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Eagle USA Airfreight was the hottest thing in domestic forwarding, but Eagle has a new identity to go along with a new, high-stakes strategy by Brendan Sobie
Houston
Crane may run one of the fastest-growing air freight forwarders in the world, but he's in no hurry to buy new coffee mugs, stationery and business cards. In fact, he says he won't even swap out the Eagle USA signs at any of Eagle's 64 terminals across the United States. Given what he's done under those Eagle banners, it's hard to blame him for hanging onto them. In less than a decade, the 46-year-old St. Louis native has turned a $15 million freight forwarder, an operation that was largely indistinguishable from countless others that dot the air cargo landscape, into a $600 million publicly-traded company with the largest domestic air freight forwarding business in the United States. Eagle's torrid 40 percent annual growth rate has come even as larger trends have seemingly worked against the company in its core market, where shippers are sending more of their traffic to the rapidly-growing integrated air carriers. To keep up the pace, Crane wants to follow the growth in air freight, and that means going global. The company wants to expand its nascent international business from one-sixth of total revenue to one-half in just three years. The plan will put Eagle into closer competition with some of the world's oldest and largest international air freight operators and challenge the company's ability to stretch its service-intensive, logistics-focused business plan across oceans and cultures. But it's also a move Eagle has to make because its customers are making the same move, migrating everything from manufacturing to new sales to far-flung corners of the globe even as some of world's largest forwarders move into the United States and try to get a piece of an economy that has proven so successful for Eagle. The first step will be essentially cosmetic: the dozens of new offices Eagle, or EGL, plans to open around the world need to be emblazoned with the new brand. "Some people don't like U.S.-based companies, so why put your name on it?" says Crane, who has handed off everyday responsibility of Eagle's rapidly-growing $500 domestic business to focus on international expansion. "It's more a global product now and everything has become globalized." "That's the first widebody we'll put up, but in that market we're very comfortable in it because the volumes that are moving in and out of there," says Ron Talley, Eagle's chief operating officer. "And it really makes us more competitive in the market than flying the 727." Eagle began flying a 727 into Puerto Rico in September 1998 to drive up its pharmaceutical business. Since then, its San Juan office, which opened in August 1995, has more than tripled its revenue. And the potential for additional growth appears enormous: almost every other freighter operated into San Juan from the mainland is a widebody, including daily 747s from Emery Worldwide, a major Eagle competitor. Adding dedicated lift to other select markets in the continental U.S. has had a similar effect on Eagle's automotive and high-tech businesses. But Talley says most of these flights are short and aren't candidates for widebodies, with the exception of the Austin-San Francisco flight, which draws heavy traffic to and from the Silicon Valley. Eagle may even become an international flier as it expands to Canada, where it is adding almost $50 million in annual business through new acquisitions. "If there's enough cargo up there, we'll put up a dedicated line like we did here," says Eagle's chief Jim Crane. "It's easy to do. We think there's a play between Toronto and a major market in the U.S." Crane actually began quietly preparing the foray into the international freight forwarding market three years ago, after realizing that "we had the domestic piece scaled." In early 1998, Eagle bought British forwarder S. Boardman and Miami-based Latin America specialist Eagle Transfer, and later that year expanded to Asia with a new office in Hong Kong. Last year, Eagle acquired Canadian sister companies Fastair Cargo Systems and Commercial Transport International along with Chilean freight forwarder Compass Cargo and opened offices in Brazil, Argentina and Peru. The EGL name was first unveiled at non-U.S. offices last fall, a concrete sign that Eagle had joined the competition for international logistics business. "We really have the template ready to go," Crane said in an interview at Eagle's headquarters outside Houston Intercontinental Airport. "We think we can compete with any of the big international freight forwarders and then where we have leverage is on the domestic system. "We have the infrastructure to feed the freight internally. We have the ground system and the air system. We have set up customs brokerage units in all of the gateways so we can clear the freight. Because our cost structure is very low in the U.S. (and) because we're already doing