Regional parcel delivery carrier LaserShip, which is poised to acquire fellow regional carrier OnTrac for about $1.3 billion, has named Mike Roth, a longtime Amazon.com Inc. operations executive, as its interim CEO, according to a person familiar with the matter.
Barring an unforeseen event, Roth will steer the integration of the two companies, which is expected to lead to the development of the first national parcel delivery network built from regional players. Roth succeeds Brett Bissell, who remains a consultant to the company, the person said.
For nearly 10 years, Roth has been Amazon’s (NASDAQ:AMZN) vice president, North American operations, responsible for fulfillment center, supply chain and transportation operations, according to his LinkedIn profile. Prior to that, he spent four years in three different high-level roles at Amazon’s North American supply chain and transportation business. He was also director of the company’s EU supply chain for a year. Roth joined Amazon in 2004.
Roth is close with Will Manuel, managing director at private equity firm American Securities LLC, and Vienna, Virginia-based LaserShip’s owner, according to another person familiar with the situation. Manuel structured the deal to buy Chandler, Arizona-based OnTrac, as well as the purchase of LaserShip in early 2021 from PE firm Greenbriar Equity LP for what was believed to be $1.7 billion. (Greenbriar retained a minority stake in LaserShip). Manuel was unavailable to comment.
The LaserShip-OnTrac deal, which could be announced as early as Monday, underscores private equity interest in aggregating regional carriers to create a third private national network offering an alternative to giants FedEx Corp. (NYSE:FDX) and UPS Inc. (NYSE:UPS). An increasing number of shippers, especially high-volume customers, have complained all year that FedEx and UPS have hit them with significant rate increases and delivery surcharges, while providing erratic service due to the massive volumes of e-commerce traffic that the carriers have struggled to manage. Many large shippers are also concerned that the carriers will impose caps on the amount of peak-season parcels they will handle on a given day, a phenomenon that occurred during last year’s peak.
With demand surging to unprecedented levels and expected to stay elevated for several years, shippers have turned to regional carriers for relief from FedEx and UPS. In response, some carriers are expanding their service areas to better align with big shippers’ national footprints.
Austin, Texas-based LSO, which serves all of Texas and most of Oklahoma, has expanded to several Midwest cities. LaserShip expanded into Tennessee earlier this year, and has stated its desire to serve Chicago. The carrier, whose network blankets the East and Southeast, currently goes as far west as Indianapolis in the northern tier of the U.S., and Little Rock, Arkansas in the southern tier. It expanded into eastern Arkansas last month
Because OnTrac’s West Coast network, which includes all of California, extends no further east than Colorado, the combined company will have gaps in the central and upper Midwest, the Northern Plains, the Mountain states and all of Texas. American Securities could fill those gaps through acquisitions or internal expansion. However, one of the sources said it’s likely that they will be filled in some way and that a national network will emerge.
“The (LaserShip and OnTrac) deals were not made with the idea of stopping there,” the person said. “You’re already two-thirds of the way there.”
There are approximately 14 regional carriers in the U.S., according to data from consultancy LPF Spend Management. However, it is believed that just five or six carriers have the networks, resources and customer bases to be considered for acquisition and folded into a national infrastructure. John Haber, who runs the parcel division for consultancy Transportation Insight LLC, said he expects rapid consolidation among regional players in the wake of the LaserShip-OnTrac deal.
Parcel mergers in the U.S. are exceedingly rare. FedEx and UPS built their businesses over many decades without the need for acquisitions. The most notable transaction involving a U.S. parcel carrier German transport giant DHL’s 2002 purchase of the former Airborne Express, was an unqualified disaster. Then, as now, shippers clamored for a third national carrier. In addition, DHL came to market with rates that, on average, were about 15% below its rivals. But the integration became the template for how not to execute. The combination crashed and burned in less than seven years. Saddled with nearly $9 billion in losses, DHL exited the domestic delivery business in January 2009. Today, its air express unit, DHL Express, serves the U.S. only with international service.
Combining multiple functions while at the same time delivering near-flawless performance in a need-it-now world makes parcel combinations incredibly tough. “Integration is a bear,” said Jerry Hempstead, who had a front-row seat to the DHL-Airborne bust as a top Airborne sales executive.
Hempstead, who ran a parcel consultancy after leaving DHL and is now retired, said LaserShip and OnTrac should not be blinded either by the specter of off-the-charts demand or by any push from big shippers to integrate faster than they are comfortable with. “Both companies right now are killing it,” he said. “But volume hides all inefficiency.”
Hempstead advised the companies to move slowly and cautiously, and to “test assumptions” before implementation. “I would hate for either company to fail because both have done such a good job,” he said.
The combined company will also need a plan to connect the new bicoastal network with sortation and long-haul transport supporting the so-called middle mile. That type of infrastructure doesn’t exist for regional carriers, which by definition bump up against geographic limits.
Jason Murray, CEO of parcel IT platform Shipium and who helped build the logistics network to support Amazon’s Prime offering, said the middle mile infrastructure is the “key differentiator for UPS and FedEx.” Without that capability, LaserShip will be pressed to offer a customer in California two-day service levels for deliveries to, say, New York, he said.
Regional carriers have tried numerous times to execute a national network. But the lack of IT interoperability was historically a stumbling block. However, technology has become so advanced and affordable that it should not be a concern for the companies, said Tom Nightingale, CEO of AFS Logistics LLC, an auditing, payment and transportation management consultancy with significant involvement in the parcel field.
Instead, the companies should focus on connecting the two cultures, staying on top of customer needs and maintaining discipline with its operating model, Nightingale said.
According to Murray, the biggest IT challenge will be to implement automation decisions once the combined company achieves sufficient scale. Those decisions, Murray said, “require sophisticated data science, of which there is a shortage of engineering talent and legitimate vendors who can help.”
Without that support, the entity may not achieve the operating efficiencies and margins that it expects, he said.