Crane Leverages Loss of EGL into New Logistics Success

By Jonathan S. Reiskin, Associate News Editor

This story appears in the July 20 print edition of Transport Topics.

HOUSTON — During the second half of 2007, when the U.S. economy and stock market were at their respective peaks, a colleague of James Crane said he was — for a brief while — bitter and unhappy. But as gross domestic product and the value of stocks, housing and other assets fell dramatically, the smile returned to Crane’s face as he realized the comfort of cash — hundreds of millions of dollars of it.

Commenting on the nature of tragedy, Oscar Wilde observed that it comes in two types: “One is not getting what one wants, and the other is getting it.” But Crane, 55, who has been arranging freight transportation for customers for nearly half his life, turned the aphorism inside out, finding success both when he got what he wanted, and even after a substantial setback.Life was good when, in 1982, Crane left his native Missouri and early work in the insurance industry to move here and become involved in air freight sales. Starting his own company at age 30 was a wager that paid a tremendous return, going public after 11 years of growth.

But his even bigger success came when he seemed to have been thoroughly trounced.

Two years ago, Crane lost control of freight forwarder Eagle Global Logistics, the company he founded, ran and loved. Private equity firm Apollo Management topped him in a leveraged-buyout bidding war and placed Eagle in its logistics portfolio, CEVA Logistics.

Crane wanted to keep his company, but of the $1.99 billion Apollo paid for EGL, mainly with debt, Crane instead got $337.4 million for his shares in August 2007. Two months later, in October, the Standard & Poor’s 500 index reached an all-time high before beginning a 17-month plunge and losing 56.8% of its value into March of this year.

Although he planned none of that, Crane was bought out at nearly the perfect time, allowing him a maximum of flexibility for creating his new freight-forwarding firm, Crane Worldwide Logistics, which will be a year old next month.

“I feel very fortunate. It wasn’t difficult to come back,” he said during a recent interview at his new offices.

Although it is now on pace to generate more than $100 million a year in total revenue, Crane said, the new company was created on “a billion-dollar template.”

“You may not see another start-up like this,” Crane said at the company’s headquarters near George Bush Intercontinental Airport, referring to its strong financial underpinning and depth of management experience.

“He’s a no-nonsense guy. I can’t imagine him sitting around and counting his money. He’s the ultimate entrepreneur, and he enjoyed building his business,” Edward Emmett said of Crane — and why he did not retire after Apollo bought him out.

Emmett was president of the National Industrial Transportation League from 1992 to 2003, and since March 2007 has been the Harris County judge, the Texas equivalent of an elected county executive. Emmett said he met Crane in 2003 and talked with him about doing some government relations work for Eagle when he returned to Houston.

“I pitched him as a potential client, but his attitude was, ‘If I’m going to be paying a significant salary, what revenue will it be bringing in?’ Everything was focused on revenue, on the business side. He did not want to get into the ‘softer’ side of things,” said Emmett, who added that he and Crane have a cordial relationship.

Crane, in turn, said he contributed to Emmett’s campaign.

Although Crane started the new company during the worst economy since the Great Depression, he said one small but good aspect of the timing is that it can help a salesman get through the door. When shippers are at their busiest, they do not have time to entertain sales calls from new vendors.

“But now they have time to consider who should be doing what for them,” he said.

“Yes, it would be helpful if the economy were better, but we have credibility. If we do a good job, we’ll get a piece of the business,” he said.

“By starting from nothing, we can be growing at 20% to 30% a year, while others are just trying to protect what they’ve got. If the economy turns we’re going to be in the catbird seat,” Crane said.

Crane and nine of his lieutenants from Eagle had the luxury of spending a year to develop plans for a new forwarder from the very beginning.

Crane Worldwide Logistics’ Web site lists a wide variety of services, including supply chain engineering, warehousing, ground distribution and customs brokerage, but Crane Worldwide’s most basic focus is air and ocean forwarding.

The company currently has 41 offices in 16 countries. Management is trying to add seven offices in four countries by the end of this year, and beyond that Crane said he sees 100 offices in 40 nations. Outside the United States, the company has — or will soon have — offices in Latin America, Western Europe, India, Southeast Asia, Australia and China.

The main facility in Houston does more exports than imports, and oil-field equipment is a big part of the business there.

For now, the company rents two 66,000-square-foot warehouses, but the firm has purchased 20 acres across the street to build its own facility.

Stock analyst Alex Brand followed EGL for Stephens Inc. and other investment firms from 1997 through the Apollo buyout. He offered a mixed assessment of Crane and the company he led.

“Eagle was strong in air freight, domestic especially; and Crane was a salesman and marketing guy. He had people who where very good at selling and working with customers, but on the operations side they were never as strong,” Brand said.

“Jim [Crane] always had a vision for the future. In 1994 we had $80 million in revenue, and by 1997 it was more than $240 million,” said John Magee, who started working for Crane at Eagle in 1994 and is now president of Crane Worldwide.

“When we passed $250 million a year, he had a banner put up that read: ‘Building for a Billion.’ But I was just amazed we’d gotten to where we were,” Magee said.

Crane, the Texas salesman who revels in growth, started his professional life as an analyst, a number cruncher and a writer of reports. He was born in St. Louis in 1954, the son of an insurance executive father and a mother who worked in a grocery store.

