i>By Michael A. Regan, TranZact Technologies

While virtually everyone has heard or read about Yellow Freight’s acquisition of USF Corporation, we thought you’d be interested in considering some of the implications of this transaction on your business.

I was interviewed recently about what this development means for shippers. Briefly summarized, industry consolidation will offer shippers fewer options. Shippers will need to be more creative and strategic in managing their transportation costs. What does this mean? First, expect further consolidation in the LTL marketplace. We have been consistent with this projection; the dynamics of the motor carrier sector favor continued consolidation as the market place determines winners and losers. Second, expect a lot of activity in the regional carrier marketplace ’ for both shippers and carriers who are looking for other acquisition targets, or who are looking to be part of a nationwide network (such as the Estes, Lakeville and GI Trucking network). Third, LTL pricing will remain strong as industry consolidation extends the conditions associated with a “seller’s market.” In 2004, LTL shippers were re-educated about how to operate in a seller’s market. Look for more of the same in the foreseeable future.

Looking ahead, I am reminded of a talk I heard about the parallels between the airline and motor carrier sectors. The speaker stated that if you wanted to understand what will happen in the motor carrier sector, look at what has happened in the airline sector. To illustrate this point, he brought up the fact that the deregulation of air occurred in 1978; deregulation of the motor carrier space occurred in 1980. He then produced a raft of statistics to buttress his argument that you can glean a great deal about the future of the motor carrier industry by looking at the airline industry.

Fortunately, the motor carrier sector, financially speaking, is much healthier than the airline sector. However, ever since that speech I have been fascinated with the correlation. Today airline travelers have fewer options than they did 25 years ago since the consolidation occurred. Some airlines have managed to do well; others have either been acquired, gone out of business, gone bankrupt, or are in bankruptcy. As you look at domestic air carriers, you see that they each have pre-defined territories where they hold a majority of the market share in those lanes. While it may not be as easy to identify the pre-defined territories in the motor carrier sector, today the industry is becoming increasingly segmented. What is interesting though is that both ABF and Yellow were traditionally identified as “long haul carriers.” Now both of these carriers are moving aggressively into markets offering next day or second day service. This may offer shippers the opportunity to mitigate the impact of higher rates IF some of the regional carriers choose to use their pricing to defend their market share.

One final note, the acquisition will go through the normal regulatory channels and will likely be finalized in the summer. With this thought in mind, we encourage shippers to analyze their carrier matrix to determine what, if any, adjustments will be necessary as a result of this acquisition. That’s it for now and (as usual) all on one page.

Michael A. Regan

TRANZACT TECHNOLOGIES http://www.tranzact.com