Regional last-mile carriers LaserShip and OnTrac come together to establish a new national network

While the parcel duopoly of UPS and FedEx remains alive and well, at a time when e-commerce activity continues to see no signs of slowing down, that, by no means,  suggests that the smaller regional small package delivery carriers have been left out in the cold. In fact, the regional carriers are starting to take a bigger seat at the table.

That was made clear yesterday, with Vienna, Va.-based LaserShip, the largest regional e-commerce parcel carrier and last-mile delivery services provider, and Chandler, Ariz.-based regional shipping services provider OnTrac, announcing they have entered into a definitive agreement to merge.

While the companies did not provide financials regarding the deal, an October 6 Moody’s report indicated that the purchase price, for this deal, was around $1.3 billion and will be financed with a $650 million incremental first-lien term loan, $225 million incremental second-lien term loan and $472 million in cash equity. LaserShip is part of a portfolio within American Securities and Greenbriar and said that both companies will provide additional equity financing and continued strategic support for the combined company.

“The combined company will bring together two complementary operating footprints across the United States,” said LaserShip and OnTrac in a joint statement. “It will be the only pure-play national e-commerce solution in last-mile parcel delivery and will enhance customers’ ability to meet growing demand in the consumer delivery market. To ensure continued exceptional service through the holiday season with expectations of heightened shipping volumes, LaserShip and OnTrac will not begin to link their networks until 2022 and will operate independently until that time.”

The Moody’s report added that LaserShip's acquisition of OnTrac is a transformative step to becoming a national last mile delivery company by combining the eastern and western regional networks of LaserShip and OnTrac, respectively.

“With the acquisition of OnTrac, LaserShip will have a bi-coastal network and revenue above $1.6 billion, which makes it a sizable regional parcel delivery company, but still significantly smaller than national deliverers UPS and FedEx [by comparison, UPS and FedEx each have annual revenues around $84 million, respectively],” it added. Moody's expects LaserShip to operate OnTrac's western network separately through at least the 2021 peak holiday season, but will eventually look to offer national shipping capabilities to its customers,” the report said. “Thus, Moody's expects LaserShip will look to further expand into more midwestern regions in 2022 through further acquisitions or greenfield expansion in order to fill out its network. Both LaserShip and OnTrac have exhibited substantial growth in their e-commerce delivery businesses in 2020 and 2021 with significant new customer wins and substantial increases in delivery volumes. Strong growth is likely to continue over the next couple of years as consumers become accustomed to less than two-day delivery times for e-commerce purchases.”

This deal was positively received by John Haber, president of the Parcel Business Unit of Transportation Insight, a Hickory, NC-based multi-modal, lead logistics provider.

As for what this deal means for shippers, Haber said it is fantastic for them.

“It brings a lot more competition for UPS and FedEx and a vastly expanded geography,” said Haber. “It is not going to happen overnight. There is going to be integration that needs to happen. And it is not going to be a solution for Peak Season, but, at this time next year, it is going to have a big impact.”

When asked what this deal could mean for shippers, in terms of rates and pricing, Haber explained that it is a net positive for them, in that they can better hedge against the competitive pricing leverage held by the FedEx-UPS duopoly, as the base pricing levels from both LaserShip and OnTrac are what he called much more reasonable.

Looking ahead, Haber said it is entirely realistic to expect more deals akin to this one in this space down the road.

“We will absolutely see more deals like this,” he said. “This is the first piece of the puzzle. There are all sorts of people working towards setting up new national networks. You are going to continue to see consolidation, as well as new entrants into the last-mile parcel delivery network.”

From an operations perspective, Haber observed that Transportation Insight has customers using LaserShip in the areas they cover and are setting up linehaul and drop-ship for those customers into other regional carrier networks from distribution centers if they are out of area. That creates efficiency with a more integrated network, with a much larger scale and a more widespread geography, which collectively benefits shippers.  

Rob Martinez, founder and co-CEO for San Diego-based Shipware, an audit and parcel consulting services company, told LM that while Shipware has long anticipated regional carrier consolidation, it more expected to see neighboring regionals kluge together to form larger, contiguous footprints for obvious benefits, including operating cost reduction, sharing of assets, expanded sortation, and avoided replication. 

“Given LaserShip and OnTrac operate on opposite coasts, we’re not sure how much of the traditional benefits of a merger will be derived,” he said. “It is still, exciting news for an industry desperate for alternatives to the Big Two. Lots of questions emerge. Will they position the joint offering as near national coverage to compete with UPS and FedEx, or maintain the long-marketed benefits of working with smaller, regionally focused partners? Will they operate as separate brands, or unify under a shared name, one set of rates and service offerings?  Will LaserShip be one more like OnTrac and adopt more of a hub and spoke system?  How are they going to handle the interchange of packages for opposite coasts?  

As for what it means for shippers, Martinez said it should most certainly be good news for parcel shippers, as the parcel industry has been clamoring for alternatives to FedEx and UPS for years.

“Having real competition nationally can potentially reign the runaway price increases we've seen over the past couple of years,” he said. It’s also great for the industry in general and it is exciting to see significant investment continue to pour into the logistics and delivery space.”