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Landstar System (LSTR)Stock (Transportation Industry, Trucking Industry)
Landstar System (LSTR) is a non-asset based transportation and logistics provider that uses self-employed agents who contact customers and source business for a commission of about 7% per load, and self-employed drivers who generally own their own equipment and are paid a percentage of the revenue generated by the load. Since the major costs are variable based on revenue, Landstar is able to maintain consistent profitability throughout the business cycle.[1] The carrier segment provides transportation services to the truckload market. This segment accounted for approximately 73% of sales in 2006. The global logistics segment accounted for approximately 26% of 2006 sales. It arranges multimodal (ground, air, ocean and rail) moves, contract logistics, truck brokerage, emergency and expedited ground, air and ocean freight, bus brokerage and warehousing. The insurance segment, which accounts for approximately 1% of company revenue, provides risk and claims management services to Landstar’s operating subsidiaries. In addition, it reinsures certain risks of the Company’s BCO Independent Contractors and provides certain property and casualty insurance directly to Landstar’s operating subsidiaries.[2] The transportation services business is extremely competitive and fragmented. Landstar competes primarily with other truckload carriers and independent contractors and, with respect to certain aspects of its business, intermodal transportation, railroads and less-than-truckload carriers[2]. On March 5, 2008 Landstar was named to Fortune Magazines list of "America's Most Admired Companies". This was the fifth consecutive year that Landstar garnered this honor. [edit] Company OverviewLandstar System, Inc. is a non-asset based trucking company - a trucking company that does own its own trucks. Landstar System's independent sales agents coordinate the shipment of freight between customers in the United States, Canada and Mexico using their network of independent truck operators. Landstar System's operations can be divided in to three business segments: the carrier segment, the global logistics segment and the insurance segment.[2] [edit] Business and Financial MetricsBusiness Metrics: The success of Landstar System depends how much revenue each independent sales agent can generate by building and maintaining customer relationships. Management believes that the future success of the company depends on the number of agents who generate more than $1 million of Landstar revenue annually; these agents are known as "Million Dollar Agents."[2]
Financial Discussion: Over the past five years, Landstar System's revenue and net income have grown significantly; however, both revenue and net income have slightly decreased over the past three years. In 2007, Landstar reported revenues of $2.49 billion, which is down from revenues of $2.51 billion in 2006 and $2.52 billion in 2005; revenue decreased by 1.1% between 2006 and 2007. In 2007, Landstar reported a net income of $110 million, which is down from $113 million in 2006 and $116 million in 2005. The decreases in revenue and net income can be attributed to the global logistics segment, whose decreased revenue resulted from a decrease in revenue associated with that segment's contract to provide disaster relief transportation for the FAA.[2] [edit] Business Segments[edit] Carrier Segment (73% of Revenue)[2]The carrier segment facilitates the transportation of entire truckloads of cargo between shippers. The carrier segment consists of of 8,603 trucks owned and operated by independent contractors and 14,331 trailers owned by either independent contractors or Landstar System. Revenue from the carrier segment increased by 0.7% from $1.80 billion to $1.81 billion, between 2006 and 2007.[2] [edit] Global Logistics Segment (26% of Revenue)[2]The global logistics segment arranges the transportation of freight that requires the use of multiple modes of transportation (ground, air, ocean and rail) as well as emergency ground, air and ocean transportation. Excluding transportation associated with the FAA contract, the number of loads and revenue per load delivered by this segment increased by 6% and 3%, respectively, from 2006 to 2007.[2] [edit] Insurance Segment (1% of Revenue)[2]The insurance segment is made up of Signature Insurance Company, a fully owned subsidiary, and Risk Management Claim Services, Inc. This segment provides property and casualty insurance as well as risk and claims management services to Landstar's operating subsidiaries.[2] [edit] Key Trends and Forces[edit] As freight transportation demand declines during economic downturn, Landstar will be able to maintain its margin because of its non-asset based structureThe demand for cargo transportation will decline as the full effects of the global recession negatively impact industries that ship large amounts of cargo. As the demand for cargo transportation and the capacity needed for cargo transportation decrease, Landstar will be able to maintain its current profitability because of its non-asset based structure. Landstar does not actually own the trucks that move the freight that the company arranges to have transported, instead it purchases the capacity it uses to transport freight; these purchases represent a variable costs and 76% of the company's revenue. Therefore, as demand decreases, Landstar will never be faced with excess capacity because it is easily scalable to demand. Furthermore, Landstar will not have to reduce prices if capacity becomes abundant nor will it have to raise prices as capacity becomes scarce.[3] [edit] Fluctuations in the price of oil will effect Landstar's variable costsLandstar purchases its hauling capacity from independent trucking contractors who set prices for use of their capacity. Increases in the price of oil could would increase the contractors' variable costs; the contractors would likely pass this cost on to Landstar by increasing the price that Landstar pays for capacity. If Landstar cannot pass this increase in variable costs on to its customers, Landstar's net income will decrease.[2] If the price of oil decreases, it is unlikely that Landstar's net income will increase as a direct result of the decrease in the price of oil; Landstar's contractors will probably not reduce the price that they charge Landstar for use of their capacity. [edit] Landstar is vulnerable to natural disasters, like hurricanes, tornadoes and floodsLandstar has essential operational facilities in Jacksonville, Florida and Rockford, Illionios. The facility in Jacksonville would be catastrophically damaged if it were to be impacted by a category 3, 4, or 5 hurricane. The Rockford facility could be damaged by flooding and tornadoes. Furthermore, both facilities are also susceptible to terrorist attacks.[2] If either facility is damaged, Landstar will not be able to continue its normal operations, which would result in decreased revenue and net income. [edit] CompetitionLandstar System, Inc. directly competes with C.H. Robinson Worldwide (CHRW). C.H. Robinson is a non-asset based trucking company with operations in United States, Canada, Europe, Mexico, South America and Asia[4] who had revenues of $7.3 billion and net income of $324 million.[5]
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 Landstar System2004 Data 2005 Data 2006 Data 2007 Data 2008 Data Most Recent Data Available [edit] References
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