Landstar's Success is Due to Their Business Model

Last week we pointed out the odd stock reaction to Landstar’s (LSTR) terrific earnings release. We won’t claim credit for the rally in the stock the day of our post, but were gratified that others recognized the opportunity as well.

One reason we like Landstar for the long haul (har!) is their business model. Rather than own their own trucks, they outsource the loads to owner operators who provide their own rigs. The business capacity owners (BCOs in Landstar terminology) get the lion’s share of the revenue for the load, which encourages them to haul as many as they can. This is a virtuous cycle that benefits both Landstar and their BCOs. More than 30,000 rigs are in the Landstar network, though some are much more active than others.

Compare their situation to this story about how difficult it is to recruit truck drivers, and that pay may need to be raised by 30 percent industry-wide.

Phoenix-based truckload company Swift Transportation Co. (SWFT) Inc. highlighted the impact of the driver shortage when it reported second-quarter results last week, saying it had nearly 500 trucks unassigned at the end of June.

For Swift, each unassigned truck is a drag on profitability. The truck certainly represents a depreciation expense and could also represent an economic expense if it is leased or purchased on credit. Every truck without a driver hurts the company.

At Landstar, an empty truck hurts the driver. And he gets off his butt and hauls some merchandise to earn some money and make the truck payment. And since he keeps most of the money from the load he is happy. And since he is hauling more traffic, Landstar is happy.

A look at the chart shows that this mutual satisfaction also makes shareholders happy.

LSTR 1-yr chart: