Table of Contents   4.   How much freight do the Top 100 shippers in the U.S. control?   9.   How does the market share of the Top 100 Shippers compare to the Top 100  Carriers?     12.   The resulting balance of power between shippers and carriers  

   

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List of Figures   4.   Figure 1: Total addressable market - North American logistics (2018)   6.   Figure 2: Top 100 Shippers in U.S. estimated trucking spend (and market share)   9.   Figure 3: Top 90 Shippers and Carriers market share of U.S. trucking industry   10.   Figure 4: Top 90 Carriers in U.S. estimated market share     

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How much freight do the Top 100 shippers in the U.S. control?   We thought it would be an interesting exercise to take the 2019 Fortune 500 list and  break out the Top 100 shippers of freight. The Fortune 500 is an annual, iconic  tradition that lists the Top 500 companies in the U.S. by revenue, public or private as  long as they file financial statements with the U.S. government.    We then narrowed down the list by removing any companies that do not  consistently pay to move physical goods or freight as part of their regular operations.  Doing so eliminated virtually all technology, healthcare, financials, utilities and some  industrials (such as airlines) from the list. We also removed any transportation  companies that made the list as moving freight would be revenue and not an  expense.   Once we narrowed down the Fortune 500 to the Top 100 shippers, we then made  several important assumptions. First, we assumed that the biggest shippers in the  U.S. spend 5% of their revenue on transportation. Second, we used the chart below  from Goldman Sachs and SJ Consulting that breaks down the North American  logistics market in 2018. As one can see, the $743 billion trucking market (including  both for-hire and private fleets) accounted for 62% of total transportation spend.  Therefore, we assumed that, of the 5% of revenue that top 100 shippers spend on  transportation, 62% of it was spent on trucking. When you run through those  assumptions, the bottom line is that the top 100 shippers in the U.S. account for 23%  of total trucking spend.   Figure 1: Total addressable market - North American logistics (2018)  

 

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One caveat – the average S&P 500 company derives about one-third of its sales  overseas. If you adjust downward accordingly for this dynamic, the top 100 shippers  market share of total trucking spend is closer to 15% (instead of 23%). However, the  foreign revenue exposure of the S&P 500 is heavily influenced by U.S. technology  companies, which tend to be very global in nature and account for over 20% of the  total S&P 500 market capitalization. However, since we have already removed  technology companies from our top shippers list, we chose to simply assume the  scrubbed list derives 100% of revenue domestically. We believe this makes sense  because companies that sell physical goods tend to have meaningfully less foreign  revenue exposure (on average) and adjusting on a company by company basis is too  ambitious a task for the purposes of this study.   The primary takeaways as we see them are as follows. The top 100 shippers’  cumulative revenue (about $5.5 trillion) accounts for 26.9% of the total U.S. GDP in  2018. We estimate these top 100 shippers spend approximately $275 billion on  transportation annually (assuming spend at 5% of revenue), and within that  approximately $171 billion on trucking. The latter figure corresponds to 23.0% of the  total $743 billion trucking market in the U.S.   Given top shippers may have a mixture of private fleets, dedicated and for-hire  carriers moving freight for them, it makes sense to compare the total trucking spend  to the total trucking market (e.g. Walmart’s estimated $16 billion in trucking spend is  significantly tied to its own private fleet but the company also has dedicated and  for-hire fleets delivering freight on its behalf).   Another takeaway is that it appears that with a few exceptions, most of the top 100  shippers come from the retail, industrial and energy sectors. This intuitively makes  sense given consumer spending accounts for roughly two-thirds of U.S. GDP.                 

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Figure 2: Top 100 Shippers in U.S. estimated trucking spend (and market share)   

 

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 Source: FreightWaves calculations, Fortune.com  

 

      

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How does the market share of the Top 100 Shippers compare to  the Top 100 Carriers?   To answer this question, we consulted the 2018 Transport Topics list of the top 100  truckload carriers in the U.S. (both public and private). Any revenue carriers  generated from brokerage, fuel surcharges, LTL, intermodal, etc. is removed in this  list, giving us a pure look at underlying trucking revenue. Interestingly, the top 100  list actually only contains the top 90 carriers; therefore, we had to adjust our list of  the top shippers down to 90 to compare market shares on an apples to apples basis.   What we discovered is that the top shippers are much more consolidated in terms of  market share relative to the carriers; in fact, more than five times as much. The top  90 shippers in the U.S. account for 22.3% of all trucking spend in the U.S. (using  FreightWaves estimates) compared to just 4.3% of total truckload revenue for the top  90 carriers in the U.S. (based on for-hire and dedicated truckload revenue only).   Figure 3: Top 90 Shippers and Carriers market share of U.S. trucking industry   

 Source: FreightWaves calculations, Fortune  

 

 Source: FreightWaves calculations, Transport Topics  

     

   

 

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Figure 4: Top 90 Carriers in U.S. estimated market share   

 

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 Source: Transport Topics 2018 Top 90 carriers in the U.S. by truckload revenue  

 

The resulting balance of power between shippers and carriers   We believe these dynamics have significant implications for the balance of power  between shippers and carriers. With the top 90 shippers accounting for an estimated  $166 billion of trucking spend (22.3% of total), the former figure swamps the  combined truckload revenue of the top 90 carriers of just $32 billion (4.3% of total).  This imbalance tips the leverage significantly in shippers’ favor in our view, generally  speaking and outside of trucking markets with tight capacity.   The fragmentation of the carriers in the trucking industry also speaks to the need for  freight brokers to help smaller carriers find regular loads and backhauls. With  approximately 90% of fleets in the U.S. trucking industry consisting of six trucks or  fewer, using brokers, load boards or digital freight brokerage apps is increasingly a  way of life.   This dynamic has played out in the trucking industry over the past decade via  brokers reaching a 20% penetration of the for-hire trucking market, up from about  

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10% a decade ago. This implies that the size of the total freight brokerage market in  the U.S. is north of $60 billion.    Armstrong & Associates forecast the freight brokerage market to grow at a 7%  compound annual growth rate (CAGR) through 2023. Unfortunately, this solid secular  growth in gross revenue will be partially offset by meaningful gross margin  compression from competitive new entrants, in our view.   Given the macro dynamics of the trucking industry, we think carriers’ optimal  competitive strategy is to shield their inferior negotiating leverage by minimizing  customer concentration and exposure to commoditized freight while having high  customer service levels.     

FreightWaves Freight Intel Contacts   Seth Holm, Senior Research Analyst  (404) 840-2064, sholm@freightwaves.com   Kevin Hill, Director of Research  (646) 731-4735, khill@freightwaves.com   Andrew Cox, Research Analyst  (615) 495-4507, acox@freightwaves.com  

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