TFII TFI International Inc

By Paul Page 

TFI International Inc. plans to spend $50 million to $75 million to upgrade the UPS Freight fleet and renegotiate prices for the carrier's shipping customers as the Canadian company incorporates an operation that will make it one of the largest truckers in North America.

Montreal-based TFI, which agreed to acquire the business for $800 million, said it would rename the main part of the operation TForce Freight and will start looking for ways to reduce operating costs and improve margins. The unit brought in around $3 billion in revenue at United Parcel Service Inc. last year and had an operating margin of 2.3%.

"We see compelling opportunities to improve yield, efficiency, and...productivity, both near and long-term," TFI Chairman and Chief Executive Officer Alain Bédard said in a Monday call with analysts.

The sale, which the companies expect to close in the second quarter, marks the largest deal in North American trucking since truckload carriers Knight Transportation Inc. and Swift Transportation Co. merged in 2017 and will jolt a competitive less-than-truckload market, in which carriers haul loads for multiple customers on the same truck. UPS Freight is the sixth-largest business in that field by 2019 revenue, according to transportation research company SJ Consulting Group Inc.

The acquisition caps a dramatic period of growth for TFI that has seen the business buy dozens of companies. Many were small operators, but the deals also include the 2016 acquisition of XPO Logistics Inc.'s truckload division, and the purchases of trucker Vitran Corp. and of truckload carrier Transport America Inc. in 2014.

Mr. Bédard said the truckload business at UPS Freight, which makes up about 10% of the unit's revenue, will be blended into TFI's existing truckload operations while the main LTL segment, including 147 terminals and 50 leased sites, will operate on its own.

The transition will be smoothed by a provision allowing the business to continue using UPS's domestic package network for five years to fulfill shipments.

"We have acquired and integrated more than 90 companies since 2008, which has helped us grow considerably," Mr. Bédard said. "We allow more than 80 companies to operate as independent business units under the TFI International umbrella with a high degree of autonomy. This approach is perfectly suited for capitalizing on UPS Freight's existing strength and allowing us to improve its margin over time."

Analysts applauded the move and TFI's shares surged more than 40% in the two days after the transaction was announced.

The deal fits with TFI's "prior strategy to find a business that's not performing as it should and bring the margins up to par with the rest of its business," Credit Suisse Group AG analyst Allison Landry wrote in a Monday research note.

Mr. Bédard said some gains would come from treating the operation more as a stand-alone business rather than "bundling" the trucking services with parcel services that generally command higher prices, as UPS had been doing. "LTL was like a loss leader" for UPS, he said.

"We'll be talking to customers over time" about new contract terms, Mr. Bédard said. "It will take time. It's not going to happen within six months. It will take probably 12 to 18 months for us to start correcting."

"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."

Fleet upgrades will come over the next year and help the company reduce operating costs by replacing about 1,000 trucks. "Trucks will be our priority No. 1 because of the fuel economy, because of the huge maintenance cost, because of safety on the truck," Mr. Bédard said.

Write to Paul Page at paul.page@wsj.com

(END) Dow Jones Newswires

January 26, 2021 16:39 ET (21:39 GMT)

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