Torrid Rate of Trucking Mergers Pauses, But More Consolidation Expected

September 20, 2016 by Tiffany Hsu, @tiffkhsu

The freight trucking industry appears to be shrinking more slowing after a heady few years of company failures, strategy shifts and acquisitions.

But new players – bigger ones, diversified ones and potentially even foreign ones – are increasingly getting into the mix. And analysts believe there’s more merging to come.

“I expect it to heat up again as conditions in the truckload sector improve,” said John G. Larkin, a logistics analyst at Stifel Financial Corp. “And we may start to see conditions improve in 2017.”

At the moment, though, fewer companies are shutting down, according to investment banking and wealth management firm Avondale Partners. Last year, 310 carriers with at least five trucks went out of business, a 73.4 percent year-over-year plunge and a historic low.

The torrid pace of American mergers and acquisitions has cooled as well.

In September, transportation company CRST International Inc. acquired Gardner Trucking, Inc., California’s largest truckload carrier. This summer, trucking giant Schneider National Inc. purchased last-mile home delivery specialists Lodeso Inc. and Watkins & Shepard Trucking Inc.

But that’s a trickle compared with last year, when larger companies feasted on smaller firms amid turgid freight demand. Weaker businesses were made more vulnerable by a strong dollar, plummeting oil prices and general economic pessimism.

Now, however, many companies think they’re worth more than buyers are primed to pay, Larkin said.

“There are differences of opinion, regarding valuation, between buyers and sellers,” he said.

In 2015 alone, transportation and logistics giant XPO Logistics ate up motor carrier Con-way Inc., ABF Logistics took on Smart Lines Transportation Group and CRST International acquired Pegasus International Inc. UPS, Celadon Group Inc., Maverick USA Inc. and Roadrunner Transportation Systems Inc. all made purchases as well.

But in the second quarter of this year, when professional services firm PricewaterhouseCoopers tracked 51 global transportation and logistics-related mergers and acquisitions, more than half were in Asia. Just eight were in North America.

“There’s always a certain amount of consolidation, probably more in recoveries than in downturns,” said Noël Perry, principal at consulting company Transportation Economics. “But I don’t think it’s as big a deal right now.”

In part, that’s because trucking consolidation is evolving.

Purchases are getting heftier, according to PwC researchers. The average value of a transportation and logistics deal is now $670 million, more than 25 percent higher than it has been over the past three years.

Acquisitions could become more global as foreign power players expand their routes internationally. Deal value in the trucking subsector surged 69 percent from a year earlier — mostly because of the monstrous $16.8-billion purchase in China of SF Holding Co. by Maanshan Dingtai Rare Earth & New Materials Co., according to PwC.

For the time being, though, buyers abroad are “looking almost exclusively to buy asset-light beachheads in the U.S.,” Larkin said. So any near-term truckload activity will likely involve only American or Canadian companies.

But even within the U.S., companies are shifting from truck-only systems toward intermodal alternatives or supplementing their operations with third-party logistics providers.

Intermodal traffic – which involves moving products via multiple modes of transportation, including trucks – grew for 25 straight quarters until weak freight demand triggered a 6.1- percent year-over-year decline in the second quarter, according to the Intermodal Assn. of North America.

And for third-party logistics providers, there were already 11 acquisitions valued at more than $100 million before the end of 2015 – a record high, according to supply chain consultancy Armstrong & Associates Inc.

Although small companies still vastly outnumber large ones, the middle ground between them is falling away. New legislation – such as the recent electronic logging mandate requiring truck drivers to electronically log their time on the road – is expected to sap capacity.

The freight landscape shows signs of gradually becoming broader and less regional. Larger trucking operations mean that shippers can rely on a single carrier to take their loads nationwide.

Their streamlined systems often lead to better purchasing power, lower per-unit costs, newer vehicles with better mileage and a better shot at profitability. Substantial size also tends to equate to higher credibility and access to credit as well as superior insurance.

But with less competition, some are concerned that customer service will suffer. XPO cut more than 100 Con-way jobs earlier this year after buying the company.

“What that does is it in effect destroys the culture of the companies,” said entrepreneur Don Daseke, who runs open-deck flatbed company Daseke Inc. “In the interest of ‘efficiency,’ accountability for each company goes away.”

Daseke founded the Addison, Texas, company in 2008 with no experience in trucking. The business, which is profitable, went from 60 tractors and 120 trailers in 2009 to 2,200 company-owned trucks, another 800 leased from owner-operators and more than 6,000 trailers last year. Revenue rose from $30 million to $678 million.

That’s because Daseke is constantly adding new companies to its roster. The firms – all already profitable on their own – are given capital and allowed to retain all their workers and autonomy.

WTI Transport

WTI Transport is one of the companies owned by Daseke. (Photo: Truck PR/Flickr)

In the past two years, the company purchased Hornady Transportation of Monroeville, Ala., Bulldog Hiway Express of Charleston, S.C., and Lone Star Transportation of Fort Worth, Texas.

“We don’t follow the normal rules of how you consolidate,” Daseke said.

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