Coyote struggles for traction in UPS parent's larger infrastructure

Going on two years since UPS Inc. spent $1.8 billion in cash and debt to buy freight broker Coyote Logistics LLC, things are not going as swimmingly as planned.

Chicago-based Coyote posted fourth-quarter 2016 net revenue—gross revenue minus the cost of purchased transportation, a key metric for companies that don't own assets—of about 10 percent below internal estimates, according to a person familiar with the matter. Coyote's problem, according to the person, is that a large portion of customers' freight that it books with carriers, while benefitting UPS by filling up "empty" miles across its vast U.S. surface network, has not been as profitable as expected for Coyote. UPS bought Coyote in July 2015 in UPS' most expensive acquisition in its history, and the biggest pure brokerage transaction ever.

In addition, Coyote has suffered a brain drain in the past few months as employees have defected to rival brokers, according to several people interviewed for this story. One of the people said the most opportunistic poacher has been the brokerage unit of San Francisco-based Uber Technologies LLC, which has opened brokerage offices in Chicago and San Francisco as part of a strategy to apply its vaunted ride-sharing model to the brokerage business. "Uber is attacking (Coyote) from all sides," said one of the people.

The situation at Coyote has become critical enough for Jeffrey Silver, who co-founded the company in 2006 along with his wife, Marianne, to resume handling more of its day-to-day functions, according to one of the people. Following the UPS acquisition, Silver relinquished the president's title, and was pulled into more of the parent's affairs to act in a strategic capacity, according to one of the people. He has retained the CEO role. Jonathan Sisler was promoted from CFO to be Coyote's president in the wake of the UPS purchase.

Atlanta-based UPS, which folded Coyote into its "Supply Chain and Freight" unit, does not publicly disclose financial results beyond those reported by its three units, which also include its domestic and international package businesses. In recent comments, UPS Chairman and CEO David P. Abney has expressed satisfaction with the results of the Coyote acquisition. Jodi Navta, a Coyote spokeswoman, declined comment on the matter beyond confirming that Silver was still Coyote's CEO.

Like other relatively traditional brokers, Coyote is likely to face increasing competition from a broad range of new entrants, which notably include Uber and Seattle-based e-tailer Amazon.com Inc., the latter of which is slowly yet systematically penetrating all segments of logistics. Uber, for its part, is staffing up a full-service brokerage operation to offer the level of solutions that traditional brokers have provided for decades.

Uber's move was an acknowledgment that effective brokerage is a people-driven business enabled by technology, rather than one where the IT platform dis-intermediates the individual by merely providing basic load-matching services.