XPO to keep truckload business, rules out asset sale

XPO Logistics Inc. has decided to keep the assets of the former Con-way Truckload operation, ending months of speculation over whether it would sell the assets or integrate them into its supply chain network.

In a filing late yesterday with the Securities and Exchange Commission, Greenwich, Conn.-based XPO said it chose to retain the business after considering the "value that shippers place on owned truckload capacity, particularly in U.S.-Mexico cross-border lanes, and the opportunity to improve the utilization of the assets."

Last month, XPO Chairman and CEO Bradley S. Jacobs told a conference in Atlanta that he was leaning toward keeping the truckload assets, saying the operation will deepen XPO's exposure in the U.S.-Mexico cross-border market and give it the means to keep valuable truckload capacity in the market. In October, Jacobs said XPO received three unsolicited offers from unnamed prospective buyers for the truckload operation. It is not clear as to whether any of the offers passed muster with XPO.

In an e-mail today, Jacobs said that "when we compared the bids versus what we can do with the business, we decided it made much more sense to keep it and grow it." The vibrant cross-border market accounts for about 35 percent of XPO's truckload business, Jacobs said. In addition, the unit's truck assets will be a valuable source of capacity for freight sold by Con-way's freight brokerage business, Jacobs said. A third factor is the increased credibility attached by some shippers to a provider that brings assets to the table, he said.

Although Jacobs voiced concern over the level of capital investment needed to maintain an asset-based operation, he said that the "positives far outweighed the negatives."

Charles W. Clowdis Jr., managing director-transportation for consultancy IHS Economics and Country Risk, said a truckload carrier owned by a third-party logistics (3PL) provider will deliver more value to shippers than a les-than-truckload (LTL) carrier controlled by the same 3PL. "The ownership of a (truckload) carrier gives the 3PL flexibility to cover 'flex periods,' as well as emergency loads and volume movements, as they arise," Clowdis said.

Con-way's truckload operation was not viewed as a strategic asset for XPO. The 3PL and broker was mostly interested in Con-way's LTL operation, Con-way Freight, and its profitable contract logistics business, the former Menlo Worldwide Logistics, when XPO acquired Con-way last September for $3 billion in the largest transaction in U.S. trucking history. The deal closed on Oct. 30.

Con-way had acquired the truckload operation in 2007, when it was known as Contract Freighters Inc. The $750-million purchase price was considered wildly inflated, and the overvaluation problem was compounded by the unit's operational struggles since then.