways to fill some of these gaps we have more quickly through M&A.

LM: Shifting gears away from M&A, what, in your opinion, have been the biggest changes/impacts related to the ongoing COVID-19 pandemic on the logistics sector?

McGuigan: I have been doing this for 30 years. I have seen some of the disruptions in the market that have occurred, whether it was the freezing up of intermodal on-ramps back during the Polar Vortex, or, in 2018, when the economy moved forward abruptly and sucked all of the supply out of the market from a carriers’ standpoint. But there has never been a year like this year.

LM: In what ways?

McGuigan: At a top level, what we saw was an incredible surge in businesses that were growing organically, say at 2%-3%, all of the sudden grow this year 50%-to-100%. The impact on supply chains was enormous. That goes all the way upstream into how the manufacturer sources raw material all the way through the point of end-to-end use. That relates more to CPG and shelf-stable goods. If you look at the auto industry or heavy manufacturing, that absolutely slowed down in the second quarter, as a lot of plants shut down, and people were not out consuming. In addition, we really saw that in the retail and restaurant communities, which were not open for business, and all of the sudden the supply chain halts. That brings a different set of problems. We have to support growth and capacity in a hyper-growth environment and also support organizations getting leaner more quickly. All of that balanced out at the beginning of the third quarter. What happened was that the companies that were really producing all out came down a little, but maybe not down to pre-COVID levels, and were still producing at incredibly high rates. Then the companies that were shut down began to open up. In addition to that, there was capacity being taken out of the market, in terms of both trucks and drivers. Another thing, which is really a key driver, is the change in logistics operations. You can think of it as a balancing act, with one sector up high and another down low. The reality is demand and consumption points of [logistics] networks are all different. It is putting strain on a carrier trying to fill capacity in one place here and another place over there with excess need, and there is a cost associated with that. There is also pent-up demand on the West Coast, with people trying to refill inventory. On the borders, people are trying to get Northbound shipments, because Mexico is not consuming as much now as it was prior to COVID, but the U.S. is starting to consume at a higher level. There is now a huge imbalance in trucking equipment and rail containers that is impacting pickups for a lot of people. For example, DAT recently reported that its spot network recently hit its highest weekly level in six years and is right at June 2018 levels. Many people thought they would never see those levels again, because after June 2018 there was a long, slow steady decline right up to March 2020. Then you started to see either stabilization or a slow acceleration. The impact is significant. People are still feeling shortages from an inventory standpoint. When you go into a store, you still don’t see stuff that you can ordinarily get.  

LM: So, how does that change things for consumers?

McGuigan: Everyone’s lives have changed. There is pent-up demand, and consumers are spending money on things they would not ordinarily spend it on before. All of that represents abnormal demand patterns for supply chains that had been fairly steady. That is causing a significant amount of disruption

LM: How much has the uptick in e-commerce activity driven by the pandemic impacted logistics and supply chain operations, from a Transplace perspective?

McGuigan:  One of the reasons that we bought ScanData was because consumers are trying to do more and more around direct-to-consumer. We had a parcel solution within our platform that we wanted to be stronger and more sophisticated. ScanData’s multicarrier parcel optimization software is second to none in the marketplace. As consumers demand greater speed, flexibility and affordability, they are not going to be single-sourcing with a parcel carrier. ScanData’s technology will help make that choice for them. These are things that will be discussed at our upcoming Transplace Shipper Symposium. 

LM: Looking ahead, what do you think will be some of the key “logistics lessons learned,” when things eventually get back to normal (or something closer to it)?

McGuigan: We have certainly had uncertain times before, but nothing like this. My experience is that companies take two approaches. One is to write the year off and say ‘this is never going to happen again.’ That is not the path we are taking. That said, there are a lot of companies that are absolutely building and engineering flexibility and nimbleness into their supply chains. Examples of that are shortening their supply chains, near shoring, or diversifying their supply points, if they fall off short. They are not only caught up in pandemic issues but also global trade issues. We see people increasing safety stocks at the retailer and supplier levels, as there is going to be this inventory build and a rebuild. Then we are going to have a peak season and then we are going to have the impact of peak season, which is pent-up demand bringing all of those inventory levels down. Then there will be a rebuild on top of that for what is normal day-to-day business for 2021. I believe it will be a while before people will need inventories to be where they were pre-COVID, and we will work with them to increase their supplier bases to give them more diversification and nimbleness. People will also reduce certain modal usage. There are a lot of companies that, for example, are over-reliant on rail or air (from certain parts of the world). And what we have seen in this pandemic is entire modes of transportation shut down or have been incredibly unresponsive. Overall, the message of the day is that people are going to spend more money on diversification and that will increase associated logistics costs.

LM: How are you viewing 2020 Peak Season prospects? Could it be viewed as a one-time type of event, given the need for many shippers to restock inventories?  

McGuigan: Over the next couple of months, we will be seeing ports setting import records. When that happened in 2018, a lot of companies diversified much of their inbound transportation networks to avoid getting caught up in Long Beach, for example. Instead, they will look at other West Coast ports or the Panama Canal to get stuff moved through the Gulf Coast. There are companies benefitting from that now or have at least started to diversify. We see this happening for the months ahead and into the first quarter. Peak season will be hard to tell, as the system and the entry points are exhausted right now, from a capacity standpoint. Replenishment is going to go right into peak and then right into replenishment for 2021, again, right after peak just to get to what is a new inventory schedule. We believe it will be a peak from August through January. Look at the boom this has been for anyone with a highly developed e-commerce network. There are folks that have invested in that channel winning in a huge way in this marketplace, and they are consuming a tremendous amount of logistics network capacity. And as other folks come online that are dealing with a capacity dislocation, where does it go and is it enough? The answer is, with this surge, there is not enough. Our customers expect us and are used to us navigating them through this. It is the technology we provide that gives them visibility and benchmarking to identify opportunities. Nobody is getting out of this unscathed, and it is our job to help them navigate it.

LM: What can attendees expect out of the upcoming Transplace Shipper Symposium?    

McGuigan: This is the 18th annual Shipper Symposium. Attendees are our current and potential customers. Transplace prides itself on being a community of shippers that all leverage the same technology and support each other through that information. It is very much an educational event. I will also update attendees on how our business is performing, as people want to understand how their partner is performing in a year like this. We will then move right into the education for things like marketplace dynamics, with Ben Cubitt and Matt Harding. Bob Costello, chief economist from the American Trucking Associations, provides his update on what is going on in different markets and add some color at a high level. We will also have Alan Beaulieu, an economist from ITR, unveiling his 2021 Economic Outlook with a view from a supply chain standpoint, as well as a global economic standpoint. That will all be covered in 3.5 hours with two 15-minute breaks.