UPS sells off its LTL and truckload arm for $800 million

Transport and logistics giant UPS Inc. is selling its less-than-truckload (LTL) and dedicated truckload business to the Canada-based trucking conglomerate TFI International Inc. for $800 million, saying the move aligns with its “better not bigger” strategy.

Headquartered in Richmond, Virginia, UPS Freight is one of the largest LTL carriers in the U.S., and has been offering both regional and long-haul solutions for its 85-year history, generating some $3 billion in annual revenue in 2020. Its assets include a network of 197 facilities (147 of which are owned), 22,000 trailers, and 6,700 tractors.

“We’re excited about the future and the opportunities this creates for both UPS and UPS Freight as part of TFI International Inc.,” UPS CEO Carol Tomé said in a release. “The agreement allows UPS to be even more laser-focused on the core parts of our business that drive the greatest value for our customers.” 

After the deal’s expected closure in the second quarter, Montreal-based TFI said it plans to rename UPS’ LTL unit “TForce Freight” and combine it with TFI’s existing LTL business segment. That sector comprises 90% of the new acquisition, and TFI will add the remaining 10%—UPS’ dedicated truckload assets— to its existing TL business segment.

Together, those moves will create “North America’s single most comprehensive LTL network” and accelerate TFI’s industrial and e-commerce growth opportunities, the Montreal-based firm said. TFI already operates a portfolio of subsidiary businesses that includes the U.S. carriers CFI and Transport America.

In the next 12 months, TFI intends to make “targeted investments” in the renamed TForce Freight fleet in a bid to lower maintenance costs, improve both efficiency and safety, and enhance customer service and driver satisfaction. The company did not share details of how it intends to reach those objectives.

“Our strategy of operating independent business units with a high degree of accountability is well-suited for building on UPS Freight’s strengths and improving margins over time,” TFI President and CEO Alain Bédard said in a release. “TForce Freight will continue to serve UPS’ ongoing LTL distribution needs, and UPS will continue to provide freight volumes and other services to TForce Freight after the transaction for a base term of five years. We also look forward to offering expanded strategic network opportunities to UPS in Canada. This transaction is a ‘win-win’, allowing TFI to continue our strategic expansion across the US and aligning with UPS’ ‘Better not Bigger’ strategic positioning.”

Buying UPS’ freight arm marks the latest chapter in a blitz of acquisitions by TFI, a publicly traded company which has bought a whopping 88 companies in the U.S., Canada, and Mexico since 2008.

Investors call move “strategically sound”

UPS’ strategy in selling its freight arm comes just a month after another logistics and transportation powerhouse, XPO Logistics Inc., made a similar move. In December, XPO split itself into two publicly traded companies, one offering warehousing and contract logistics and the other selling freight brokerage and LTL services.

Likewise, industry analysts today said UPS’ latest maneuver was “strategically sound” and would incur only a modest financial impact, according to a release from Garrett Holland, a senior research analyst with the investment firm Baird Equity Research.

On UPS’ accounting books, its freight arm had accounted for just 3.8% of UPS’ estimated revenue in 2020 and only 1.3% of its adjusted operating profit, Baird said. Even within UPS’ Supply Chain & Freight segment, the segment had generated 22% of revenue and 4% of operating profit. UPS executives will now use their $800 million proceeds to pay down long-term debt, and without holding the freight unit, they can avoid future investments that would have been required to maintain or improve UPS Freight’s market position, according to the Baird analysis.

Shippers will also survive the move without inconvenience, since the deal will have no operational impact on the UPS Small Package business, and UPS customers will be able to continue using UPS Ground with Freight pricing thanks to the continuing commercial agreement between UPS and TFI, Baird said.

Editor's note: This article was revised on January 25 to include input from Baird Equity Research.

.@UPS Announces Agreement to Sell UPS Freight to TFI International Inc. #upsnews https://t.co/BdkofC3iLW pic.twitter.com/nSia7SpNhZ

— UPS News (@UPS_News) January 25, 2021