domestic, we're going to become a player very quickly," he said. Crane even predicts he'll scale-up the international business faster than the company expanded its domestic business. That's an imposing prospect, as Eagle's domestic competitors can attest. While domestic freight growth has largely gone to integrated carriers, Eagle has grown by winning high-value accounts from companies at the forefront of changing inventory practices and the booming American economy. Technology shippers make up the largest industry group in Eagle's customer base and Dell Computers and Compaq, both also based in Texas, are big customers. Crane credits Eagle's success to a unique model that combines commercial air cargo capacity, freighters chartered for periods up to one year for targeted routes, expedited linehaul and local owner-operator pick-up and delivery trucks - a model that seems to fit best with shippers looking to minimize, or eliminate, their inventory by managing an entire supply chain on a time-definite basis. "The no-inventory model plays right into our business model," says Crane. By targeting later pick-ups and earlier deliveries, Eagle seeks to outflank both forwarders and integrated carriers for time-sensitive freight. Over the last few years, Eagle has maintained an 8 percent profit margin in the historically low-margin air freight industry, and Eagle has also easily outpaced its publicly-traded competitors in revenue growth. "No one has our exact model," claims Crane. "You got the ground piece that goes all the way to local delivery. You got the domestic piece and now the international. A lot of (our competitors) do parts of those things, but not all of them. So I think we have an advantage." The investment world, which has largely backed the company since its 1995 public offering, applauds the international move. Analysts say the strategy that has won Eagle high-profile shippers domestically should attract the same sort of shippers in the international arena. "I think their service levels are much better than international forwarders," says Edward Wolfe of Bear Stearns. "The domestic shipper is a much more demanding shipper and they grew up in that environment." Eagle sends lots of business to Dallas-based Kitty Hawk, and is the largest customer in Kitty Hawk's dedicated overnight domestic network. But on those same planes Kitty Hawk carries freight for some of Eagle's biggest competitors, smaller domestic forwarders whose only outlet for the most urgent of shipments is typically Kitty Hawk. "We've combined on some routes and we enjoy working with them," says Jim Crane, Eagle's chief executive officer. "We're going to give them some business where it helps. The true problem we've had with them to be quite candid is they do service some of our downline competitors, like the small freight forwarders. So that does become a conflict at some point. That's where the rubber meets the road." This spring, Kitty Hawk and Eagle have been butting heads even more as Kitty Hawk expands its overnight network to the southwest and along the Mexican border, traditional Eagle strongholds. Crane and Kitty Hawk CEO Tom Christopher acknowledge there's been some contention. But they point out that where they overlap Eagle has enough freight to fill its own planes and hand the extras to Kitty Hawk. "Their service is very different in that they do point to point, and not a hub," says Christopher. "We're certainly not competitors." Small forwarders, who lobbied Kitty Hawk to expand its network, have a different perspective. Domestic forwarders privately complain that airlines give Eagle preferential treatment on tight flights. But they can't do much about it because they don't have the business to match Eagle. Some say Eagle's heavily committed space makes them a borderline asset-based operator. The international competition is hardly unfamiliar to Eagle, either. The rapid, technology driven growth in the United States economy has led large, purely international American forwarders such as Circle International and BDP International to set up domestic services, and brought non-U.S. forwarders such as Danzas and Hellmann International into the domestic market. Crane offers a confident greeting to the international forwarders looking at the lucrative U.S. market: "Best of luck to them. ... I think it's much harder to build the domestic system because it's more time-sensitive. ... It's faster. It's a different skill set." Eagle expects to add some $100 million annually in international business over the next several years by using its U.S. business as a foundation for a "one-stop shop" service for the entire supply chains of large, multinational shippers. The company already has several of the United States' largest multinationals in its fold but only provides international services for about 10 percent of its top clients, and only on select lanes. "The companies we have relationships with today ... we have a huge opportunity if we just go ask them for their imports," says Kim Wertheimer, the executive