FedEx acquires Watkins

It appears that FedEx is in the LTL business for the long haul. FedEx Corp., which already offers regional less-than-truckload (LTL) service through its FedEx Freight division, last month announced that it had agreed to acquire the national LTL operations of Lakeland, Fla.-based Watkins Motor Lines for $780 million. The acquisition is expected to be completed by the end of August.

The Watkins acquisition will allow FedEx Corp., which specializes in premium next- and second-day service, to move freight longer distances across the United States and to Canada. Currently, FedEx offers LTL customers one-day service (up to 600 miles) and second-day service (up to 1,600 miles). Through the addition of Watkins, it will be able to expand its LTL coverage to include a lower-cost three-day-ormore longhaul service for shipments traveling more than 1,600 miles.

During a conference call announcing the acquisition, Frederick Smith, chairman, president and CEO of FedEx Corp., called Watkins "a leader in the three-day-or-more longhaul sector." Doug Duncan, president of FedEx Freight, added that customers have been demanding a reliable, but lower-cost, longhaul alternative to the existing next- and second-day services, a niche Watkins will fill. "Customers say they love the reach and reliability of our next and second day," he said. "The longhaul segment is not rapid growth, but we believe it is underserved."

As for why FedEx chose the acquisition route, Duncan said that offering longhaul service through the existing FedEx Freight network would not work. "We have to operate a tight network. It would suboptimize it to add longhaul to that network," he said. "We really need a separate network."

A subsidiary of Watkins Associated Industries, the privately owned Watkins Motor Lines has annual revenues of about $1 billion and a workforce of approximately 10,000. It has 139 locations in 42 states and Puerto Rico and operates more than 3,400 city and linehaul tractors and 10,200-plus trailers.

Once the transaction has been completed, Watkins will be rebranded as FedEx National LTL and will operate as a separate network within FedEx Freight. As part of the transaction, FedEx will acquire the assets of Watkins' business in Canada, Watkins Canada Express. Watkins Canada Express will be rebranded FedEx Freight Canada.

Watkins management will remain in place, with Chip Watkins serving as president. He will report to Patrick L. Reed, executive vice president and chief operating officer of FedEx Freight, who has responsibility for all LTL operations in the United States.