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    Transportation & Logistics Q2 2020

    Q2 2020 Transportation Logistics

    Industry Trends

    Airlines Expected To Shrink Despite Stimulus

    Despite the $25 billion federal stimulus money that the U.S. airline industry received earlier this year, carriers foresee fewer planes, flights, and a cut in workers as demand fails to rebound. The government aid, originally intended to help airlines weather the COVID-19 storm, is expected to run out as government restrictions tied to the loans expire on October 1. Airlines expect to ground around 20% of their planes along with a comparable amount of their workforce on October 1, unless demand makes a significant rebound. Airlines are still eligible for another $25 billion in government loans, but airlines are holding off due to even more stringent government restrictions tied to new loans.1

    American Airlines to Make Significant Cuts

    American Airlines announced a potential job cut of 25,000 employees, yet another indication of an extremely stressed airline industry. The job cut will occur after the October 1 payroll restrictions are lifted, and the layoffs will encompass roughly 29% of the company’s U.S. workforce. American Airline’s June revenue was down more than 80% compared to last year.2

    Supply Chains Seek Resilience

    Supply chains have been drastically affected by the changes caused by the pandemic through unsteady recoveries in supply, lingering lack of demand, and secondary waves of infection. To increase adaptability in the significantly disrupted economy, companies will likely increase warehouse space to make room for more inventory to combat potential shortages. Manufacturers are expected to accelerate the pre-pandemic trend of moving production out of China to limit the risk of disruption. Transportation and warehouse providers will need to openly embrace investments in technology to improve efficiency and support the consumer shift to e-commerce. Small and medium-size truckers that rely on the automotive and hospitality industries will be the hardest hit in the short term.3

    USMCA Treaty Replaces NAFTA

    The new USMCA trade treaty between the U.S., Mexico, and Canada went into effect on July 1, replacing the previous NAFTA treaty. The new agreement, updating the 1993 (NAFTA) treaty, includes new rules for agriculture, digital commerce, rules of origin, workers’ wages, and strengthened intellectual property rights. The new agreement bolsters Intellectual Property rights by extending copyright terms, implementing prohibitions customs on digital products, and extending pharmaceutical company patents on products from eight to ten years. The new agreement also increases incentives to manufacture and source automobile parts in the U.S. and increases market share for U.S. dairy products in Canada.4

    Pandemic Reduces Volume for Industrial and Commercial Shipping

    As stay-at-home orders continue to linger, companies in the industrial and commercial industries continue to reduce order volume. Volume rapidly increased at the beginning of the pandemic due to consumer hoarding activities requiring stores to restock their shelves to meet the newfound demand quickly. After March’s initial demand subsided in April, the trucking industry is left with excess supply and a lack of demand from companies in need of supply for commercial and industrial elements. The combination of excess volume and a lack of freight demand has forced trucking companies to offer lower costs for freight services. As a whole, the trucking industry is experiencing an increase in jobs and demand for freight; but, the demand is driven primarily from an increase in e-commerce shopping.5

    American Airlines Expects 90% Decrease in Q2 Revenue

    After receiving $5.8 billion of the $25 billion in government stimulus, American Airlines is seeking an addtional $4.75 billion from the government by pledging its loyalty program as collateral. The airline is seeking more funding with the expectation that revenue will be down by nearly 90% in Q2. Though travel demand has started to increase, American Airlines still bleeds around $40 million a day because of the pandemic, down from nearly $100 million a day in April.6

    Logistic Firms Continue to Adapt

    Logistics firms have been fighting COVID-19 for months and continue to shift resources and tactics to meet business demands. Significant changes related to surging volume for medical equipment, consumer packaged goods, and office equipment have continued to increase demand through Q2 of the pandemic. Primary service demand for logistics companies center around the final-mile home delivery for consumers who continue to remain under stay-at-home orders as well as pop-up space warehousing as customer delivery and inventory volumes continue to fluctuate. Logistics companies during this time are expected to focus on adaptability as customers demand support for inconsistent shifts in their supply chains.7

    Logistics Companies Serving E-Commerce Boost Hiring in June

    June showed an uptick in jobs as logistics operators for the e-commerce market experienced heavy demand resulting from an increase in online consumer shopping. Logistics operators increased employment by nearly 80,000 workers as factories resumed production in June. Trucking companies also added 8,100 jobs in June, the largest one-month gain in the sector since September 2018. After employment in the trucking industry was cut significantly in late March and April, employment has been steadily increasing. Though more than 10,000 jobs have been added back to the industry since March and April, payroll in trucking remains at a deficit of around 95,000 jobs compared year-over-year.8

    U.S. Treasury Lends $700 Million to YRC Worldwide

    The U.S. government plans to lend $700 million in stimulus aid to the trucking company YRC Worldwide in exchange for a 29.6% equity stake in the company. The loan is the largest of the coronavirus stimulus given out by the government outside of the airline industry. The stimulus is derived out of the $17 billion that is earmarked for companies deemed essential to national security. YRC, along with its nearly 200,000 industrial, commercial and retail customers, serves the defense department through the delivery of supplies to various military locations with the company’s 30,000 employees.9

    Largest Transactions Closed

    • Target
    • Buyer
    • Value($mm)
    • Assets of Coastal Transport, Inc.
    • Bulk Transport Company East, Inc.
    • $15.00
    • Cove Logistics LLC
    • Stord, Inc.
    • $10.00
    • Substantially All the Assets of MCT Transportation, LLC
    • TFI International Inc.
    • $9.60
    • All Assets of CTL Transportation, LLC
    • Service Transport Company
    • $9.00

     

    Source S&P Capital IQ as of 7/17/2020 and PCE Proprietary Data

    Additional Resources
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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. Sider, Alison, “Airlines Got $25 Billion in Stimulus; Industry Still Expected to Shrink,” The Wall Street Journal, June 7, 2020.
    2. Josephs, Leslie, "American Airlines warns 25,000 employees about potential job cuts as coronavirus continues to sap demand", CNBC, July 15, 2020.
    3. Smith, Jennifer, “Post-Pandemic Supply Chains Seek ‘Resilience,’ Report Says,” June 23, 2020.
    4. McGuigan, Frank, “What Logistics Leaders Need to Know about the USMCA Treaty,” Transplace, June 15, 2020.
    5. Transplace, “Transplace’s Q2 2020 Logistics Market Quarterly Update,” May 1, 2020.
    6. Sider, Alison, “American Airlines Banks on Loyalty Program to Back Stimulus Loan to Manage Through Coronavirus,” The Wall Street Journal, June 12, 2020.
    7. Kickham, Victoria, “Firms tout pop-up warehousing, ventilator delivery—Covid-19 roundup for June 11,” Supply Chain, June 11, 2020.
    8. Chen, Elaine, "Trucking, warehouse Companies Boost Hiring in June", WSJ, July 2, 2020.
    9. Davidson, Kate, Smith, Jennifer, "U.S. Treasury to Lend $700 Million to Trucking Firm YRC Worldwide", WSJ, July 1, 2020.

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