Shippers Express Support for Knight-Swift Merger
This story appears in the April 24 print edition of Transport Topics.
Representatives of freight shipping firms are joining trucking analysts in their enthusiasm over the merger between Knight Transportation Inc. and Swift Transportation Co. and generally supporting the prospect of big truckload carriers getting bigger.
“There’s plenty of room for consolidation,” said Jeff Tucker, chairman of the Highway Transportation Committee of the National Industrial Transportation League, a trade association in Arlington, Va., that represents some of the nation’s largest shippers.
“Today’s trucking industry remains highly fragmented,” said Tucker, CEO of Tucker Co. Worldwide Inc., a third-party logistics firm based in Haddenfield, N.J., who points out that there are more than 210,000 for-hire carriers in the business of hauling freight in the United States and that the number has been steadily increasing since 2009.
“As long as our members have choices,” he told Transport Topics, “our supply chains and our economy shall remain nimble and strong.”
Industry researcher Satish Jindel of SJ Consulting Group in Sewickley, Pa., underscored the notion by pointing out that revenue for Swift, the nation’s largest truckload carrier, is less than 3% of an estimated $208 billion market for truckload transportation in the United States. In contrast, UPS Inc. controls more than 45% of the $84 billion market for parcel delivery; FedEx Freight, a unit of FedEx Corp., controls more than 17% of the $35 billion market for less-than-truckload freight transportation; and BNSF Railway Co. controls more than 25% of the $73 billion market for rail service.
Consolidation can benefit shippers, Jindel said, because larger carriers will be able to operate more efficiently and control price increases.
Swift ranks No. 6 on the Transport Topics Top 100 list of the largest for-hire carriers in the United States and Canada, and is the largest carrier in the truckload/dedicated sector. Knight ranks No. 29 on the for-hire TT100 and is No. 11 on the truckload sector list. Swift also ranks No. 6 on the TT list of largest for-hire carriers in the intermodal/drayage and refrigerated sectors.
Although Kevin Knight, executive chairman of Knight-Swift Transportation Holdings Inc., has promised to keep the trucking operations of Knight and Swift separate after a deal is completed, industry analysts interviewed by Transport Topics said the new enterprise almost certainly will gain clout in negotiating with larger shippers due to its sheer size and the potential it offers to provide freight-hauling capacity in a tight market.
“This is an extremely opportunistic move,” said Mike Regan, co-founder of TranzAct Technologies, a company that helps shippers and carriers negotiate terms of engagement. “When shippers go to source capacity, you now have to have them at the table.”
One shipper likely to be affected is Wal-Mart Stores Inc. The world’s biggest retailer is Swift’s biggest customer, accounting for 14% of Swift’s 2016 revenue of $4 billion, according to a report Swift filed with the Securities and Exchange Commission. Swift’s top 25 customers accounted for 54% of the company’s revenue in 2016, up from 53% in 2015 and 51% in 2014.
“We believe our fleet capacity, terminal network, customer service and breadth of services offer a competitive advantage to major shippers,” Swift said in its filing, “particularly in times of rising freight volumes when shippers must quickly access capacity across multiple facilities and regions.”
Knight-Swift would have combined annual revenue of $5.1 billion and a fleet of about 23,000 tractors, 77,000 trailers and 28,000 employees, company officials said.
Ashley Cruz, a procurement research analyst at IBIS World, said that the merger of Knight and Swift is unlikely to trigger a review by the Federal Trade Commission, but it may have a negative effect on the negotiating power of the largest transportation buyers.
“Despite significant fragmentation, large trucking companies are able to maintain some pricing power in the national trucking services market because of their ability to secure contracts with the largest buyers, including major manufacturers and retailers,” Cruz said in a recently published report. “Buyers with extensive or ongoing shipping requirements do not have the ability to source services from owner-operators, which dominate the market at an estimated 91% of the estimated 380,000 providers.”
As a result, Cruz said, high-volume shippers will face a more concentrated selection of carriers.
Still, most industry observers say they expect the volume of mergers and acquisitions to pick up this year as companies look for ways to boost market share and investors continue to make money available to finance deals.
“We continue to see the forces of globalization driving deals,” Darach Chapman, the U.S. transportation and logistics deals leader for PriceWaterhouseCoopers, said in a report released last week.
Chapman noted that four of the top 10 transportation and logistics deals in the first quarter of 2017 were cross-border transactions, and he expects more deals among shipping firms and in response to the growth of e-commerce.
