IRONWOOD CAPITAL PERSPECTIVE:

DOMESTIC TRANSPORTATION AND LOGISTICS

- A RECOVERING INDUSTRY

In this post, we will discuss Ironwood’s perspective on the domestic Transportation and Logistics (“T&L”) industry. The overall T&L vertical has experienced supply chain disruptions, labor shortages, and rising operational costs in the post COVID-19 environment. However, the industry has recently seen stability as macroeconomic indicators have normalized and recovered, while technological and policy outlook are anticipated to drive benefits in 2025. 

The United States Transportation & Logistics industry includes an integrated network of various service providers including:

• Trucking Services: Companies specializing in full truckload (FTL) and less-than-truckload (LTL) shipments provide essential overland freight transport for diverse shipping needs. Trucking is further broken out by length of haul (long-haul versus short-haul) and trailer type (dry van, refrigerated or “reefer”, and flatbed). 

• Rail Transportation: Rail networks primarily handle bulk shipments of raw materials, offering a cost-effective alternative to trucking for long-distance freight. However, the inherent inflexibility of rail makes it best suited for industries with consistent, high-volume shipping requirements. 

• Marine Transportation: Marine freight plays a crucial role in global and domestic trade, moving large volumes of goods across waterways. This segment includes container shipping, bulk cargo transport, and roll-on/roll-off services for vehicles and heavy machinery. 

• Freight Forwarding and Brokerage: These firms coordinate the transportation of goods, optimizing routes and negotiating rates to enhance efficiency and reduce costs. Freight forwarding firms encompass a broader service offering, providing multi-modal transportation services, as well as documentation and/or customs assistance.

• Third-Party Logistics (3PL) Providers: 3PLs offer outsourced supply chain solutions to businesses, managing warehousing, distribution, and fulfillment services for various end markets. 3PLs specialize in storage and fulfillment services to enhance geographic reach beyond a business’s internal capabilities. 

The visual below breaks down weight of shipments in the US by transportation mode. As shown¹, the US domestic transportation market is (and is projected to remain) dominated by truck transportation, which is the primary topic described in this post.

Ironwood’s experience within the US-based transportation and logistics industry includes investments across a variety of sectors (i.e., short-haul versus long-haul, asset-heavy versus asset-light) and end markets. Historical Ironwood investments are further detailed below. 

Recent Trends (2020-2024)

In recent years, the T&L market has navigated a combination of disruptions and transformations, including:

• Pandemic-Induced Supply Chain Disruption: The COVID-19 pandemic caused widespread supply chain disruption across US end markets as producers struggled to maintain supply chains both domestically and abroad. Furthermore, stay-at-home and work-from-home shifts led to a change in consumer purchasing behavior, spurring a transformational increase in demand for deliveries and ecommerce sales traffic (+43% growth from 2019-2020)². As businesses faced delays with both production and importation of goods and as consumer demand for home deliveries rose, T&L providers faced increasing demands, often with short lead times or changing arrival dates, resulting in imbalances within the market:



Fluctuations in Hauling Rates

Spot rates experienced significant increases through COVID as available capacity was strained. Spot rates subsequently fell as producers and retailers grappled with excess inventories and post-COVID demand hangover in certain end markets. As shown below³, spot rates have largely stabilized since 1Q24, resuming steady performance near pre-COVID levels.

Equipment and Maintenance Challenges

T&L companies managed extended lead times and frequent price increases for both equipment (e.g., tractors, trailers) and maintenance resources. As shown below⁴, average auction selling prices for used sleeper tractors was approximately $135,000 in January 2022, which represented a 193% increase from three years prior. By mid-2024, prices had normalized back to pre-COVID levels. 

Driver Shortages and Compensation

A shortage of qualified drivers resulted in aggressive pay increases and signing bonuses. Driver pay hit its highest point in the beginning of 2023, impacted by high demand for freight, intense competition for drivers, and the hangover effects of the driver shortage⁵. While these have ameliorated somewhat, pay increases tend to be stickier so they did not retreat as much as spot rates.

• Economic Resilience and Inflation: Domestic T&L activity is strongly correlated with overall US economic activity, which showed strong growth coming out of the pandemic driven by continued consumer spending. While high inflation in 2022 fueled concerns of an economic slowdown and continued high interest rates, those fears subsided in 2024 as inflation moderated and the Fed began to signal lower interest rates. 

As shown below⁶, the US economy has continued to present quarter-over-quarter real GDP growth despite inflation and economic slowdown concerns.

Outlook for 2025

Most of these disruptions subsided by 2024, with key indicators showing signs of stability and recovery heading into 2025. There are several key trends driving the industry in 2025:

• Policy Risk and Cross-Border Trade: As noted above, recent reshoring / nearshoring efforts have driven growth in cross-border trade with Mexico and Canada7. While this trend should be a net positive, especially for T&L providers specializing in cross-border hauling as well as 3PL providers offering warehousing / distribution services, proposed tariffs and policy changes present uncertainty regarding near-term trade dynamics.

