One year back, Knight Transportation merged with Swift Transportation, combining the country’s two biggest truckload carriers and creating an industry giant, with more than $5 billion in revenue and some 23,000 tractors. Then, in March, the newly christened Knight-Swift Transportation Holdings acquired for about $102 million Abilene Motor Express, adding another 400 tractors to the mix.
Knight-Swift isn’t alone in its buying its way to greater heft. In June, Penske Logistics purchased Epes Transport System for an undisclosed amount, boosting its fleet of 2,700 tractors and almost 9,000 trailers by an additional 1,000 tractors and more than 6,000 trailers.
There are a host of smaller unions as well. Many of them join two private carriers with little or no fanfare. RoadOne IntermodaLogistics, for example, has made six acquisitions in the past two years as it extends its reach nationally in drayage. “We acquire for a number of reasons,” said Ken Kellaway, the company’s president and CEO. “We want to build our capacity for a national footprint. We want to bring in good operating people, bring in drivers to build our capacity and their customers to support our growth.”
The trucking industry remains extraordinarily fragmented. According to the American Trucking Associations, citing Department of Transportation data, there are almost 780,000 for-hire carrier companies, of which 91% own six or less trucks. Less than 3% of all these companies have more than 20 trucks. With tens of thousands of mom and pop operations, even dozens of mergers barely move the needle in terms of consolidation.
A few well-heeled companies are making a run at it. Probably the biggest is XPO Logistics Inc., which is armed with a war chest of several billion dollars. In 2015, it acquired Con-Way for $3 billion, as well as France’s Norbert Dentressangle for $3.53 billion. The company’s CEO, Bradley Jacobs last month told The Wall Street Journal that XPO had identified a dozen potential takeover targets and were in talks with each. Jacobs said that he anticipated one or two major deals by the end of this year. He previously said his company was ready and willing to spend up to $8 billion in acquisitions.
XPO isn’t alone. Already one of the biggest North American trucking companies, Schneider National went public last year, raising $550 million, which executives said could be used for acquisitions.
At the other end of the scale, the smallest trucking companies are finding it more and more difficult to survive in today’s environment. They’re burdened by everything from driver shortages to the cost of adding technology, much of which is now demanded by clients. An increasing number of shippers are demanding to work only with bigger fleets as well.
“We see an emerging trend easier to do business with fewer players,” said Kellaway. Customers “want one single point of contact for sales, a single point of contact for operations. They find it easier to do business with one strategic partner rather than a bunch of smaller transactional partners.”
For well-heeled trucking companies, acquisitions provide not only a means to new customers but a quick way to gain tractors and trailers, which help counter all the capacity issues the industry now faces.
The current economic climate gives potential acquirers confidence to do deals. They can not only buy their way to bigger fleets, but invest as well in new equipment, which is increasingly more critical for operations.
“We believe that having a structured life cycle management process is beneficial to lower the overall investment in equipment, but it does require capital to execute that strategy,” said Brian Holland, the president and CFO of Fleet Advantage, a Fort Lauderdale, Florida-based data analytics, leasing and private fleet management company.
There are some headwinds in M&A. Deterring large-scale acquisitions is the higher premium companies these days are forced to pay, said the mergers and acquisitions advisory Hatteras Group in a posting. That’s largely because of stock market investors. “They’ve pushed stocks so high that big acquisitions may now be too pricey,” said the group’s transportation expert, Bill McBane, in the post. “Valuations are high and economies of scale are low. This means that buyers may now begin to balk at premium prices for smaller carriers.”
A Deloitte study on the global trucking industry supports the view that smaller carriers will have a tougher time competing as time goes on. “The trend towards larger fleets with more than 100 vehicles will continue to increase until 2026. The number of customers is shrinking, while their purchasing power is growing,” Deloitte said in 2016.