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On September 30, 1994, the Company consummated the purchase of all the outstanding stock of Clipper Exxpress Company ("Clipper"), Agricultural Express of America, Inc. ("AXXA"), and Agile Freight System, Inc. ("Agile"), (collectively known as the "Clipper Group") pursuant to a stock purchase agreement. The
Clipper Group is a non-asset, non-labor intensive, knowledge-based provider of
transportation and logistics services. Through the three closely integrated operating
companies, the Clipper Group provides a full range of transportation services. Clipper is
the largest consolidator and forwarder of LTL shipments and one of the Clipper Exxpress Company Clipper, founded in 1938, is the largest of the three Clipper Group companies. Clipper provides contract freight management and LTL freight forwarding services to its customers. Clipper’s executive offices are located in Lemont, Illinois ( a suburb of Chicago) and its 40 branch offices are dispersed throughout the United States. Contract Freight Management. Through its contract freight management business unit, Clipper provides logistics and transportation services, including intermodal and truck brokerage, warehousing, consolidation, transloading, repacking, and other ancillary services. As an IMC, Clipper arranges for loads to be picked up by a drayage company, tenders them to a railroad, and then arranges for a drayage company to deliver the shipment on the other end of the move. Clipper’s role in this process is to select the most cost-effective means to provide quality service, and to expedite movement of the loads at various interface points to ensure seamless door-to-door transportation. Clipper’s substantial volume of consistently high margin traffic is extremely attractive to its railroad partners. As a result, Clipper has been able to enter into contracts with major railroads and stack train operations that contain very competitive rates. LTL Freight Forwarding. Clipper is one of the nation’s oldest and largest LTL freight forwarders. Its collection and distribution network consists of 40 geographically dispersed locations throughout the United States. Selection of markets depends on size (lane density), availability of quality rail service and truck line-haul service, length of haul and competitor profile. Traffic moving between its ten most significant market pairs generates approximately 36% of Clipper’s LTL revenue. Virtually all of Clipper’s LTL revenue is derived from long-haul, metro area to metro area transportation. Clipper’s specific strategy for the LTL forwarding business is to provide expedited LTL transportation service only between major markets within the United States. It has chosen not to serve the regional markets or where freight volume is limited. In addition, Clipper concentrates its sales and marketing efforts in the close-in metro areas in the major cities that it serves. This strategy helps reduce Clipper’s pickup and delivery costs and assures that LTL freight picked up by Clipper’s agent is available for outbound loading on the same day. Additionally, this strategy allows Clipper to quickly build sufficient lane density to ship directly to destination terminals. With the effective use reliable rail service and trucks with two driver teams, Clipper can provide customers a significant improvement in transit time. Rather than hiring its own employees and owning transportation equipment, Clipper uses independent agents to pick up, sort, and consolidate LTL shipments into truckload shipments. A truckload carrier or premium service intermodal train will then linehaul the consolidated truckload to a destination terminal where another agent will deconsolidate the line-haul trailer and deliver its contents to the ultimate consignees. Although pickup and delivery and terminal handling is performed by agents, Clipper has an operations and customer service staff located at or near the agent’s terminal to monitor service levels and provide an interface between customers and agents. Because Clipper enters new markets without a large financial commitment and with only a few company employees, it is able to constantly explore new ideas without significant risk and to quickly take advantage of new opportunities. The Clipper Group serves a diverse base of more than one thousand shippers with which it strives to establish long-term relationships. These efforts have had positive results as evidenced by the fact that many of Clipper’s customers have been doing business with Clipper for more than 15 years. Clipper’s customers are a diverse group, with no concentration in any particular industry. During the year ended December 31, 1994, no single customer accounted for more than 6% of Clipper’s revenues, and the ten largest customers accounted for less than 15% of Clipper’s revenues. Advanced information systems. Clipper has recently invested significant
resources into its information systems. This new MIS system enables Clipper to coordinate
and track the performance of different phases of each movement. It will also enable
Clipper to provide EDI linkages with its customers and suppliers in the near Agricultural Express of America, Inc. AXXA owns 388 temperature-controlled trailers that it deploys in the seasonal fruit and vegetable markets. These markets are carefully selected in order to take advantage of various seasonally high rates which peak at different times of the year. By focusing on the spot market for produce transport, AXXA is able to generate on average, a higher revenue per load compared to standard temperature-controlled carriers that pursue more stable year round temperature-controlled freight. AXXA has also achieved lower cost than these competitors because it utilizes railroads for the line-haul segment of the shipment. AXXA and Clipper are closely integrated, with Clipper relying on AXXA equipment to move its westbound freight, particularly during the winter months. AXXA counts on Clipper to reload its equipment promptly to harvest areas, especially during the peak produce season. Because a large percentage of produce is usually harvested during certain short periods of time, dependable equipment availability is one of the most important factors that shippers consider. In addition, companies in this niche have difficulty achieving high utilization of their fleets due to the cyclical nature of the business, the geographical shifting of loading points as different crops mature and the challenge of finding backhauls to harvest areas. Consequently, the supply of specialized temperature-controlled equipment can be rather limited during harvest season, often resulting in severe equipment shortages. Thus, customers are willing to pay high rates during the peak months of June and July to secure the necessary equipment. AXXA has a distinct competitive advantage because it is able to generate a higher rate of equipment utilization by obtaining backhauls through Clipper’s 40-office network. AXXA’s reputation for integrity, combined with its strong financial condition, has earned it the highest rating from both the Blue Book and the Red Book, the two primary produce industry rating journals for the produce-hauling markets. These ratings are compiled from survey feedback given by the trade to the two rating agencies, and are evidence of the shipper’s level of confidence of AXXA. Agile Freight System, Inc. Agile is a non-asset intensive, premium service, long haul truckload carrier that utilizes two person driver teams provided primarily by owner-operators. Agile operates in tightly focused longhaul lanes that originate or terminate near a Clipper market. Much of Agile’s value to the Clipper Group is that it can be relied upon if other carriers are not available to move full truckloads of consolidated LTL shipments by Clipper. |
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