(Courtesy of the Jacksonville Business Journal) Landstar executives hopeful manufacturing recovery will increase driver capacity – Jim Gattoni provided a peak behind the curtain at how Jacksonville-based logistics company Landstar System Inc. (NASDAQ: LSTR) has managed to thrive during the pandemic.
Landstar’s CEO was among the speakers during the first day of the Stifel Virtual Transportation & Logistics Conference. Landstar closed 2020 with a record-breaking fourth quarter in terms of net income, earnings per share and total number of business capacity owners.
Tuesday, Gattoni and the Landstar’s Chief Safety & Operations Officer, Joe Beacom, discussed the company’s business model and the challenges the company faces from digital freight brokers and the recovery from the economic slowdown the pandemic induced last spring.
Gattoni believes his industry is in the midst of a cycle where spot rates are increasing because of trucking capacity issues. He noted truck orders climbed in the final quarter of 2020 as well as the fact that driver wages are increasing as well as a discussion of increases for contract rates.
“The beginning of this seems normal. Forget about the pandemic, those are the things that will cycle through in 12-18 months,” Gattoni told conference moderator Bruce Chan, Stifel’s Vice President & Senior Analyst for Global Logistics and Future Mobility.
Gattoni said Landstar’s record-breaking fourth quarter was consumer-driven. He projects this year’s growth to come because of a turnaround in the manufacturing sector.
The Bureau of Labor Statistics reported last week, in its preliminary review of fourth quarter productivity and costs, that manufacturing input increased 11.2% and productivity increased 3.0% from the third quarter. Manufacturing productivity increased 2.1% from the same period in 2019.
For the year, the manufacturing industry’s 6.5% decrease in output was the largest in the country since 2009.
Tuesday, Gattoni said he is “not sitting here and saying we won’t have a strong year,” but noted the consumer spike that fueled the fourth quarter growth cannot last forever.
Gattoni said 93% of the company’s $4 billion business is in the United States, but the firm has between $350 m and $400 million of cross-boarder business in Mexico and another $150 to $200 million in Canada. Of their nearly 1,200 independent agents, approximately 500 handle most of that business with more than $1 million in revenue in non-routine specialized freight.
Landstar’s CEO said 50% of his company’s business is based on fixed margins because of its prevalence of independent contractors. He added that the trucking marketplace feels as competitive now as it was 10-15 years ago, before the rise of digital tools that introduced competitiveness and reduced costs.
“You gotta be the best in service,” Gattoni said. “You have to be close in price, and you have to deliver on time and safely.”
For his part, Beacom said the unanswered question heading into the rest of the year is about the driver market. At the end of the fourth quarter, Landstar reported 10,242 independent contractors and a company-record capacity of 79,267 providers.
“Our agents are multi-generational and they have equally strong relationships with their capacities as they do their customers,” Beacom said. “When you have these capacity providers, they are trying to manage Covid, like everyone else. I think there were a lot on the sidelines.
“I don’t think we’ve seen a net growth in capacity, but it’s something the cycle will tell you is going to happen and trying to happen. I think the unknown is the driver: When does that happen and how much of an impact will that have on demand?”
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