Canadian trucking company TFI International Inc. (NYSE and TSX: TFII), which has said it will acquire less-than-truckload carrier UPS Freight from parent UPS Inc. (NYSE:UPS) for $800 million in cash, will consider renting out space in UPS Freight’s terminals to other trucking companies, TFI Chairman, President and CEO Alain Bedard told analysts.
On a conference call to discuss Montreal-based TFI’s fourth-quarter results, Bedard said that TFI will look at renting space in terminal yards and docks to other carriers should the appropriate situation present itself. TFI considers UPS Freight’s real estate to be valuable and will look at expanding the properties as a way to generate more revenue from its real estate portfolio, Bedard said on the call Monday. TFI has no plans to sell any of the UPS Freight real estate assets, Bedard said.
TFI leases out space in its terminals in Canada, where it operates 53 facilities. For example, 70% of one of its Toronto terminals is leased, while TFI’s operations occupy the rest, Bedard told analysts. A TFI spokesperson declined to comment beyond Bedard’s remarks.
UPS Freight’s network of 197 terminals (147 owned), most of which are in excellent condition and in prime locations, may be the jewel in the crown for TFI. “There is an active market” for real estate transactions such as those TFI is pursuing, said C. Thomas Barnes, head of global network partnerships at logistics IT provider project44, who has spent most of his career in the LTL industry. Barnes agreed that UPS Freight’s facilities would be in strong demand because of their high-value locations.
The deal, which gives TFI control of the United States’ fifth-largest LTL carrier, is expected to close early in the second quarter. The former UPS unit will be rebranded as TForce Freight. The transaction will vault TFI into what could be the pole position in combined LTL and truckload operations in North America.
In a related development, trucking and logistics executives participating in a recent virtual event with Cowen & Co. Analyst Jason H. Seidl said TFI’s acquisition may have been perfectly timed because strong demand will allow TFI to reprice traffic that was, in some cases, 15% below the market rate. An unidentified participant with a lot of LTL freight under management said that TFI repricing the UPS Freight business at favorable rates “would not be a problem at all,” Seidl said in a note.
UPS Freight’s consistently low rates stems from UPS’ strategy to offer bargain-basement LTL pricing if shippers would also tender their small-package traffic, which is a higher-margin business and an exponentially more important part of UPS’ business. Bedard has said that TFI will not continue UPS’ bundling strategy. In the virtual event hosted by Seidl, one participant said that TFI may lose some business from shippers that would still want that option, and that some of that business could migrate to rival FedEx Corp. (NYSE:FDX).
TFI operates a final-mile delivery business but is not a player in the package-delivery segment.
(Nate Tabak contributed to this story)