We reported last week the UPS has agreed to sell its UPS Freight unit – mostly an LTL carrier - to Canadian carrier and logistics service provide TFI International. (See UPS to Exit LTL Business with Sale of Freight Unit to TFI International.)
Supply Chain Digest Says...
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| So FedEx Freight appears to be more strategic to FedEx than the LTL business was to UPS. |
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TFI picks up UPS Freight – which will give it instant access to the US market when the deal closes – for just $800 million, or only one-fourth of UPS Freight's estimated $3.1 billion in revenues in 2020.
The big driver of UPS to sell the Freight business was to allow it to concentrate its attention and especially capital investments in it parcel business. The parcel unit is seeing huge growth as ecommerce volume continue to soar, up 36.7% in Q3, with similar year-over-year gains expected when the Q4 numbers are released by the US Commerce Dept. soon.
All of which leads some to wonder if arch parcel rival FedEx will similarly exit the LTL business UPS is leaving.
Probably not, for a variety of reasons.
First, FedEx is the leading LTL carrier in the US, with more than twice the revenue of UPS Freight, which is in fifth or sixth place, depending on the estimate. (See graphic below).
UPS Freight was also slow growing, snd not very profitable, according to sources. Revenue is believed to have fallen slightly in 2020 versus 2019.
A drag on profitability might also be the fact that UPS Freight drivers are unionized, whereas most of the rest of the LTL sector is non-union – including FedEx.
"FedEx Freight has a low-cost, non-union labor model and has generally been successful raising LTL rates to driver higher profit margins," Dean Maciuba, managing partner for North America at Last Mile Experts, told theloadstar.com web site this week.
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FedEx is also leveraging its Freight unit for delivery of on-line purchases of over-sized and bulky items, a segment in which volumes have recently surged in the stay at home US economy and due to consumer behavior changes as to what they will buy on-line.
FedEx Freight Direct was formed in 2019, with capabilities to execute residential deliveries of large items to 80% of the US population.
FedEx also uses its LTL arm to move some on-line orders that have more relaxed delivery requirements.
So FedEx Freight appears to be more strategic to FedEx than the LTL business was to UPS.
Hence why UPS is selling its Freight business – and why it seems most likely FedEx will not follow suit.
Do you think FedEx will keep its LTL business? Let us know your thoughts at the Feedback section below.
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