Viking-American Freightways deal bolsters FedEx's strategy

By Staff -- Logistics Management, 1/1/2001

For several years now, regional less-than-truckload carriers have represented the fastest-growing segment of the LTL business. Among the most successful have been those that also offer national reach through networks of regional carriers.

Now FedEx Corp. has joined that club by establishing a major LTL regional carrier group with national reach, putting it in the same market space as CNF Corp.'s Con-Way Transportation group and USFreightways' group of regional carriers.

FedEx created that national LTL presence with its recent acquisition of American Freightways, the Harrison, Ark.-based LTL carrier that provides service to most of the United States east of the Rocky Mountains. FedEx already owned Viking Freight, one of the leading LTL carriers serving the Western United States. Between them, the two carriers serve every state except Montana and Wyoming.

Although the two carriers will continue to operate separately, they will both be part of a new FedEx LTL group headed by Douglas Duncan, who was president and CEO of Viking. The focus of each will remain on intraregional transportation, particularly in overnight and two-day lanes. But the carriers will offer interregional service to those service-sensitive customers that demand it, says Keith Lovetro, Viking's vice president of marketing.

The addition of American Freightways to the FedEx portfolio complements the express carrier's 1998 acquisition of Viking Freight as part of its purchase of Caliber Corp., says financial analyst Edward Wolfe of New York City's Bear, Stearns & Co. "The question has been whether FedEx would sell Viking or purchase a regional LTL group that covers the rest of the nation," Wolfe says. "In [American Freightways], it purchased ... a complementary fit that makes the acquisition close to end to end with only a little overlap."

FedEx bought AF to remain competitive with its main rival, United Parcel Service, according to Wolfe. "UPS does about $1 billion of LTL business a year and customers increasingly want one-stop shopping," he says, "so FedEx felt a need to offer more services."

Wolfe predicts that more express carriers will purchase regional LTLs. "Other potential acquirers for regional LTL companies include UPS, Deutsche Post, and TNT Post Group," he says, "but we also believe that these companies have the cash flow and earnings power to stand alone in the marketplace."