• Market Growth and Economic Resilience: Continued growth in the US economy provides a tailwind to T&L demand. Real GDP increased by 2.3% in 4Q24, following a 3.1% rise in 3Q24. This growth, with further optimism following the interest rate cuts of 2024 and moderated inflation, provide optimism for continued economic tailwinds in 2025.  

• Freight Demand and Hauling Rates: Following stabilization in recent years, spot rates are anticipated to exhibit moderate, steady increases through 2025 as businesses continue to rebalance inventory levels, offset by continued strength in consumer spending. Truckload spot rates are anticipated to grow 5.5-6.0% in 2025⁸.

• Inputs and Equipment Pricing: Diesel prices are expected to average $3.66 per gallon in 2025, reflecting a 3% decline from 2024⁹. The pricing landscape around equipment (e.g., trucks, trailers) remains at risk due to uncertainty around tariffs, as many components are produced outside of the US. While new equipment purchases are anticipated to experience growth in coming years ahead of new EPA emission standards beginning in 2027, the possibility of near-term policy and/or regulatory changes may delay new equipment purchases¹⁰.

• Increasing Reliance on 3PL Partners: While stabilized in line with the broader T&L industry as noted above, manufacturers are increasingly reliant on 3PL partners to manage increasingly complex supply chains. Moreover, technological improvements, as well as consumers’ continued shift toward online purchases and desire for both real-time tracking and rapid fulfillment, lead businesses to utilize 3PLs who specialize in final-mile delivery, maintain capabilities for rapid delivery, and competitive cost structures compared to attempting to manage fulfillment in house.

Investment Considerations

The US T&L industry remains poised for continued M&A activity in the coming years, driven by a highly fragmented market with clear operational improvement opportunities as a result of strategic consolidation. As the US population continues to age, the overall M&A outlook for this industry is anticipated to continue to grow as founders without formal succession plans seek to achieve liquidity events.

Key investment considerations and drivers of success include:

• US Economic Performance: As noted above, the US T&L industry is largely correlated to the overall US and North American economy, with demand fluctuating based on industry cycles. Thus, T&L providers serving recession-resistant end markets (e.g., Consumer Packaged Goods) are more stable and attractive investments compared to a more cyclical customer mix.

• Rate Volatility: Freight rate fluctuations create pricing uncertainty, which requires operators to utilize a dynamic pricing strategy. T&L providers with a balanced mix of contract and spot rate market exposure are better positioned to maintain performance throughout the investment period.

• Capital Intensity and Asset Strategy: While asset-heavy operators require ongoing investment in fleet and infrastructure, asset-light models such as 3PL and brokerage experience enhanced cash flow and reduced capital expenditure requirements. This model allows for greater scalability, with asset-light providers likely to garner higher valuations.

• Labor Availability: The US trucking industry is notably fragmented, with 95.5% of carriers operating ten or fewer trucks¹¹. This high level of fragmentation underscores qualified drivers as a key constraint to growth, with providers that excel in retention and workforce management better positioned to scale and compete.

• Route Efficiency and Technology: Maximizing asset utilization and reducing deadhead miles are critical to profitability. Thus, T&L providers with strong technological integration and efficient route planning are better able to manage margin than less sophisticated players. Moreover, service providers (e.g., 3PLs) embracing technological innovations to support increasing demands from both producers and consumers for improved delivery times and tracking solutions are poised to benefit relative to less sophisticated providers.

• Modest Use of Leverage: Ironwood sees T&L companies generally garnering more moderate total leverage levels as companies balance their cash equipment needs, market pricing and cyclicality trends, and the capital intensiveness of key growth initiatives. T&L providers with conservative leverage profiles are better positioned to navigate economic cycles and invest in strategic growth theses as needed. 

In summary, while the general T&L industry has experienced disruption in recent years, the industry has shown resilience and recovery throughout 2024 and is positioned to continue its growth into 2025. Ironwood is actively pursuing new T&L investments and looks forward to discussing how our prior experiences and value-added approach position us as a strategic partner for your platform. 

Ironwood Investment Experience

Ironwood has long been an investor in the US-based T&L industry, investing across third-party logistics (3PL), asset-light logistics services (both final-mile and long-haul), warehousing, and traditional trucking platforms. Historical Ironwood investments include:

TFA Logistics (f/k/a Cox Transportation Services): An Ashland, VA-based provider of both asset-heavy long-haul trucking and asset-light brokerage services to customers across CPG and other end markets across the US. Ironwood’s investment in TFA culminated in a refinancing when COX merged with Outwest Express, a primarily asset-based provider of long-haul freight services across the US, serving complementary retail, medical, and other end markets.

