UPS to buy Overnite, enter LTL sector

Long-expected acquisition responds to FedEx's earlier push into trucking services.

By James A. Cooke, Executive Editor -- Logistics Management, 6/1/2005

ATLANTA—After months of speculation about its plans, UPS finally put the rumors to rest and entered the trucking business with its proposed acquisition of Overnite Corp. The Atlanta-based parcel and logistics giant said it would buy Overnite for $1.25 billion, pending approval by Overnite's shareholders and federal regulators. Richmond, Va.-based Overnite provides less-than-truckload (LTL) service nationwide.

Acquiring Overnite will put UPS on the same footing as rival FedEx Corp., which has been in the LTL business since it bought Viking Freight in 1998 and American Freightways in 2001. The two carriers now operate as FedEx Freight.

That strategy has been very successful for FedEx, and observers have long expected UPS to respond by making a similar move. "FedEx has been making hay by offering customers a full service (of freight products)," said transportation analyst and Logistics Management columnist Ray Bohman. "I had been predicting all along that UPS would take over a major LTL carrier."

Most industry analysts applauded the move by UPS. "It fits in with the overall strategy of being a one-stop solution," said Michael Halloran, an analyst with the investment firm Robert W. Baird & Co. in Milwaukee. "It's the last piece they needed domestically."

Still, some were surprised that UPS selected Overnite, which fought off attempts by the International Brotherhood of Teamsters to unionize the trucker from 1999 to 2002. The Teamsters represent UPS drivers, and many observers expect that the acquisition will prompt the union to renew its organizing efforts at Overnite.

The Teamsters seemed to signal some interest in continuing that campaign. "Significant numbers of Overnite workers have repeatedly voted in favor of Teamster representation, but their democratic aspirations were ignored by their company, which refused to recognize the union and bargain in good faith," said Teamsters General President Jim Hoffa in a statement. "We are hopeful that UPS' long history as a company with Teamster representation will create new opportunities for Overnite workers to achieve their goals in the workplace."

Although UPS management indicated that Overnite would be run as a separate subsidiary, Halloran doubts that will be enough to stymie the labor union. "I'd be pretty surprised if they did not end up being a union shop somewhere down the line," he said.

The UPS-Overnite deal is the latest example of consolidation in the LTL market. Earlier this year, Yellow Roadway Corp., itself the product of a merger, bought regional LTL provider USF Corp. for $1.37 billion.

The shakeout in the LTL business may not be over yet. Theodore Scherck, president of transportation research firm The Colography Group, believes that UPS' entry into the LTL sector will pressure DHL, the number three player in the U.S. parcel market, to acquire a trucking company. "With the integration [of DHL and Airborne Express] virtually near completion, we look for the acquisitive DHL parent, Deutsche Post World Net, to look hard at the remaining U.S. LTL players," he said in a statement. "We do not see Deutsche Post staying on the sidelines for very long."