If you think that things are getting better, then you are not paying attention…

The news broke today about PACER INTERNATIONAL selling off some assets. The idea of an “asset-light” intermodal marketing company (IMC) selling “key” assets intrigued me.  The idea of an ‘asset-light” company is that the company has few assets, that the capital requirements are lower and are tied in things like systems, software, and processes that the company uses to “sell” the heavy lift capacity of “asset-heavy” companies. 

So if a company is “asset-light”, what does it sell off?

It sells “customer, contractor and agent lists, and owned trailers of Pacer Transport, its specialized heavy-haul trucking operation.” The company also sells “two real property leases and equipment leases for tractors and trailers used in the operation”.

Details are few, but Universal Truckload Services, Inc. is picking up a entire operational division of Pacer.

One key unknown: the price tag.

But the idea that the large IMC’s are doing OK in the economic downturn is invalid. The logic and the facts say otherwise.

One look at Pacer’s investor relation page, and the news story headlines for 2009 tell the story. You don’t get the gory details, but in summary:

·        Hire a new VP of Sales from one of the railroads

·        Hire a new VP of Business Development

·        Release 2008 results which were fairly good for 2008, but not fantastic. There were large write-offs for “goodwill” of different logistics services operations.

·        Hire a high level intermodal exec to the board of directors

·        Announce a rearrangement of the key executives to focus on the “core” business

·        Announce the day later that in Q1 revenue was down 28% and net income was $223 million in the red. Add even more “goodwill” writedowns.

·        Announce another high power board member, this time from a “shippers’ background.

·        Enter into the first credit agreement amendment that allowed the debit to capital ratio to go above the covenant limit for the next operating quarter.

·        Announce the sale of some assets, with the deal to close before the end of August.

Funny part about the last two items. The credit agreement amendment expires in August.

So what is the price for the assets being sold? Whatever will bring the net debit to asset ratio below what the covenants call for.

I bring this item to your attention because it is a good example of the business changes that a bad financial market can create. Is Pacer going out of business? I don’t think so. I also don’t think that they would have had to sell assets in a different era of finance. But right now, getting the additional credit that Pacer needs to keep the assets is not happening, so they are selling.  

Pacer is not large enough to grab the attention of the government. There is plenty of competition. In the grand scheme of things, Pacer is not a “large” corporation, but really a middle sized corporation. And it is the corporations in the middle that are getting the squeeze. Even efficient, asset-light operations like Pacer.

Great shippers know the financial health of the carriers, and the financial health of the carriers that they don’t use. They know to control risk, and they know to control costs.

Do you know the financial health of the carriers you use?

Go take a look at more than the numbers. Look at the SEC filings and the “history” that the investor relations pages can give you. If you are dealing with a “private” carrier, then ask the ones that you do significant business with to have an open and frank discussion about their financial health.

Will the “customers” notice that the Pacer heavy transport division is now the UTSi Heavy Transport Division? I think so. Will those shippers be happy? Only they can know.

Just a reminder that change is the only constant.