The most important benefit Arnold Transportation may gain from its merger with LinkAmerica isn’t additional trucks or drivers but density. The tractor-trailers LinkAmerica brings to Arnold largely will haul freight in the same lanes, doubling down on freight density and making the truckload carrier more efficient.
“What LinkAmerica provides is volume,” Arnold President and CEO Todd Smith said. “When you drop 650 trucks on an established network, it becomes very, very dense.” Density is trucking’s Holy Grail — greater density in a freight lane means greater efficiency and capacity, better service, lower costs and higher profit.
Improving lane density “provides more efficient routes and miles for the drivers and more high service capacity for the customers,” Smith said in an interview. LinkAmerica, Fort Worth, Texas, and Jacksonville, Fla.-based Arnold are well matched, with about 650 and 850 trucks, similar routes and pricing, he said. “If you were looking for the perfect merger in the trucking space, this is pretty good.”
Arnold, a regional subsidiary of U.S. Xpress Enterprises, and LinkAmerica, owned since 2011 by Tenex Capital Management, could complete their merger by the end of 2012, Smith said, creating a $220 million regional trucking company with about 1,400 tractors and 5,000 trailers. The regional territories covered by the companies include the Southeast and the Southwest, and the bigger carrier will have a better platform for expansion into new regions. Once the merger is complete, Tenex Capital will own 55 percent of the company, and U.S. Xpress, 45 percent.
The merger underscores the increasing importance of regional truckload carriage as shippers keep up their long-term trend toward faster replenishment and regional-based distribution, with most freight moving less than 500 miles.
Regional carriers such as Arnold and LinkAmerica are pursuing the growing number of short-haul shipments. They’re also pursuing drivers who prefer regional and dedicated trucking. There’s plenty of room for expansion in regional markets, Smith said. Regional truckload represents about a $225 billion market, he said.
“There’s a lot of freight out there, but to execute takes a tight focus” on both internal and external customers, Smith said. The internal customers are the company’s drivers. “The new truck drivers we’re bringing in today don’t want to stay on the road for weeks like the older drivers did,” he said. “Their No. 1 priority is home time, and the regional market gives them the home time they want.”
The merger of the two regional networks will help Arnold create more efficent routes, giving drivers more miles and effectively raising their compensation, he said.
The merger also shows that trucking acquisition activity is likely to remain strong in 2013 and beyond, despite the pace of economic recovery. “I think you are going to see potential acquisitions in trucking over the next few years, and even at Arnold,” as carriers look to attract investment and expand operations, Smith said.
The merger with LinkAmerica is part of a strategy to return Arnold to its “glory days,” when it was a much larger multiregional carrier, Smith said. “During the recession, Arnold shut down in the Northeast and got out of the Midwest. Now we’re re-establishing our footprint throughout the country,” he said.
Smith remains president of the company, which he joined in January 2012 after spending five years as president of LinkAmerica. John Simone, president of LinkAmerica since the Tenex acquisition, will be leaving the company, Smith said.
U.S. Xpress, the fifth-largest U.S. truckload carrier ranked by revenue, purchased a majority share in Arnold in 2006. “This merger expands the brand of Arnold, providing more breadth and depth and greater capacity for its customers,” said John White, executive vice president of the Chattanooga, Tenn.-based company. “For us, it’s a reduction in debt, but we keep our involvement in Arnold’s ownership.”