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    Transportation & Logistics Q1 2020

    Q1 2020 Transportation Logistics

    Industry Trends

    Airlines Receive Funding as a Part of COVID-19 Relief Bill

    As part of the $2.2 trillion economic relief package passed by congress in March, Airlines are due to receive aid to prevent layoffs. Generally, the money they receive is 70% grants that will not need to be paid back, and 30% in loans. The grants come with terms: the government will receive 10% of the grant’s value in warrants convertible into shares, the airline cannot lay off staff until September and there are restrictions on share buybacks, dividends and executive compensation. Airlines should look to the industry’s recovery after 2001 as a roadmap for how long it will take for consumer demand to return to peak levels.1

    Airlines Cut Capacity by More than 50%

    Major U.S. carriers cut capacity as flight bookings sharply dwindle due to the coronavirus pandemic. To preserve cash, Delta, United and American Airlines cut global capacity by 70%, 65% and 50%, respectively.2 3

    Airlines Shift to Cargo as Passenger Loads Dwindle

    U.S. 30-day travel ban on Europe drives shipping rates higher and reduction in airfreight capacity. The higher rates and severe drops in capacity is attributed to a slowdown in trans-Atlantic cargo movement as 60% of airfreight or about 120,000 scheduled flights that move between the two nations are flown on passenger flights. Airlines are facing unprecedented dips in customer demand for travel due to the coronavirus pandemic and are cancelling low volume trips between the U.S. and Europe as a result.4

    Spike in Online Orders Raises Shipping Prices

    Surge demand from retailers and manufacturers are causing rising shipping prices that are worsened by supply chain disruptions, state and loading dock obstacles. On March 17, the average spot rate to hire a truck was $1.89, up 6.1% since February 29, according DATA Solutions LLC. However, truckers face closed dining rooms, rest stops and parking spaces. Loading docks are also barring trucks coming from highly infected areas, further delaying shipments to retailers.5

    Warehouse Strategy Shifts as Target Moves Online

    Labor organization efforts are affecting Target Corp.’s new warehousing strategy in New Jersey. Target is spending billions of dollars to retool its operations to meet changing e-commerce sales demands, pushing warehouses closer to cities in order to replenish inventory faster. However, due to a high rate of employee turnover and reliance of temporary workers in warehouses, there has been significant friction with union groups, including Teamsters, over the difficult working conditions.6

    Logistics Manager’s Index Hits Record Low

    Logistics Manager’s Index (LMI) hit a record low at 52.6 in February, down 1.5% compared to January, slipping to its lowest level in the past three years. As a result, growth slowed due to supply chain slowdowns that are primarily linked to the coronavirus pandemic. This resulted in a contraction of both inventory levels and transportation prices and will likely deteriorate further so long as the global health crisis looms.7

    C.H. Robinson to Acquire Prime Distribution Service

    C.H. Robinson, a provider of multimodal transportation services and logistics, will acquire Prime Distribution Services, a leading provider of retail consolidation services in North America, from Roadrunner Transportation for $225 million in cash, a 2.1x EV/LTM revenue multiple. Prime recorded $108.7 million in total revenues on December 31, 2019 with 5 fulfillment distribution centers, serving approximately 140 customers. The deal is aimed to raise growth, add scale and value-added warehouse capabilities to C.H. Robinson’s retail consolidation platform.8

    Maersk to Acquire Performance Team

    On February 19, Maersk, the largest container ship and supply vessel operator in the world, has announced a plan to acquire Performance Team, a U.S.-based warehousing and distribution company, for $545 million at a 6.1x EV/EBITDA multiple. Performance Team recorded 2019 revenue and EBITDA at $525 million and $90 million, respectively. The acquisitions will bolster Maersk’s integrated container logistics department by offering end-to-end supply chain solutions. The deal is expected to close on April 1 of this year.9 10

    Largest Transactions Closed

    • Target
    • Buyer
    • Value($mm)
    • Innovel Solutions, Inc.
    • Costco Wholesale Corporation
    • $1,000.00
    • Performance Team LLC
    • A.P. Møller and Mærsk A/S
    • $545.00
    • MAC Trailer Leasing, Inc.
    • Mizuho Leasing Company, LTD
    • $145.63
    • Flexdrive Services, LLC
    • Lyft, Inc.
    • $20.00
    • Friedway Enterprises, Inc./CIC2, Inc.
    • Radiant Global Logistics, Inc.
    • $0.09

     

    Source S&P Capital IQ as of 4/20/2020 and PCE Proprietary Data

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    Data Assumptions

    This report represents transaction activity as mergers & acquisitions, consolidations, restructurings and spin-offs. Targets are defined as U.S. Based companies with either foreign or U.S. based buyers. Transaction information provided is based on closed dates only.

    Glossary

    EBIT - Earnings Before Interest and Taxes
    EBITDA - Earnings Before Interest, Taxes, Depreciation, Amortization
    LTM - Last Twelve Months
    TEV - Total Enterprise Value

    Sources:

    1. Sindreu, Jon. “Airline Bailouts Address the Lockdown, Not the Recession.” Wall Street Journal, April 15, 2020.
    2. Budryx, Zack, “Nearly 80 Airlines Cut Capacity by 100 Percent Over Coronavirus,” The Hill, Mar. 24, 2020.
    3. Stephardson, David, Ricinski, Tracy, “U.S. Senate Approves Big Rescue for Struggling Aviation Sector,” Reuters, Mar. 25, 2020.
    4. Smith, Jennifer, “U.S. travel Ban is Expected to Snarl Trans-Atlantic Airfreight,” Wall Street Journal, March 12, 2020.
    5. Smith, Jennifer, “Truckers Facing Coronavirus Hurdles in Keeping Supply Chains Moving,” Wall Street Journal, March 18, 2020.
    6. Smith, Jennifer, “Target Faces Labor Organizing Effort at New Jersey Warehouse,” Wall Street Journal, Feb. 19, 2020.
    7. Kickham, Victoria, “Logistics Industry Growth Slows in February,” Supply Chain, Mar. 21, 2020.
    8. “C.H. Robinson to Acquire Prime Distribution Services,” Press Release, Jan. 28, 2020.
    9. The Maritime Executive, “Maersk to Acquire U.S. Warehousing and Distribution Company,” The Maritime Executive, Feb. 19, 2020.
    10. “Performance Team LLC Transaction Details,” Capital IQ, Feb. 19, 2020.

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