US continues to see consolidation in road freight

Despite being known as a growth driver in Europe, German consumer demand is often mediocre with the economy disproportionately dependent on exports of automotive products in particular.

The US tucking market is seeing continued development. Even as prices in the market remain high, some truckers struggle to survive. The latest failure is Central Freight Lines, a ‘less-than-truckload’ (LTL) carrier based in Waco, Texas. The Wall Street Journal reports that the company will wind-up its business over the next few weeks “despite strong demand in freight markets”. It seems that the Central Freight Lines had been struggling for several years, despite cash-injections from Jerry Moyes, the founder of Swift Freight. It is unclear why Central Freight Lines failed, however the company was heavily indebted, possibly due to an extensive fleet renewal several years-ago and also apparently it has struggled to find drivers over the past year.

The company had a fleet of 1,200 trucks and was the 21st largest less-than-truckload carrier in the US.

In contrast Knight-Swift is expanding through acquisition, buying the ‘less-than-truckload’ carrier RAC MME Holdings, which operates under Midwest Motor Express brand, for US$150m last week. Midwest Motor Express is based in North Dakota and will give Knight-Swift’s growing LTL service a presence of the North-West of the US as well the Mid-West. The company has been owned by private equity companies for several years. Knight-Swift estimated that it was the 26th largest LTL carrier in the US.

Knight-Swift is continuing to diversify its business away from a dependency on truckload by acquiring LTL businesses. Midwest Motor Express is a complement to AAA Cooper which it bought earlier in the year. It appears likely that Knight-Swift will continue to buy LTL businesses, aiming to develop a presence in the North-East, the South-West and California. 

Perhaps it is dangerous to read too much into the failure of one trucking company and the acquisition of another. Road freight is a hard business, often with thin margins and businesses often struggle to survive. However, the expansion of Knight-Swift may suggest that consolidation is continuing to take place in trucking, with the less-than-truckload sector being the spearhead of this. Larger, better capitalised companies can create large networks of cross-docks that deliver economies of scale that smaller rivals cannot. Larger companies can also concentrate on fixed assets with higher returns such as cross-docks, rather than trucks.

Source: Transport Intelligence, 14th December 2021

Author: Thomas Cullen