Geoff Turner started Choptank Transport Inc. in 2000 to assist farmers and food enterprises on Maryland’s Eastern Shore with the transportation of time- and temperature-sensitive produce to market. Those efforts paid off two decades later when Choptank was purchased by one of the country’s leading transportation corporations.
Hub Group Inc. announced Tuesday that it had paid $130 million in cash for Preston, Maryland-based Choptank, specializing in refrigerated commodities truck brokerage. Hub (NASDAQ: HUBG), situated in Oak Brook, Illinois, now has a presence in the refrigerated industry, which accounts for over 70% of Choptank’s total over-the-road income. According to Hub officials on a Tuesday analyst call, Choptank is on track to produce $470 million in annual revenue. Choptank is a non-asset-based provider, which means it doesn’t own any transportation assets and instead relies on motor and rail carriers to convey its customers’ goods. Turner, along with the rest of Choptank’s 400 employees, will join Hub.
Hub’s brokerage revenue now exceeds $1 billion, and the purchase, according to Hub management, is a significant step toward the company’s objective of $5.5 billion to $6.5 billion in revenue by 2025. Hub expects revenue of little about $3.5 billion in 2020, with brokerage accounting for $431 million. Hub’s massive intermodal division generated more than half of the company’s revenue in 2020. The non-asset-based business now accounts for 40% of Hub’s total revenue, thanks to the purchase.
Hub said it would add 550 intermodal reefer containers in conjunction with the Choptank purchase, boosting its total to 1,000 boxes.
Hub executives said on an analyst call after the sale was disclosed that the transaction, which closed on Tuesday, creates substantial cross-selling prospects for the company. Hub’s over-the-road business has focused on dry van and LTL, so its customers have never had access to over-the-road refrigerated services, according to executives, who added that Choptank’s roughly 1,500 customers would be able to exchange to manage transportation opportunities that have previously been unavailable.
According to Hub management, Choptank’s traffic will also help Hub replenish westbound equipment from inland ports that would otherwise return empty.
Hub COO Phil Yeager repeatedly brought up the cross-selling benefits from the deal during the call. He noted the inclusion of Choptank’s reefer services to Hub’s portfolio, saying, “We now have a paradigm that works across the board.”
Choptank’s revenue has grown at a pace of approximately 10% every year in the past. Still, Hub management predicts top-line growth in the mid-teens as organic growth is combined with new revenue produced via cross-selling programs.
The refrigerated transportation industry in the United States is fragmented, with many local competitors. According to IBISWorld, the long-distance refrigerated trucking segment will earn roughly $9 billion in sales this year. The refrigerated transportation industry’s most dominating vertical is food and beverage.
