An asset-light third-party logistics provider (or 3LP), Landstar System (LSTR) is among the top trucking firms in the US. Landstar System provides its logistics services to its customers in North America and a variety of other countries, utilizes transportation modes such as over-the-road trucks, air, rail intermodal, and ocean services.
Landstar uses a network of about 1,400 independent commission sales agents and numerous third-party owner-operators that supply more than 8,400 tractors and 14,300 trailers.
The major risks faced by Landstar System (LSTR) are:
- Although Landstar’s business model shields its profitability, the company is not immune to cyclical downturns in freight demand.
- During weak economic conditions, the gross revenue trends reflect weaker pricing and softer shipment volume from customers.
- The company works with its BCOs and other contractors on a percentage revenue basis, which can hurt if it is unable to strike a good deal with the customers.
- The increasing shortage of drivers indirectly affects the company. The company may find it difficult to recruit qualified owner-operators, which in turn find it difficult and expensive to retain drivers.
- With excellent safety-related records, Landstar self-insures for up to $5 million per occurrence. This can adversely affect the earnings if there is an increase in the severity or frequency of accidents.
- The company loses a lot of business if it loses even one of its highly successful Million Dollar Agents.
- If capacity in the industry tightens significantly, it could make it more difficult and expensive for the company to source the capacity it needs.
- Small brokerage operations, which were once limited in scope, are becoming more efficient. They can be acquired by larger and more capable 3PLs.
- Because the company passes along a fuel surcharge to its customers, any large increase in fuel costs could have a negative effect on demand.
Trucking companies that share these risks with LSTR include Celadon Group (CGI), J.B. Hunt Transport (JBHT), and USA Truck (USAK). Some of these companies are part of the iShares Transportation Average ETF (IYT).