vice president for North America international business development. In January, Crane recruited Wertheimer from Circle International to do just that: knock on doors at the headquarters of U.S. multinationals. Wertheimer says he doesn't even have to travel abroad to find the right decision-makers because the four largest types of imports Eagle handles - high-tech, automotive, consumer goods and pharmaceuticals, in that order - are largely controlled stateside. "The trick there is consignee selling," he says. And Wertheimer doesn't foresee the "too many eggs in one basket" theory preventing logistics managers from handing international business to their domestic provider. In fact, he sees shippers moving in the other direction, which is why Eagle may be threatened if the company doesn't add a full spectrum of international services and become a "one-stop" provider. "Clearly the trend over time will be toward one-stop shopping," says Gregory Burns of investment firm Lazard Fréres. "Now is the time to build that scale before it becomes a requirement. We think (Eagle) is moving in the right direction." EGL's Business Mix Eagle's product mix, transportation cost breakdown and industry concentration for the fiscal year ending Sept. 30, 1999. (in percentage terms) Over the last year, Eagle has focused its international expansion effort on the Americas. Eagle anticipates the Canadian acquisitions, along with new activity in South America, will help double international revenue to over $200 million for the year ending Sept. 30. "The Americas is the pusher," says Crane. "We're trying to close some deals in South Americas (and) we're really trying to get the transborder business from Canada to the U.S." To steer Latin American growth, Crane has turned to Raul Pedraza, the former head of Eagle Transfer. Pedraza has presided over the acquisition of Compass, the purchase of a stake in a Peruvian company, the opening of two Eagle offices in Brazil and the forging of a joint venture in Argentina. "All of the folks that we have contracts with domestically have big chunks of business internationally, and we're attacking South America first because we are set up there and ready to go," Crane said. For example, Eagle recently extended a domestic distribution contract with an American telecommunications manufacturer to include parts shipments to a new facility in Brazil. Eagle hopes smaller international contracts with Dell, Compaq, Nokia, Intel and Apple Computers will lead to larger arrangements with these and other high-tech shippers in Latin America. As he turns his attention to Asia and Europe later this year, Crane hopes to use a similar combination of small acquisitions, joint ventures and new offices staffed mainly with local experts lured over from rivals. In Asia, Crane plans to move Vittorio Favati, executive vice president for the Asia/Pacific, out of Houston and into the region. Favati is already searching for acquisition candidates and planning new offices in Taiwan, Singapore and Australia, to be opened by September. Asia also is just a drop in the bucket for Eagle these days, with just the one office in Hong Kong and its satellite operation in Shenzen, China. But the company is already handling small pieces of the large Asian import traffic from Nike, Hasbro and Mattel and is unfazed by the entrenched networks that can make it difficult to gain Asian business. "We started Hong Kong from scratch and scaled it pretty quick," Crane says. "I think it's because we got the business connections over here. You do want to eventually broaden your depth over there and get into Japan and Korea, too. "What's nice is that after we set some of these strategic spots like Taiwan and Singapore and Australia, we'll really start seeing the leverage between the four sectors: North America, South America, Asia, Europe," he added. "Instead of it all originating out of the U.S. or back to the U.S. to all those points, you'll start seeing some criss-cross." With a similar profit-based compensation scheme and similar aggressive recruitment tactics, Seattle-based Expeditors International of Washington could be a good match with Eagle. Both companies are led by ambitious men at the peaks of their careers and have been darlings on Wall Street since going public. Among publicly-traded logistics companies, Expeditors is right behind Eagle in both profit margin and revenue growth. And there is little overlap, at least for now: Expeditors has refused to venture in the domestic U.S. business, focusing purely on international business, in particular imports from Asia. In fact, Eagle hopes to follow Expeditors' lead as it expands its international business, which could quickly make them major competitors. "We like their model," says Eagle Chief Executive Officer Jim Crane. "We think they've done a good job where they pay their people well. A high-quality service with a good information system, that's something we aspire be on the international side. If I had to look at AEI or Circle of Fritz or MSAS - and I have - I