A great deal of ink is routinely spilled on the virtues of inventing a better mousetrap or finding a better way to make that mousetrap. It is less common, though, to see the same attention given to figuring out better ways to get those mousetraps onto store shelves. While most investors are likely quite familiar with the railroad and trucking industries, and their links with a recovering economy, the same may not be true for those companies that specialize in third-party logistics and serve as intermediaries between the producers and shippers.

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To that end, then, it is worth exploring whether the logistics industry is a good investment destination in today's market.

The Industry
As a very simplified explanation, these companies thrive by stepping between shipping customers and shipping providers and making life easier for both. Handling the logistics and shipping can be a major headache for companies, particularly smaller operators, and shippers can charge punishing rates for deliveries that are inconvenient or inefficient for them. On the other hand, transportation companies really do not relish the headaches and hassles of dealing with thousands of customers and having to tend to their specific needs.

Enter the third-party logistics specialists. These companies can not only consolidate shipments and negotiate bulk discounts, but they can handle many of the details that bedevil smaller customers. On the flip side, they offer the large rail, trucking and freight concerns a large consistent customer with a thorough understanding of the business and a minimal need for hand-holding. Producers save money, transporters save money and the companies in between make money.

The Companies
C H Robinson Worldwide (Nasdaq:CHRW) is the largest domestic truck broker in the U.S., and gets about three-quarters of its revenue from truck brokerage. The company is also looking to expand into the growing international air and ocean freight forwarding business. This should reduce some of the cyclicality of the business.

Expeditors International (Nasdaq:EXPD) has a long and well-deserved reputation as one of the best-run companies in the U.S., if not the world. As an air and ocean freight forwarder, Expeditors purchases cargo space for its customers and can arrange shipping to all six routinely inhabited continents. Expeditors also has a sizable customs brokerage business, and can help companies navigate the hassles and pitfalls of international trade. (For more, see What Is International Trade?)

Echo Global Logistics (Nasdaq:ECHO) is likely one of the least-known stocks on this list, but this company is making a name for itself as a multi-modal logistics provider for small and mid-sized companies. With a tech-heavy, web-based backbone that gets more valuable with more volume (basically "learning from experience"), Echo has a real shot of maturing into a player in the space.

UTI Worldwide (Nasdaq:UTIW) is in some respects a smaller version of Expeditors in that it focuses on air/ocean freight forwarding and customs. UTIW is not quite as prolific yet (operating in more than 80 countries) and does not have the same level of profitability - largely due to lower-margin service contracts and a history of growth by acquisition.

Hub Group (Nasdaq:HUBG) is a relatively unknown company that operates in a hugely significant market. Hub is the largest intermodal marketer (and a top five truck broker), and intermodal traffic is a major growth area - rail companies are seeing double-digit unit growth in intermodal traffic. Though being the largest means they arguably have the most to lose from competition, Hub should continue to profit from the above-average growth prospects of the intermodal market. (For more, see 3 Transport Stocks That Deliver.)

Landstar (Nasdaq:LSTR) does a bit of everything (truck, intermodal, customs, and air/ocean brokerage, as well as supply-chain logistics), but stands out for its ability to offer exceptional service in odd-sized freight and irregular routes. While many logistics providers focus on driving down costs by running high-density lanes with high asset utilization, Landstar can reap higher revenue by offering this more specialized service.

Bottom Line
Space does not permit a detailed analysis of each company's investment prospects, but suffice it to say that this sector has generally done well over the past two years. Expeditors and CH Robinson do not look like great bargains today, but shareholders may want to give a more careful look to Hub Group, Landstar and Echo at today's prices. (For more, see UTI Worldwide: Still A Name To Play In Freight.)

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