DSI Logistics: An asset-light provider of white-glove 3PL home delivery and installation services for furniture, appliances, and other end markets. Ironwood’s investment in DSI culminated in a sale to Pilot Freight Services, a full-service logistics provider that sought to expand its final-mile home delivery capabilities. Pilot Freight Services was subsequently acquired by Maersk.

St. George Warehouse: A third-party logistics provider of Container Freight Station ("CFS") services, warehousing and value-added logistics solutions. Operating through 11 facilities located across the US, St. George plays a critical role in cargo handling, deconsolidation, and final-mile logistics. Ironwood’s investment in St. George culminated in a sale to Wind Point Partners, a private equity group based in Chicago.

Performance Team: An end-to-end 3PL provider, offering eCommerce, retail, wholesale, and omni-channel distribution and transportation services. Ironwood’s investment in Performance Team culminated in a strategic sale to Maersk to expand their regional warehousing and fulfillment capabilities.

For a complete list of Ironwood Capital’s investment experience, please visit our website: www.ironwoodcap.com/portfolio.

We’re excited about the opportunities we see in the transportation and logistics sector and are actively evaluating investments aligned with this thesis. To learn more, please visit our website and reach out to one of our team members: 

Paul Witinski

Partner

witinski@ironwoodcap.com

Tyler Klenk

Associate

klenk@ironwoodcap.com

Erik Cabrera

Analyst

cabrera@ironwoodcap.com

The information contained herein has been obtained from sources believed to be reliable, but the accuracy of such information cannot be guaranteed. Views expressed are as of the date provided. Ironwood is under no obligation to update this information or to advise on further developments relating to the investments discussed herein. References to a particular investment is not a recommendation to buy or sell such investments. The information contained in this document is prepared for general circulation and is circulated for general information only. Past performance is no guarantee of future results. Any investment contains risk including the risk of total loss. There is no assurance that the investment objectives will be achieved or successful. Please refer to the Firm’s Form ADV 2A Brochure for more information about the Firm, services and fees on file with the SEC, www.adviserinfo.sec.gov. Firm CRD #321642. You may also contact us at 860-409-2100 or visit our website for a complete list of investments at www.ironwoodcap.com.

Works Cited

1.    “Moving Goods in the United States.” Bureau of Transportation Statistics, data.bts.gov/stories/s/Moving-Goods-in-the-United-States/bcyt-rqmu.

2.    Brewster, Mayumi. “Annual Retail Trade Survey Shows Impact of Online Shopping on Retail Sales During COVID-19 Pandemic.” United States Sensus Bureau, Apr. 2022, www.census.gov/library/stories/2022/04/ecommerce-sales-surged-during-pandemic.html.

3.    “How Truck Spot Rates Are Shifting.” Trucking Dive, 20 Feb. 2025, www.truckingdive.com/news/truck-freight-rates-changes-tracker/715709/.

4.    Visser, Chris. “Class 8 Auction Market Dipped in August.” J.D. Power, 17 Sept. 2024, www.jdpowervalues.com/article/class-8-auction-market-dipped-august.

5.    Ritzema, Mike. “Truck Driver Pay Trends (2023-2024): The Peak and Decline.” Superior Trucking Payroll Service, 25 Sept. 2024, www.truckingpayroll.com/2024/09/25/truck-driver-pay-trends-2023-2024-the-peak-and-decline.

6.    “Gross Domestic Product.” Gross Domestic Product | U.S. Bureau of Economic Analysis (BEA), www.bea.gov/data/gdp/gross-domestic-product.

7.    “Momentum Towards Reshoring U.S. Manufacturing.” Ironwood Capital, 31 July 2024, https://myemail.constantcontact.com/Momentum-Towards-Reshoring-U-S--Manufacturing.html?soid=1101872710248&aid=3v4IrB51_8k.

8.    Greenhalgh, Keiron. “Truckload Rate Outlook for 2025 Softens, Remains Positive.” Transport Topics, 15 Jan. 2025, www.ttnews.com/articles/truckload-rate-outlook-2025#:~:text=FTR expects spot rates to,worse from a shipper perspective.%E2%80%9D.

9.    Exarheas, Andreas. “EIA Increases 2025 USA Diesel Price Forecast.” RIGZONE Empowering People in Oil and Gas, rigzone.com, 29 Jan. 2025, www.rigzone.com/news/eia_increases_2025_usa_diesel_price_forecast-29-jan-2025-179465-article.

10. “Trucking Industry Forecast for 2025.” ACT Research, 14 Jan. 2025, https://www.actresearch.net/resources/blog/trucking-industry-forecast-2025.

11. “Economics and Industry Data.” American Trucking Associations, www.trucking.org/economics-and-industry-data. 

For more information, please visit: ironwoodcap.com