Hub Group, Inc.

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Hub Group, Inc.

377 E. Butterfield Road, Suite 700
Lombard, Illinois 60148
U.S.A.
Telephone: (630) 271-3600
Fax: (630) 964-6475
Web site: http://www.hubgroup.com

Public Company
Incorporated: 1971
Employees: 1,600
Sales: $1.3 billion (1999)
Stock Exchanges: NASDAQ
Ticker Symbol: HUBG
NAIC: 48851 Freight Transportation Arrangement; 541614 Process, Physical Distribution, and Logistics Consulting Services

Hub Group, Inc. is America’s leading intermodal transportation company. Intermodal transportation involves arranging for the transportation of freight using different types of conveyances, typically by rail and truck or truck and ship. Hub specializes in alleviating shippers’ difficulties in coordinating different transport services. The company operates a network of over 30 transportation hubs, mostly covering the Midwest and the eastern United States, but extending also to the West and into Mexico. Hub Group is a significant partner with all the major U.S. railroads, and is a major revenue producer for them. Hub also brokers highway transportation through a wide variety of carriers. The company uses a sophisticated computer network to plan and track shipments and coordinate billing. Hub Group operates a subsidiary company, Hub Group Distribution Services, that offers clients an array of logistics services, coordinating transportation, warehousing, inventory management, set-up and assembly of products and displays, and other services, to businesses nationwide. Another Hub division specializes in providing transportation services to the automotive industry. The Hub Group provides international shipping expertise through a subsidiary, HLX. HLX coordinates international transport of goods for importers and exporters, planning and managing movement of goods from ship to their final inland destination. Hub Group was founded in 1971 and grew rapidly, finding itself on a list of the 500 fastest-growing companies regularly since the mid-1990s. Founder Philip Yeager and his son David are instrumental in managing the publicly owned company, and the Yeager family still controls a majority of Hub Group’s stock.

Beginnings in the 1970s

Hub Group, Inc. was founded by Philip C. Yeager in Hinsdale, Illinois, in 1971. Yeager was a longtime employee of the Penn Central Railroad. He spent over ten years working with shippers, coordinating intermodal transportation between rail cars and trucks. But Yeager lost his job when Penn Central went bankrupt, and in 1971 he and his family moved to suburban Chicago. Yeager understood the difficulties shippers had working with railroads, and he wanted to use his expertise by becoming what was called at that time a third-party agent. The third party was the point of a triangle connecting the railroad and a highway shipper, who coordinated services between them. The third-party agent managed the movement of a load of goods from its origin to its destination, plotting the best and cheapest route and arranging for the pick-up and transfer of goods between rail and truck. Yeager’s Hub City Terminal opened in April 1971, operating out of a cramped office in a side street in Hinsdale. Yeager and his wife ran the business with only a few employees. In its first year, Hub City moved 900 trailers, a modest success. The business grew quickly, expanding into neighboring markets.

Philip Yeager claimed in an interview with American Shipper from May 1991 that at first he did not expect more of Hub City than a “nice family business.” However, the company began to become a national presence in the mid-1980s, when Hub started to actively solicit business from Fortune 500 companies. It took some convincing to get large companies to pay attention to Hub at first, basically because they were unfamiliar with the advantages of intermodal shipping. Yeager explained that “Many people had felt that intermodal was an inferior product and had to be sold at a discount. The fact is that it is just as good as truck, or even better in some lanes.” Hub took this message to Fortune 500 companies, and eventually managed to get some big accounts. Hub’s services made it easier for big companies to handle the railroads, which in Yeager’s account were not well-equipped to coordinate transport between truck and rail. Yeager convinced major companies that they saved money and hassle by employing a third-party agent. Hooking the Fortune 500 accounts spurred Hub to rapid growth. By the early 1990s, Fortune 500 accounts made up about 35 percent of Hub’s total business, and it was one of the fastest-growing segments of the company.

New Operations in the Late 1980s and Early 1990s

The company continued to be privately held by Yeager and his family. But it was more than the small family business Yeager had at first envisioned. Up from the mere handful of employees Hub started with, by 1990 it had 350 employees, working out of 35 locations. Local Hub offices were spread across the country, radiating out from the company’s suburban Chicago center. Yeager’s strategy for his staff was to offer a low salary but high commission. Productive workers could make a lot of money on top of the base salary. By the late 1980s, Hub began to diversify into several focused operating divisions. In 1989, the company added a division called Hub Highway Services. This coordinated the company’s over-the-road trucking services. After a year in business, the Highway Services division brought in over $17 million. Hub Group as a whole had sales of $350 million in 1990. The Highway Services division expanded Hub beyond intermo-dal shipping into straight trucking, but the company found that this was difficult to coordinate from its many regional offices. Eventually Highway Services was operated out of a central office in Overland, Kansas. Highway Services grew to broker trucking services using a pool of over 3,000 carriers. At times Hub Highway Services kept track of the operation of 100,000 trucks simultaneously. By the mid-1990s, this division had grown to a $100 million business, serving major corporations such as Borden, Nabisco, Clorox, and Lever Brothers.

Hub Group made many other changes in 1990. It began operating a premium intermodal service division called Bantam, providing premium service between Chicago and Los Angeles. Bantam soon grew to cover seven major intermodal traffic corridors. The company also launched a subsidiary, Hub Group Distribution Services (HGDS), in 1990. HGDS offered door-to-door distribution of shipments for its clients. Hub Group also opened a subsidiary in Canada in 1990, and moved into the southern California market more aggressively by opening an office in San Diego.