He went to college at what is now the University of Central Missouri, but then was called Central Missouri State University. He earned a Bachelor of Arts degree in industrial safety, but his greater love was the university’s baseball team.

Crane pitched for the team for four seasons, made his way into the school’s record books and helped to achieve a conference championship. Because of his financial contributions to the school, the university named the baseball stadium after him in 1998.

Crane was mentioned earlier this year by the Chicago newspapers as one of several potential buyers of the Chicago Cubs, the team the Tribune Co. and Sam Zell are trying to sell.

After college, Crane followed his father’s path into insurance. He was a safety inspector for Home Insurance Co., performing risk assessments and later moving into underwriting.

But in 1982 he quit the insurance game and headed to Houston after talking to a friend who was a sales manager for Seattle-based Northern Air Freight.

“I came down and asked, ‘Where are the planes?’ I didn’t know, but I figured it out pretty quickly, or I knew I wouldn’t eat.”

“We weren’t calling on ‘logistics managers’ then. They were just called air clerks,” Crane said.

This was very early in the still developing air freight business, about a decade after Federal Express began operating in 1973.

Crane’s sales calls on Compaq Computer Corp. in the early 1980s proved important.

“They were moving a lot of printed circuit boards. I knew something was going on, so I wanted to buy stock in them,” Crane said. His sister loaned him $10,000 to do so, but he quickly found another investment he preferred.

In 1984, after two years of selling for Northern, he cashed in his Compaq stock at age 30 and started Eagle.

“The margins were good and I thought I could get my customers to switch. I knew I could get the business and that I could move the freight — at least enough so that I could eat and pay expenses,” Crane said.

Eagle arranged for the transportation of oil-field equipment, computer components, video cassettes, magazines and bound printing — mainly annual reports — in the days before PDFs moved either online or by e-mail.

“We started with domestic air, and also brokered some of the freight to hot-shot or delivery companies [by ground],” Crane said.

By 2000, the company was filling a dozen Boeing 727s a night. The main business was two-day air delivery.

“We ground out the first 12 years, building the business from cash flow. Compaq was our first big account in the early 1990s, and we had smaller accounts at first,” Crane said.

By that time, though, expedited trucking was encroaching upon domestic air freight.

“Eagle was built for high-revenue-per-pound air freight, but business was changing to low-revenue-per-pound trucking,” said analyst Brand. EGL bought Circle International Group in 2000.

“Conceptually this made perfect sense because Circle had almost no domestic business. They were lean on the cost side but had no marketing sense. It was a marriage of marketing and operations, of international and domestic business, which sounds good, but the two cultures were very different,” said Brand.

“You need strong operations people if you’re going to have a merger of equals, and they were of relatively similar size. I think the Circle merger was the beginning of the [Eagle’s] demise,” he said.

Crane admitted it was extremely difficult to bolt the two firms together, but said it was justified because it instantly gave Eagle a worldwide presence.

“To put in a network one office at a time would have taken too much time,” Crane said.

In an indirect way, Houston’s notorious Enron Corp. helped bring about the takeover of Eagle Global Logistics. Congress was so appalled at Enron’s financial manipulations that it passed the Sarbanes-Oxley Act of 2002. Many small-to-medium public companies have complained about the difficulties in complying with the law.

“Sarbanes-Oxley cost a lot. It was not easy to implement. We went from spending $2 million a year on accountants and consulting to $12 million,” Crane said.

“The stock was low [in late 2006], but the company was throwing off cash. I figured we’d just grow organically from then.

I would have owned 51% and there would have been more debt,” he added.

Crane told EGL’s board of directors in January he wanted to take the firm private through a leveraged buyout, but shortly thereafter that drew out Apollo Management.

“I didn’t see Apollo coming. They had bought TNT [Logistics] at a low multiple, and that allowed them to pay up for us. Finally, I couldn’t bid any higher.”

“In hindsight, I felt bad we didn’t execute the transaction as we told the employees we would,” Crane said.

Adjusting for stock splits, Eagle launched its December 1995 initial public offering at $5.50 a share. Almost 12 years later Apollo bought EGL for $47.50 a share.

Beyond that 17.75% per year average appreciation in value, Crane is also proud that EGL shares outperformed the S&P 500 over that time, which grew by 9.43% a year. Brand’s critique is that EGL was bested by Expeditors International, which grew by 33.8% a year on average.

“I made money on the equity. My highest base salary was $500,000 a year and I didn’t have a lot of stock options. I bet the ranch on the stock,” Crane said.

Now he has Crane Capital Group, where he manages his investments beyond the new logistics company. He and his wife, Franci, also run the James Crane Foundation for charitable donations. He likes Central Missouri and baseball scholarships. She favors museums and the theater. The Cranes gave $1 million to the Texas Children’s Hospital, and he said they try to do one big project a year.

As for lessons learned from his Eagle days, Crane said he does not want to take the new company public.

“I’m done with public companies. If they [his management] want to do that, I’ll sell. We don’t need the capital,” he said.

He also told Keith Winters, the new company’s executive vice president for operations, to find and install a first-class information technology platform, so as to avoid some of the Eagle-Circle merger problems.

Beyond that, Crane intends to delegate daily operations to Magee, Winters and other Crane Worldwide managers, with just a few exceptions:

“As chairman, I work on sales and recruiting and I give advice — if they ask for it.”