Matthew Moroun just may have made the trucking deal of the decade, if not the new century. For only $2 million and the assumption of about $30 million in debt, the vice chairman of CenTra and son of trucking magnate Manuel “Matty” Moroun hopes to pick up the U.S. operations of $703 million Toronto-based Vitran.
That includes almost 100 terminals, with a 116-door terminal in Indianapolis; 101-door terminal in Toledo, Ohio; a 100-door terminal in Louisville, Ky.; and a 96-door terminal in Charlotte, N.C. The property value of the industrial real estate Moroun will get if the deal goes through should be higher than the acquisition cost.
If approved, the acquisition should spur competition and growth among mid-tier LTL carriers, though that doesn’t mean lower pricing. In fact, a bit of additional consolidation could help carriers shore up pricing in a slow growth market, and even raise the pricing floor, as Vitran customers paying lower rates see them rise.
Although Vitran doesn’t separate the financial results of its U.S. and Canadian units, the U.S. business accounted for about 72 percent of its less-than-truckload revenue in 2012, according to the company’s latest annual report. That’s a bit more than $500 million a year. The company employs about 5,400 workers on both sides of the border, according to its 2012 annual report.
Vitran is far from the largest LTL carrier on the block — that would be $5 billion FedEx Freight. But the splitting of the 12th-largest LTL carrier and sale of its U.S. business is one of the more significant developments in the LTL market in recent years. Vitran is part of a group of mid-tier LTL carriers with more than $500 million in annual revenue that includes several fast-growing carriers, including Roadrunner Transportation and Canadian transportation giant TransForce, which has been growing its LTL business through acquisitions. That TransForce offered to buy Vitran’s Canadian business just days after the Maroun deal was announced speaks volumes about the direction of the two companies — and the speed at which the LTL market is changing.
Last year, the 10 LTL carriers with more than $1 billion in revenue accounted for 66.5 percent of total LTL revenue, and increased their revenue 4.2 percent. Many of the biggest LTL carriers on the JOC-SJ Consulting List of Top 25 U.S. and Canadian LTL carriers have spent several years combining operations (Yellow and Roadway, FedEx Freight and FedEx National LTL) and reorganizing networks, taking out capacity.
In comparison, carriers with $500 million to $999 million in revenue on the Top 50 list accounted for only 13.1 percent of LTL revenue last year, but increased their combined revenue 23.3 percent from 2011, according to data from SJ Consulting.
Those carriers are hungry, and five years into the economic recovery, they are accelerating growth.
Matthew Moroun and his family know expansion, and how to manage it. If Moroun completes the acquisition of Vitran Express, he will add the company to a network of holdings that includes LTL carrier Central Transport International, with nearly 200 customer service centers and about $380 million in revenue, according to SJ Consulting. The Moroun family also owns or holds stakes in Universal Truckload Services, a $741.7 million publicly owned network of truckload and intermodal carriers, as well as LINC Logistics and brokerage service CTX, as well as Detroit’s Ambassador Bridge to Canada. Moroun is also a director and chairman of the board of P.A.M. Transportation, a $380 million publicly owned Tontiville, Ark.-based truckload carrier.
Regardless of whether he operates Vitran Express as a standalone company or, as Wall Street seems to expect, merges the business with Central Transport, Moroun will be able to pick the lanes and customers that will provide the most freight density and profit. “They may lose some business, but that’s OK,” said Satish Jindel, president of SJ Consulting. “For the price they’re paying, they can pick and choose customers.”
The acquisition may have a ripple effect across the LTL market, helping carriers stay disciplined on rates, even if it doesn’t help to raise pricing much. The JOC average LTL revenue per hundredweight or yield, a measure of pricing, rose only 0.7 percent year-over-year in the second quarter, compared with 2.8 percent in the first quarter of 2012, as anticipated rate hikes softened in the face of weak demand. How much of a ripple is felt may depend on how much of Vitran’s 100-terminal network Moroun decides to keep intact.
Vitran customers now paying low rates, however, are likely to see them climb, in some cases perhaps sharply. “Customers of Vitran should be getting ready to pay a little more,” Jindel said. “Companies have to have a reasonable price to keep the business going. All those low rates, don’t count on them in the future.”
Even if Vitran’s new owner keeps half the current U.S. LTL business, it would be a lot of revenue. Central Transport was the 19th-largest LTL carrier in 2012, according to SJ Consulting, while Vitran was the 12th-largest, just ahead of TransForce, the Montreal-based company now eyeing Vitran’s operations in Canada. A few days after the sale of Vitran Express was announced, TransForce proposed purchasing Vitran Canada Express for $4.50 per share — not counting the 9.5 percent of Vitran’s stock TransForce already owns. TransForce, a $3.1 billion holding company, had about $653 million in LTL revenue last year, according to SJ Consulting.
Unlike the U.S. LTL operation, Vitran Canada has an asset-light business model that relies heavily on intermodal rail to bring goods from the west coast to Canada’s industrial and population centers. The Canadian carrier also is financially healthy. Jindel calls it “one of the best LTL operations in Canada.”
Jindel anticipates a bidding war for Vitran Canada, as U.S. LTL companies that need access to the United States’ largest trading partner fight for a slice of that trade. “Any American LTL company that wants a presence in Canada needs to be engaged in this bidding process,” he said. Otherwise, they may find themselves dealing with TransForce, which already owns several Canadian LTL players, including Canadian Freightways, Quik X Transportation and TST Overland Express.