The company also made a significant investment in information technology in 1990. Hub Group installed an electronic data interchange, or EDI, computer system that allowed it to link in real time with the computer systems of all the major railroads. Hub’s regional offices were also tied together using the EDI system. The technology allowed the company instant access to information from the railroads, such as location of cars and receipt of billing. Hub was also directly connected to some of the banks that a number of its customers used for paying their bills. Hub used its data interchange system to manage one of its largest accounts, the logistics arm of the giant retailer Sears. Hub Group took on the Sears account in 1991, signing a contract with Sears Logistic Service to handle all that company’s intermodal freight needs. This was a huge boon to Hub, because Sears made more than 70,000 intermodal shipments a year.

Hub Group was the first intermodal shipping agent to install an EDI system, and its technological prowess allowed the company to expand rapidly in the 1990s. By 1992, the company had become by its own account the nation’s largest intermodal shipping agent. Sales ballooned, growing for example 30 percent between 1991 and 1992, and coming close to this in following years. As the company grew, and took on more and more distinguished clients, it targeted new markets. In 1992 Hub Group announced the formation of a new corporate division that would provide intermodal transportation services to the automotive industry. Hub did little business with automakers previously, but it saw the car market as a viable opportunity. The auto industry had changed the way it managed its parts and inventory during the 1980s, responding to competition from Japanese automakers. As the U.S. auto industry moved toward so-called just-in-time inventory management, it turned to third parties for logistics expertise. Hub Group hoped to get a piece of this. Also, Hub had moved recently to open units in Canada and in Mexico. As U.S. automakers moved parts across borders with increasing regularity, Hub felt it was in a good position to arrange intermodal transport for them.

Hub Group became increasingly attractive to large corporate customers as the company grew prominent in the early 1990s. Hub gained a major new client in 1993 when the giant detergent company Clorox Co. agreed to let Hub handle all its intermodal shipping for its cleaning products division. Clorox was looking for measures that would help it cut costs, and bargained that signing on with Hub would save it hundreds of thousands of dollars over the coming few years. In the early 1990s Hub also provided logistics services to major food makers Kraft General Foods and Nestlé, and close to 40 percent of Hub’s clients were Fortune 500 companies. Because of Hub’s state-of-the-art data management capabilities, it was able to offer sophisticated services to some of the nation’s biggest companies. It provided completely “paperless” tracking of transactions, keeping tabs on what could be tens of thousands of shipments yearly for major corporations like Sears. Hub’s data capabilities allowed the company to operate more efficiently, so that it could save itself money. Hub changed over in the mid-1990s to what it called a “two-way management” system for pick-up and delivery of freight, made possible by its computer technology. The two-way system meant that a trailer leaving Chicago for Los Angeles, for example, sent enough advance notification that a new load could be waiting for it when it unloaded its cargo on the West Coast. Before Hub instituted this system, less than 25 percent of its carriers were reloaded. With the advanced computer notification it had working by the mid-1990s, over 70 percent of its equipment got reloaded.

Company Perspectives:

Hub Group’s mission is to provide world class logistics solutions that consistently exceed customer expectations.

Hub Group also initiated a new international intermodal freight division in the mid-1990s. It launched a division called Hub Group International in 1994, and focused first on international shipments within North America. Soon after, Hub announced it was forming a joint venture with the Norton Lilly International Shipping Agency to move cargo over land for ocean carriers. The joint venture was christened HLX. Hub also acquired American President Distribution Services in 1996, the international intermodal business division of a major shipping company, American President Companies Ltd. Hub paid $8 million for American President’s division, giving Hub access to 25 international accounts. American President Distribution was doing about $90 million of business annually. Hub’s sales were over $750 million.

Public Company in the Late 1990s and Beyond

Hub Group grew enormously in the 1990s, expanding into new markets and increasing its sales by hefty percentages year after year. In March 1996 Hub Group went public, listing its stock on the NASDAQ. Its shares started out at $14, and a year later had zoomed up to over $27. The company had become much more broadly based than it had when it was a one-room third-party agent. By 1997 Hub offered a full array of logistics services, and arranged for air freight, international shipping, highway trucking, and comprehensive intermodal transportation services. Intermodal transport still accounted for the bulk of Hub’s business, but the company planned to increase its share of revenue from other businesses in the coming years. Meanwhile, the company endeavored to improve its efficiency in its intermodal business. A shortage of equipment for truck-train transport had hampered intermodal’s growth somewhat in the early 1990s. In 1999, Hub worked out an agreement with several major railroads to let it manage rail containers. Hub gained management of over 2000 railroad containers, with a provision to add up to 1,000 more over the next year. By using its computer network to keep track of them, Hub Group was able to reduce the time the rail containers stood empty between loads. This gave both Hub and the railroads much more efficiency in moving freight.

In 2000, Hub Group announced the installation of a new Internet-based computer system that let carriers arrange shipment details on line. Its logistics arm, HGDS, also found new business using the Internet. It began handling shipping needs of online retailers, especially in fulfilling bulky and heavy orders for such items as furniture and exercise equipment. HGDS offered more than just shipping. It also managed set-up and assembly of goods after delivery, pick-up of returned items, and other services.

Hub Group continued to boom in both sales and profits. Sales for fiscal 1999 were $1.3 billion, an increase of almost 15 percent over the previous year. Profits also rose appreciably, up more than 20 percent for the year. While Hub’s revenue from its core intermodal transport business rose a small amount, the company made big strides in other areas. Its revenue from its logistics business was up almost 90 percent, and revenue from truck brokerage also increased by close to 20 percent. Hub seemed to be moving in the direction it had set itself when it went public. It was not only increasing its total business, but was growing quickly in non-intermodal areas. This made it a more balanced and comprehensive company.