With parcel shipping volumes soaring and seemingly likely to stay that way for many years, UPS has decided to exit the mostly less-than-truckload (LTL) part of its business, known as UPS Freight, by selling it off to Canadian logistics firm TFI International.
Supply Chain Digest Says...
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| The move allows UPS to now concentrate its investments in its parcel and supply chain services businesses, where needs for capital will remain high. |
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The deal was for about $800 million, a seemingly low number that is just about one fourth of UPS Freight's estimated 2020 revenue of about $3.15 billion.
TFI, little known in the US before this deal, offers LTL, truckload and parcel shipping and third-party logistics services north of the boarder.
UPS was a large player in the US LTL market, but not a leader. The most recent list of the largest LTL carriers in the US by revenue from Transport Topics magazine put UPS at fifth largest, behind FedEx Freight, YRC Worldwide, XPO Logistics, and Old Dominion, with FedEx having more than twice UPS's Freight's revenue.
UPS Freight also has a small amount of full truckload freight services.
With the deal, TFI - which had 2020 revenue of $4.1 billion - instantly gains a major US logistics presence. Also as part of the sale, TFI will be able to use UPS's domestic network for US parcel services for five years. UPS Freight has about 14,500 employees in North America.
UPS got into the LTL business in 2005 with the acquisition of Virginia-based Overnite Corp., several years after arch parcel rival FedEx entered the LTL market, also through acquisition.
With the deal, UPS announced it expects to book a non-cash impairment charge of roughly $500 million before taxes for 2020 – implying the $800 million sell price for the unit was well below its book value. The unit was basically operating at break-even levels.
TFI thinks those financials can be significantly improved.
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"We see compelling opportunities to improve yield, efficiency, and...productivity, both near and long-term,"
TFI Chairman and CEO Alain Bédard said in a Monday call with analysts.
 He also said many current UPS Freight customer will likely soon see hikes in their LTL rates.
"There's some customers that maybe don't fit the company today," he said. "And then those guys will have to go out or pay what is normal."
The move allows UPS to now concentrate its investments in its parcel and supply chain services businesses, where needs for capital will remain high, instead of diluting those investments with spend on the low growth, low margin Freight business.
UPS Freight's LTL business will operate independently within TFI's LTL business segment under a new name, TForce Freight, while the truckload assets will fold into TFI's truckload business segment.
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