think Expeditors has an advantage." There are at least two major barriers, however, to a possible combination: Crane and his counterpart at Expeditors, Peter Rose. In demeanor, Rose and Crane seem to present stark contrasts, with Rose as publicly commanding as Crane is outwardly restrained. But both are aggressive entrepreneuers and neither one tries to put up facades of false modesty or hide their pride in their accomplishments. And they both have big stakes in their companies and aren't too keen on mergers. Expeditors likes to think of itself as digestible as a porcupine. Crane won't go that far, although he says Eagle's relatively high stock price has "kept some of the players away." "You never can say never when you're publicly traded," he acknowledges. "(But) I think they are more accessible than we are. They are expensive too, but they don't have the control we have from the management side." Instead, Crane believes he is in the mergers-and-acquisitions driver's seat. He says Eagle's success and the turmoil in the industry have driven mid-sized forwarders in Europe and Asia to bang on his door. Crane plans to forge relationships with the best of these companies that may at first may take the shape of joint ventures or agent agreements but in most cases will wind up as acquisitions. Joint ventures "are structured so eventually we can buy them out or we don't do them," he says. "We're not going to sit in a situation long-term where we don't have control. "We've seen a lot of medium-size freight forwarders approach us that want to join in, and there's some good ones left. I think we'll pick off a few of those." Of course, Crane could just go out and strike a deal with a big-name international forwarder and get it all over in one mega-deal. After all, that's the way much of the industry is heading, and international forwarders looking to beef up their American presence surely would covet Eagle's domestic network. But Crane sees the turmoil in the industry more as an opportunity to grow than as a reason to cash out, and recent experiences have soured him on the big-splash approach. "We have looked at some big transactions and we felt after not being able to get those done the small high-quality acquisition (is better), and they are a hell of a lot cheaper," Crane says. "You can scale quicker, you can get more value for your money and you can get some good people. It's a much better to go that way." That's not to say Eagle hasn't been at the table talking about such mega-deals. In late 1998, Eagle discussed a possible merger with Air Express International, then the largest U.S.-based air forwarder. Crane says the talks broke down when the value of a stock swap couldn't be settled. "They wanted a big premium and we weren't willing to pay it," he said. Eagle's share price was in the midst of a steep climb while AEI's was languishing, but industry insiders say the there were greater barriers than mere stock valuation. These sources say AEI executives balked at turning control of the company over to Crane, whom they viewed as inexperienced on the international front. But Crane holds a large ownership stake in Eagle and that would have put Crane in charge unless AEI brought greater share-price power to the table. Less than a year later, AEI was acquired by Swiss forwarder Danzas through its parent Deutsche Post, the German postal giant. Crane insists AEI management drove the talks with Eagle and was looking to bail out. "The management team was senior ... and they were looking at getting some investment back," he said. In the last two years, Eagle has considered combining with just about every large international forwarder, but in every case Crane sees too much overlap: "I don't believe a good match would be anything that duplicates what we have, so I don't know what that is." Crane knows firsthand the side effects of large acquisitions: he's made a living skimming the cream of the crop away from competitors in turmoil and he says his phone is "ringing off the hook" with calls from candidates hoping to join Eagle's incentive-heavy payroll. The privately-owned German forwarder counts less than 15 percent of its $2.2 billion business in the United States but is hoping that a new line of domestic American services, along with a restructuring of its U.S. operation, leads to a greater foothold in the world's largest economy. "It's cliched, but it's the customers who want to have one firm to call, to have one-stop shopping," says Rick Cazan, Hellmann's new senior vice president of sales and marketing in the U.S. "I think that's where (the industry) is going." Hellmann has experimented with domestic services in Boston, its strongest U.S. office, since 1998. But it wasn't until this year that the forwarder decided to unveil a line of domestic services nationwide. In the last few months, Chicago, Los Angeles, Miami, Tampa and Orlando have joined Boston and Cazan says Hellmann's 10 remaining U.S. offices, as well as a future branch in the Raleigh-Durham area of North Carolina, should be on board by the end of this year. In addition to providing domestic services to existing non-U.S.