Landstar Earnings: Retail and Industrial End Markets Remain Soft in the Third Quarter

Landstar System LSTR ranks among the largest third-party logistics providers in the highly fragmented $90 billion-plus domestic asset-light truck brokerage space. Since Landstar doesn’t own tractors, only a fleet of trailers, it has much lower operating leverage than pure asset-based truckload carriers. Thus, it enjoys a variable cost structure with relatively low capital intensity that generates solid capital returns—33% on average over the past seven years. Moreover, as one of the largest providers, Landstar has built a vast network of shippers, asset-based truckload carriers, and independent sales agents that support a wide economic moat, in our view.

Landstar’s trucking capacity is unusual for an asset-light broker because it relies in part on captive owner-operators (which the firm refers to as business capacity owners), in addition to unaffiliated third-party carriers, to haul freight. BCOs represent roughly half of revenue and haul exclusively for Landstar; most operate fewer than five trucks. The firm pays BCOs a fixed percentage of revenue, which reduces its gross margin (net revenue/gross revenue) variability relative to peers like C.H. Robinson. It also specializes in odd-size freight (roughly one third of sales represents unsided/flatbed business) and irregular routes—factors that bestow incremental competitive differentiation. Additionally, rather than using a captive salesforce, Landstar contracts with a vast network of independent, commission-based sales agents.

Landstar’s immense network of third-party carriers and owner-operators should remain highly valuable to shippers. This is because shippers desire efficient access to the small-carrier base throughout the cycle, and the broader trucking industry will probably continue to face periodic growth constraints due to the stubbornly limited driver pool, including the impact of intensifying regulation. We expect the highway brokerage market to expand at a faster clip on average over our forecast horizon than the combined for-hire trucking and intermodal markets, as large asset-light domestic transportation managers continue to process more truckload and less-than-truckload freight.