Mark Solomon joined DC VELOCITY as senior editor in August 2008, and was promoted to his current position on January 1, 2015. He has spent more than 30 years in the transportation, logistics and supply chain management fields as a journalist and public relations professional. From 1989 to 1994, he worked in Washington as a reporter for the Journal of Commerce, covering the aviation and trucking industries, the Department of Transportation, Congress and the U.S. Supreme Court. Prior to that, he worked for Traffic World for seven years in a similar role. From 1994 to 2008, Mr. Solomon ran Media-Based Solutions, a public relations firm based in Atlanta. He graduated in 1978 with a B.A. in journalism from The American University in Washington, D.C.
XPO Logistics Inc. said yesterday it acquired intermodal marketing company Pacer International Inc. in a cash-stock deal valued at about $335 million, or about $9 a share in cash and XPO stock.
The transaction vaults Greenwich, Conn.-based XPO into the intermodal arena and insulates the company from the vagaries of the freight brokerage business, the largest segment of its revenue mix but one that has been increasingly vulnerable to profit-compressing commoditization. XPO is also in the freight forwarding and expedited transportation segments.
Pacer is the nation's third largest intermodal marketing company behind J.B. Hunt Transportation Services Inc. and the Hub Group Inc. According to XPO, Pacer is the largest intermodal provider in the cross-border U.S.-Mexico market. The trade lane is believed to hold much potential but has yet to be fully exploited as far as intermodal services are concerned. About 60 percent of Pacer's revenue is generated within the contiguous 48 states, with the remainder coming from U.S.-Mexico transborder services, Jacobs said.
All of Pacer's top executives will remain with XPO following the acquisition, XPO said.
As of late afternoon, Pacer stock was trading at $8.98 a share, a shade below the $9 transaction price. The transaction represents an 8-percent premium over Pacer's closing stock price on Friday. XPO stock was bid up to as high as $30.77 a share, a new record for the company.
In a research note, John G. Larkin, lead transportation analyst for investment firm Stifel, Nicolaus & Co., said the company has "wisely...de-emphasized growth in the less defensible truck brokerage market, which in recent years has become more commoditized." This "crafty change in strategic course," as Larkin put it, should make it easier for XPO to achieve its long-term objectives.
In an interview yesterday, Jacobs said XPO is not concerned about profit regression in brokerage and that the company is not moving away from aggressively pursuing brokerage opportunities. "Of the 100 or so acquisition candidates that are on our list, most of them are in freight brokerage," he said.
The brokerage industry is a $50 billion-a-year, deeply fragmented business that can be highly profitable for an acquirer that can achieve both freight density and economies of scale, Jacobs asserted. "In terms of where the money is, it is in brokerage," he said.
PACER'S EVOLUTION
As for XPO's most recent acquisition, Pacer has a complicated history. The evolution of Pacer mirrors that of modern-day intermodalism. In the early 1980s, Don Orris, who would become Pacer's CEO, championed the development of double-stack intermodal service while heading the intermodal division of Singapore-based steamship giant APL. In 1984, railroads began moving intermodal trains with specially designed cars capable of handling two tiers of containers instead of one. Double-stack service revolutionized domestic and international transportation by allowing railroads to handle more freight with the same locomotive power and track capacity, and to do so more safely than anyone could have imagined.
For years, Pacer handled virtually all of the Union Pacific Railroad Co.'s (UP's) domestic intermodal moves of international freight from U.S. ports to inland points. Through its "Stacktrain" service, Pacer wholesaled its capacity to intermodal marketing companies and retailers. However, the UP arrangement, which was considered a stellar deal for Pacer, was eventually unwound. Pacer morphed into an intermodal marketing company that, like others, "retailed" freight to beneficial cargo owners.
The loss of the legacy contract, and the problems that ensued in adjusting from being a wholesaler to a retailer of intermodal capacity, took its toll on Pacer's value. Its stock, which traded near $35 a share around 2006, had fallen to under $3 by late 2009 before beginning its climb to current levels.
One intermodal industry executive sharply critical of Pacer management expressed astonishment that it would be acquired at a "stratospheric" level of 11 times earnings before interest, taxes, depreciation, and amortization (EBITDA). Well-run nonasset based companies shouldn't be valued at anything more than eight or nine times EBITDA, the executive said.
"People are picking their jaws off the floor on this one," the executive said.
The executive, who asked not to be identified, said Pacer has been unable to compete for intermodal business with either Hunt or Hub Group. The executive added that XPO, in its quest for revenue to drive the growth demands of analysts and investors, may have overreached with the Pacer acquisition. "They are paying too much for too little," the executive said.
Supply chain planning (SCP) leaders working on transformation efforts are focused on two major high-impact technology trends, including composite AI and supply chain data governance, according to a study from Gartner, Inc.
"SCP leaders are in the process of developing transformation roadmaps that will prioritize delivering on advanced decision intelligence and automated decision making," Eva Dawkins, Director Analyst in Gartner’s Supply Chain practice, said in a release. "Composite AI, which is the combined application of different AI techniques to improve learning efficiency, will drive the optimization and automation of many planning activities at scale, while supply chain data governance is the foundational key for digital transformation.”
Their pursuit of those roadmaps is often complicated by frequent disruptions and the rapid pace of technological innovation. But Gartner says those leaders can accelerate the realized value of technology investments by facilitating a shift from IT-led to business-led digital leadership, with SCP leaders taking ownership of multidisciplinary teams to advance business operations, channels and products.
