DCLI acquisition of TRAC Intermodal’s 53-foot domestic chassis fleet key to a larger plan

On January 11, 2018, Direct ChassisLink Inc., better known as DCLI, completed the purchase of TRAC Intermodal’s 53-foot domestic chassis fleet. DCLI’s intention to purchase the TRAC units was made in late October 2017 before last month’s closing. The purchase price for the chassis fleet was not disclosed.

At first glance the purchase of TRAC’s 72,000 domestic chassis seems at odds with a company primarily known for their marine chassis business. But as CEO William “Bill” Shea explained in an interview with AJOT, the acquisition was an integral step in a plan to “diversify” DCLI’s business.

To understand the strategic importance of the purchase, it’s necessary to take a step back and examine DCLI’s corporate roots. The company was originally the U.S. ocean carrier SeaLand’s marine chassis leasing business. When SeaLand was purchased by Maersk in 1999, the Danish carrier began marketing its chassis leasing division as Maersk Container Service Company before adopting the DCLI moniker. In 2012, Maersk sold DCLI to a private investment group, Littlejohn & Co. Subsequently, in 2016, Littlejohn sold DCLI to EQT, a Dutch infrastructure private investment firm.

The REZ-1 linchpin

Shea, an industry veteran whose been in the chassis business – particularly on the domestic side – for nearly four decades, was part of the investment group involved in the 2012 purchase. “We bought DCLI in 2012 and that company had 64,000 units and three customers – Maersk, Horizon Lines and OOCL…with an 86% concentration with Maersk.”

Over the next four years, Shea said the company grew to about 115,000 units and “tripled the company and ultimately diversified it.”

An important step in the process was the DCLI’s purchase in 2014 of a relatively unknown software service provider REZ-1, whose primary customer base was railroads, IMCs and domestic trucking. The IT Wellesley MA-based company provided a suite of tools for functions such as equipment management and tracking. As part of their business, REZ-1 managed the rail-controlled container fleet for Union Pacific, Norfolk Southern and subsequently for CSX, CN and CP.

Shea had worked with REZ-1 when president of Bay Cities Leasing (BCL). BCL was the program manager for a container pooling product called EMP, that was between Conrail, NS and UP. BCL used REZ-1 to manage the program.

REZ-1 was thus a natural fit for DCLI and as Shea explains the motive for the acquisition, “We bought REZ-1 to take on the management of DCLI’s equipment.”

On TRAC

Shea says, when DCLI was acquired by EQT in May of 2016 one of the initiatives that EQT called for was the development of a Full Potential Plan (FPP), which is “really a three-year strategic plan in order to optimize the value of the enterprise…”

The FPP was kicked off in May of 2017 and was built around three strategic objectives: growth, diversification and Digital DCLI. Digital DCLI was a new concept of sorts – how DCLI will “utilize and optimize” the REZ-1 system.

With this three-pronged approach DCLI management looked first at how the company had grown – after all the company had a pretty decent track record.

“We [DCLI] had a very strong core on our steamship lines that we believe we will get organic growth from, but we looked at opportunities to diversify across integral asset categories,” Shea said. Among those were trailer leasing, asset management and other services in the DCLI quiver.

But finding a business activity that satisfied all three objectives kept bringing DCLI executives back to TRAC.

As Shea explained the logic to the acquisition, “ultimately our target became the TRAC domestic chassis fleet, for…three reasons:

• Number one, it’s an asset class, chassis, that we’re very familiar with and have the infrastructure in place to manage.”
  
• “Second, it linked very closely to the REZ-1 asset management for the U.S. container fleet, so we now felt that we would provide strategic value to our rail customers by linking the domestic container and the domestic chassis under one asset management system that could focus on asset availability, visibility of assets on the street.”
  
• “And lastly we felt that there were a number of customers, intermodal customers that were common across both the domestic and the international spectrum. And those are people like Amazon; people like Hub City; companies like the motor carriers that have operations that support both the marine and their domestic business.”
  

As deals go, the TRAC acquisition checked all the boxes in DCLI’s FPP initiative. With the deal complete, DCLI now owns approximately 136,000 marine chassis, as well as 80,000 domestic chassis for a total chassis fleet of over 216,000 units. In addition, REZ-1 manages over 86,000 domestic containers for third parties. And the symbiotic relationship between DCLI’s business units bodes well for the sought-after growth in the Full Potential Plan.