XPO Logistics Inc. said today it has acquired the supply chain operations of Landstar System Inc. for $87 million in cash. Landstar had determined its supply chain business was no longer suited for its decentralized model built around a network of agents that function more like entrepreneurs than employees.

The transaction, finalized last night and expected to close within the next four weeks subject to government approvals, would give Greenwich, Conn.-based XPO ownership of NLM, a provider of web-based expedited transportation management services. NLM, based in the Detroit suburb of Southfield, Mich., is the main component of Landstar's supply chain business. NLM's transportation management system automates the carrier selection process for expedited transportation, defined as time-sensitive movements with defined delivery windows and no tolerance for unreliability. Once a shipper's load is posted on NLM's site, its software selects a carrier among multiple bidders using multiple selection metrics. A decision is usually made within minutes. The software then tracks the transaction all the way to completion. NLM's revenue comes from transaction fees paid by shippers.

Expedited transportation accounts for about two-thirds of NLM's business. The remaining one-third is non-time-definite services mostly in the dry van sector, the most common form of truck transportation. A second technology product, A3i, is included in the planned acquisition, according to XPO. That product performs similar functions as NLM, though on a smaller scale, said Bradley S. Jacobs, XPO's founder, chairman, and CEO.

NLM managed about $500 million in gross transportation spending over the 12-month period ending in November and facilitated about 450,000 transactions over that time, according to XPO. NLM generated $9.8 million of adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) on $23.4 million of transaction management fee revenue.

For XPO, the transaction increases its exposure to the expedited transport category, which is one of three reporting divisions at the company. Expedited services account for about 15 percent of XPO's annual revenue, which is expected to surpass $1 billion by year's end. The bulk of XPO's revenue comes from freight brokerage, with the remainder from freight forwarding.

Jacobs said expedited services are poised for growth as just-in-time (JIT) production processes remain relevant and companies rely on fast-cycle shipping services to mitigate the costs of carrying buffer inventory. "We are committed to being a leader in this space," he told DC Velocity in an interview today.

The deal also marks XPO's first big foray into transportation management, a segment Jacobs said a couple of months ago would be a focus of the company's attention in 2014. In today's interview, Jacobs noted the success that rival C.H. Robinson Worldwide Inc., the nation's largest freight broker and a major logistics provider, has enjoyed with its own transportation management business, known as TMC. The unit is growing by about 20 percent a year, Jacobs said.

By the end of 2014, XPO expects to be the second only to Robinson in annual brokerage revenue. The company projects that it will achieve $5 billion in total annual revenue by 2017 through a combination of acquisitions and organic expansion.

For Jacksonville-based Landstar, the deal enables it to exit a business that it acquired in two separate investments during 2009. The company will realize $32 million after-tax profit from the sale. Partly because of its increased cash position, Landstar's board today declared a special on-time dividend of 35 cents a share and authorized an increase in its share buyback program to 3 million shares.

Henry Gerkens, Landstar's chairman, president, and CEO, said in a statement that the divested business was "better suited for a company-store type operation" instead of for Landstar's model which supports a network of agents who, for the most part, operate independently. The company will maintain offices in the greater Detroit/Southfield area to provide services to its automotive customers. The auto sector has been a big part of NLM's revenue mix.

Jacobs lauded Gerkins' acumen in acquiring a valuable asset during a period where asset prices were artificially depressed due to the financial meltdown and severe recession. However, Jacobs said that over the long haul a system like NLM's has more value being managed within a centralized environment like XPO than in an agent-driven enterprise like Landstar's where the agent is "in it for himself."

Charles W. Clowdis Jr., a long-time transportation executive and today managing director of transportation for IHS Economics, a unit of the consulting company IHS Global Insight, said he wasn't surprised by the news. "[Landstar] has been saying they would sell [the business] for several years now," he said.