UPS provides additional color on pending sale of its LTL business, UPS Freight

As reported by LM yesterday, fourth quarter and full-year 2020 earnings for Atlanta-based freight transportation and logistics services provider UPS were very strong, and, in fact, record-breaking, in some cases.

But what was somewhat buried in the lead was the company’s announcement the week before that it was selling its less-than-truckload business, UPS Freight, to TFI International, a Canadian holding company that is parent to truckload giant CFI and other transport entities, for $800 million, subject to working capital and other adjustments.

LM Contributing Editor John Schulz reported that the sale of UPS’s LTL and dedicated truckload units “shakes” up the staid $46 billion LTL sector at a time when most large LTL companies, even including once-troubled Yellow Corp., are making solid profits.

And he added that Richmond, Va.-based UPS Freight did an estimated $3 billion in business while ranking in the top 10 of LTL carriers last year, according to analysts. The $800 million sale price is believed to be a bargain for a once-profitable LTL company that UPS bought from then-Overnite Transportation for $1.25 billion in 2005.

Upon completion of the sale, TFI said approximately 90% of the acquired business will operate independently within TFI International’s LTL business segment under its new name, “TForce Freight.” The acquired dedicated TL assets will join TFI’s truckload business segment that includes Joplin, Mo-based CFI. The transaction is subject to usual and customary closing conditions, including regulatory approvals.

UPS’s rationale for making this deal, according to UPS Chief Executive Officer Carol Tomé, is that “allows UPS to be even more laser-focused on the core parts of our business that drive the greatest value for our customers.” And UPS said its decision to sell UPS Freight was reached following a thorough evaluation of the UPS portfolio. It aligns with the company’s newly coined “better not bigger” strategic positioning.

And on the UPS earnings call yesterday Tomé dug deeper in explaining that UPS Freight is a capital-intensive low returning business, one that was no longer needed on a few different fronts.

“We do not need to own this business to provide an LTL solution for our customers,” he said. “With the disposition of UPS Freight, we will be smaller, but we will be better, as without it, we will see an improvement in our operating margins and return on invested capital. Being better not bigger also means de-risking our balance sheet. We will use the proceeds from the sale of UPS Freight to pay down long-term debt.”

The UPS CEO also noted that she was on the UPS Board of Directors when the company acquired Overnite Express in 2005, noting that UPS Freight was a capital-intensive low margin business that it did not need to own to offer LTL services.

“If we can get a price where this asset is worth more to someone else than it is to us, shouldn’t we move on that asset, but keep the commercial agreement, so that we can serve our customers and that’s where we landed,” she said. “We couldn’t be happier with this announced acquisition that should close, I think, in the beginning of the second quarter. I’m thrilled for our freight UPSers, because they’re going to be now part of a big freight company. So, from a career perspective, I think the opportunities for personal growth will be better for them. I’m thrilled for our shareowners and I’m thrilled for our customers, because the commercial agreement will be a great agreement and by the way there’s margin on that that’s going to flow to our U.S. small pack business as well.”

In these times, market conditions continue to evolve and change, seemingly, on a daily basis. UPS deserves credit for making this move, as LTL operations no longer aligned with its long-term goals as a company, and is focusing more on the bigger chapters in its book of business, specifically ground, small package, and express. It is impossible to know if other large full-service companies will follow UPSs lead, but now there is a blueprint for it.