-based clients, Hellmann also has its sight on U.S. multinationals. In the past, the forwarder hasn't solicited such accounts, but it plans to begin competing for such business in about a year, after its domestic operations have been thoroughly tested. By then, Hellmann will have also completed "regionalizing" its U.S. operation, which should lead to a greater sales presence beyond its East Coast stronghold. Eagle's confidence may come from the fact that its management can actually watch its business grow first-hand. Most big players — and many smaller forwarders — have their executive offices far from the day-to-day freight world, but Eagle shares its headquarters building with the company's station at Houston Intercontinental Airport — warehouse, forklifts and all. From there, the forwarder has tied a sales strategy that targets vertically integrated shipper markets to a tactical approach to operations that incorporates a network of chartered lift with Eagle's increasingly strong buying power on commercial aircraft. Eagle spent more than $100 million, 31 percent of its transport costs, on commercial lift last year. It is the largest domestic forwarding account for Continental and Southwest airlines and Delta Air Lines. Eagle spent almost another $40 million last year on all-cargo carriers, predominately Kitty Hawk, which counts Eagle as its largest customer on its scheduled overnight freighter network. Another $15 million was spent on integrated carriers and a new block space deal with DHL Worldwide Express could add to that figure this year. But Eagle has gone further by taking on eight 727 freighters on wet leases of a year or less from Capital Cargo and Express One. The operation allows Eagle to "cherrypick" some business from integrators BAX Global and Emery Worldwide and has blurred the lines between forwarder and air carrier. But unlike those airlines, Eagle's planes run between select points rather than in a hub-and-spoke system. That allows for later pick-up and earlier delivery times and for more flexibility in adding unscheduled stops to meet specific customer requirements. "We don't want to go with an exclusive hub-and-spoke system and never will because it's too expensive and that's where we have the advantage over (BAX) and Emery," explains Crane. "They have much higher overhead than we do." During busy automotive shipping periods, Eagle adds turns during the day and on the weekend. Eagle can scale back by chartering aircraft for periods to integrators. The flexibility translates into lower costs for the most premium of services - overnight delivery, a high-yield product that accounts for 47 percent of Eagle's revenues. "We can come up and down based on the conditions," says Ron Talley, Eagle's chief operating officer. Talley says Eagle ventured into dedicated lift because it couldn't find the capacity to meet some time-sensitive customer requirements, primarily high-tech shippers in the southwest and automotive shippers in the midwest. Eagle will expand lift next month by replacing a 727 between Philadelphia and Puerto Rico with an A300. Eagle has also contracted out its extensive expedited linehaul and pick-up and delivery, allowing the company to integrate services while remaining non-asset-based. Over the last year, Eagle has started dedicated linehauls across the nation to feed its international gateways and plans to expand this operation as international business expands. Eagle projects a 39 percent increase in ground business this year over last. And Crane isn't about to concede any slowdown in domestic growth even as he focuses on international business. "We have significant growth opportunities on the domestic business, both the time-definite and the air freight," says Crane. "I think we still have a lot of room." Crane starts to mention the $2 billion figure but quickly swallows his words: he doesn't want to go there yet, at least publicly. After all, even the ambitious Crane doesn't expect Eagle to reach $1 billion in revenue until next fiscal year. To meet that, Eagle will have to grow by 30 percent this year and next. But considering Eagle's year-over-year growth hasn't been nearly that low in over a decade, it's seems a safe bet Crane will get to throw that big party he's already starting to plan for October 2001.
Birds of Prey | Bygone Customs?
© 1999 Journal of Commerce, Inc. All rights reserved. | |
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fter 15 years as Eagle USA Airfreight, Jim Crane's once-small, local freight forwarding operation had just taken on an impressively high-minded new name - EGL, for Eagle Global Logistics - but there weren't many signs of the new identity around the company's headquarters the day after the change became official. The old Eagle logo was prominently displayed outside, along with the United States and Texas flags. And in his second floor chief executive's suite, Crane sipped coffee from an Eagle USA mug.