“A sound data governance strategy supports advanced technologies, such as composite AI, while also facilitating collaboration throughout the supply chain technology ecosystem,” said Dawkins. “Without attention to data governance, SCP leaders will likely struggle to achieve their expected ROI on key technology investments.”
The British logistics robot vendor Dexory this week said it has raised $80 million in venture funding to support an expansion of its artificial intelligence (AI) powered features, grow its global team, and accelerate the deployment of its autonomous robots.
A “significant focus” continues to be on expanding across the U.S. market, where Dexory is live with customers in seven states and last month opened a U.S. headquarters in Nashville. The Series B will also enhance development and production facilities at its UK headquarters, the firm said.
The “series B” funding round was led by DTCP, with participation from Latitude Ventures, Wave-X and Bootstrap Europe, along with existing investors Atomico, Lakestar, Capnamic, and several angels from the logistics industry. With the close of the round, Dexory has now raised $120 million over the past three years.
Dexory says its product, DexoryView, provides real-time visibility across warehouses of any size through its autonomous mobile robots and AI. The rolling bots use sensor and image data and continuous data collection to perform rapid warehouse scans and create digital twins of warehouse spaces, allowing for optimized performance and future scenario simulations.
Originally announced in September, the move will allow Deutsche Bahn to “fully focus on restructuring the rail infrastructure in Germany and providing climate-friendly passenger and freight transport operations in Germany and Europe,” Werner Gatzer, Chairman of the DB Supervisory Board, said in a release.
For its purchase price, DSV gains an organization with around 72,700 employees at over 1,850 locations. The new owner says it plans to investment around one billion euros in coming years to promote additional growth in German operations. Together, DSV and Schenker will have a combined workforce of approximately 147,000 employees in more than 90 countries, earning pro forma revenue of approximately $43.3 billion (based on 2023 numbers), DSV said.
After removing that unit, Deutsche Bahn retains its core business called the “Systemverbund Bahn,” which includes passenger transport activities in Germany, rail freight activities, operational service units, and railroad infrastructure companies. The DB Group, headquartered in Berlin, employs around 340,000 people.
“We have set clear goals to structurally modernize Deutsche Bahn in the areas of infrastructure, operations and profitability and focus on the core business. The proceeds from the sale will significantly reduce DB’s debt and thus make an important contribution to the financial stability of the DB Group. At the same time, DB Schenker will gain a strong strategic owner in DSV,” Deutsche Bahn CEO Richard Lutz said in a release.
Transportation industry veteran Anne Reinke will become president & CEO of trade group the Intermodal Association of North America (IANA) at the end of the year, stepping into the position from her previous post leading third party logistics (3PL) trade group the Transportation Intermediaries Association (TIA), both organizations said today.
Meanwhile, TIA today announced that insider Christopher Burroughs would fill Reinke’s shoes as president & CEO. Burroughs has been with TIA for 13 years, most recently as its vice president of Government Affairs for the past six years, during which time he oversaw all legislative and regulatory efforts before Congress and the federal agencies.
Before her four years leading TIA, Reinke spent two years as Deputy Assistant Secretary with the U.S. Department of Transportation and 16 years with CSX Corporation.
Serious inland flooding and widespread power outages are likely to sweep across Florida and other Southeast states in coming days with the arrival of Hurricane Helene, which is now predicted to make landfall Thursday evening along Florida’s northwest coast as a major hurricane, according to the National Oceanic and Atmospheric Administration (NOAA).
While the most catastrophic landfall impact is expected in the sparsely-population Big Bend area of Florida, it’s not only sea-front cities that are at risk. Since Helene is an “unusually large storm,” its flooding, rainfall, and high winds won’t be limited only to the Gulf Coast, but are expected to travel hundreds of miles inland, the weather service said. Heavy rainfall is expected to begin in the region even before the storm comes ashore, and the wet conditions will continue to move northward into the southern Appalachians region through Friday, dumping storm total rainfall amounts of up to 18 inches. Specifically, the major flood risk includes the urban areas around Tallahassee, metro Atlanta, and western North Carolina.
In addition to its human toll, the storm could exert serious business impacts, according to the supply chain mapping and monitoring firm Resilinc. Those will be largely triggered by significant flooding, which could halt oil operations, force mandatory evacuations, restrict ports, and disrupt air traffic.
While the storm’s track is currently forecast to miss the critical ports of Miami and New Orleans, it could still hurt operations throughout the Southeast agricultural belt, which produces products like soybeans, cotton, peanuts, corn, and tobacco, according to Everstream Analytics.
That widespread footprint could also hinder supply chain and logistics flows along stretches of interstate highways I-10 and I-75 and on regional rail lines operated by Norfolk Southern and CSX. And Hurricane Helene could also likely impact business operations by unleashing power outages, deep flooding, and wind damage in northern Florida portions of Georgia, Everstream Analytics said.
Before the storm had even touched Florida soil, recovery efforts were already being launched by humanitarian aid group the American Logistics Aid Network (ALAN). In a statement on Wednesday, the group said it is urging residents in the storm's path across the Southeast to heed evacuation notices and safety advisories, and reminding members of the logistics community that their post-storm help could be needed soon. The group will continue to update its Disaster Micro-Site with Hurricane Helene resources and with requests for donated logistics assistance, most of which will start arriving within 24 to 72 hours after the storm’s initial landfall, ALAN said.