Knight-Swift has strengthened its position as the largest truckload operator in the US through its agreement to purchase US Xpress Enterprises, which is approximately the seventh largest road freight provider. Knight-Swift has made an offer of US $808m for US Xpress on a ‘total enterprise’ basis and this has been accepted by the board of US Xpress. Like Knight-Swift, US Xpress is predominantly a ‘full-truck-load carrier’.
In explaining its “Strategic Rationale” for the acquisition, Knight-Swift said that US Xpress was a mix of dedicated and ‘irregular’ truck-load services with the addition of some truck brokerage. According to Knight-Swift “portions of the U.S. Xpress business are performing reasonably well, such as the Total Transportation subsidiary, while the most underperforming irregular route business unit matches up well with Knight-Swift’s strengths”. The company will add 7,200 tractor units and 14,400 trailers through the acquisition, making a total fleet of 25,000 tractors and 93,000 trailers.
The strategy of Knight-Swift is clearly focussed on economies of scale on specific routes, enabling it to buy under-performing assets and work them harder. US Xpress will be retained as a brand as will much of the senior management, however Knight-Swift said that “cross-functional teams made up of leaders from Knight, Swift, and U.S. Xpress will work together to leverage economies of scale, freight network efficiencies, and best practices.”
It is one of a number of acquisitions in the US market over the past year, with the previous major deal being DB Schenker’s purchase of USA Truck. This clearly implies that the US truck market is quite attractive for the right management, with a company such as Knight-Swift being able to claim a 16.5% operating margin. This is quite an impressive level of profitability for road freight. In-turn this begs the question of whether these margins will attract more investors or whether other freight providers will consider further acquisitions or mergers. It is also perhaps worth noting that certain parts of the road freight sector in the US seem to be perfectly profitable, yet there are constant complaints about a shortage of truck drivers and their poor wages.
Author: Thomas Cullen
Source: Ti Insights
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