With the planned spin-off of its specialised truckload operations it is likely that Montreal based North American trucking giant TFI International will become a pure-play LTL player. If this happens it will go head to head with LSPs like Old Dominion and FedEx Freight, but there is a fair bit to achieve before it does this. In this article we will consider recent events and the plans highlighted by the company to get to that point.
Background – UPS Freight acquisition in 2021
US logistics giant UPS divested its LTL operation UPS Freight to TFI International in 2021 for $800m. With an operational ratio (OR) of 101 it was not profitable and as such did not quite fit in with TFI’s acquisition policy that stated such companies should be accretive to the company. Even so, in the acquisition TFI combined all of its smaller LTL operations into a new subsidiary called TForce that then became a top-5 LTL player in North America.
Alain Bédard said of TForce, “We’re too fat. We’ve too many costs… Let’s go on a diet. That’s the only way we’re going to cut costs!” With a target OR of 88 by 2024 the parent company set about replacing the UPS Freight IT system sacking poorly performing managers and closing underperforming sites.
In another earnings call the CEO seemed to be clear as to whom is target competitor is – Old Dominion, the leader in LTL in North America. He said, they “Are doing really well” despite the US freight recession. “Why? Because they are way better than us at managing costs.” At the same time he pointed out that a lot of TForce’s revenue comes from retail with loads averaging 1,200lbs but industry and manufacturing involves heavier loads. “We have to slowly get more into industrial freight versus retail freight… If you look at my peers they’re averaging 1,500lbs”.
In the first quarter earnings call of 2024 Bédard signalled a steadier approach ahead: the company is aiming at a sub-90 OR by the end of the year, not 88.
2023 acquisition of Daseke
TFI has made in excess of 92 acquisitions since 2015, one of the most aggressive acquisition strategies in the North American trucking sector. Five of these have been $200m plus, including the Texas based specialist truckload company Daseke that works into the building trade and has 11,000 flatbed and other specialist trailers. Many of the smaller companies – for example Quebec based Transport St Amour in 2023 and Siemens Transportation the same year – have also been specialist truckload.
Daseke, bought for $1.1bn was well managed according to Bédard. Soon after the acquisition his team cut $12m a year from salaries at the company’s head office, that he claimed resembled those at TFI before the merger. Eyeing the rest of the business, he added, “There’s maybe one or two [facilities] that are subpar, OK, that we’re going to have to work on.”
There is no doubt that a spin-off, likely with some quality executives from TFI at the helm, will happen. The question is when. Susquehanna International Group analyst Bascome Majors said at the time, “We wouldn’t expect the spin process to begin before [Daseke] is well integrated and enjoying run-rate synergies, suggesting a separation might not close until late 2025 or early 2026.”
The size of the business can’t immediately be guessed at, though given the existing Truckload segment made $1.62bn in 2023 and Daseke made almost the same it would sit at the $3.2bn revenue range, or roughly half that of TFI International’s existing operations. Compared to the LTL segment it is a strongly performing operation with a 2023 EBITDA margin of 16.1% vs 13.8% in LTL.
Looking forward
If TFI bundles all of its specialist truckload operations into a new standalone business then its core focus will likely be to continue to improve the OR and therefore margins of the businesses left behind. With the North American LTL market as it is, as the US emerges from the freight recession things could be very exciting for the remainder of the business. As to the new spin-off, things won’t be so bad for that either!
Author: Richard Shrubb
