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    Transportation & Logistics Q3 2020

    Q3-2020-Transportation-Logistics

    Industry Trends

    Airlines Cut Jobs as Government Debates Relief Package

    As the restrictions from the first round of Covid-19 aid to the U.S. airline industry expired on September 30, American Airlines and United Airlines eliminated more than 32,000 jobs. In response, airlines are placing increased pressure on the U.S. government to provide additional aid. President Trump and lawmakers on both sides support providing another $25 billion in funding to airlines, but Congress has yet to agree on a broader relief package that could include the airline funds. If a Covid-19 relief bill is passed, the airlines plan to reinstate the employees.1

    Air Freight Industry Struggles to Accommodate Demand

    While air cargo has been more stable than the passenger industry, the Covid-19 pandemic has interrupted the industry’s ability to keep goods moving. With borders closed and passenger fleets grounded due to decreased demand for travel, the global capacity for air cargo shrank by 31.2% in July. Capacity for international air cargo on Passenger jets shrank by 70.5% in July compared to the previous year, due to the reduction of passenger jet flights.2

    Freight Volumes Grow in Trucking Industry

    Trucking companies are reporting higher demand for freight as retailers and manufacturers move to restock depleted inventories. Companies are reporting increased freight volume and revenue in the third quarter due to increased demand, driving prices up to the year's highest level. Demand as measured by the load-to-truck ratio, an indicator of the balance between spot market demand and available trucking capacity, jumped 132.5% year-over-year in August according to the online freight marketplace, DAT Solutions LLC.3

    Freight Networks on the US West Coast Experience Backups

    An influx of goods to West Coast seaports is straining capacity on key freight networks as demand surges. Demand increases are largely due to efforts to restock depleted shelves after months of lockdowns and preparations for the upcoming holiday season. A record high of 2.1 million loaded containers arrived at U.S. ports in August. Freight capacity strains and backups are causing increased shipping prices and complicating efforts to replenish inventories following the supply chain disruptions of the Coronavirus Pandemic.4

    Logistics Operators Prepare for Covid-19 Vaccine

    Logistics providers are building giant cold-storage facilities and lining up equipment and transportation capacity to prepare for the anticipated rapid delivery of millions of doses of coronavirus vaccines worldwide. Moving drugs from manufacturing sites to medical teams via warehouses, cargo terminals, airports, and final storage points promises to be a logistical challenge with high risks at every stage of the process.5

    Warehouse and Fulfillment Operations Rely More on Technology

    Companies are increasing logistics technology investments as the coronavirus pandemic upends sales channels and supply chains. As social distancing requirements impact warehouse operations, companies are incorporating more technology to boost output without increasing human labor. According to a recent survey, about 39% of manufacturing and supply chain professionals said their organizations use robotics and automation. The survey found that adoption is expected to reach 58% in the next one to two years, and 73% in the next three to five years.6

    Logistics Manager’s Index Showing Signs of Recovery

    Logistics Manager’s Index reaches 66 in August, its highest reading since November 2018. An upswing in transportation metrics has driven a strong recovery from the all-time low reading of 51.3 in April 2020. The LMI measures business activity across the logistics industry via a monthly survey of logistics and supply chain professionals; a reading above 50 indicates expansion in the industry, and a reading below 50 indicates contraction.7

    Autonomous Trucking Edges Closer to Market

    Several startup firms are building prototype self-driving fleets to help cut transportation costs and speed up deliveries in the future. Because autonomous trucks would not be bound by the same working hours rules as commercial drivers, they could be used on an almost 24-hour basis, lowering costs and making truck services more competitive with rail-truck services. It will take several years before automated trucks are operating commercially, and more before doing so on a meaningful scale.8

    Walmart to Build $220 Million Warehouse in South Carolina

    Walmart is building a three million-square-foot “mega-warehouse” in Ridgeville, South Carolina, which is expected to boost volume at the Port of Charleston by 5%. The warehouse will help the company service increased demand due to the coronavirus pandemic and service approximately 850 Walmart stores and Sam’s Clubs across the southeast.9

    Federal Government Approves Pilot Program for Under-21 Truck Drivers

    The Federal Motor Carrier Safety Administration (FMCSA) approved a three-year pilot program that will allow eligible 18 to 21-year-old drivers to work in interstate commerce. Currently, FMCSA reports that 49 states and the District of Columbia allow 18 to 20-year-old Commercial Drivers License holders to operate Commercial Motor Vehicles within state borders. Advocates for the pilot program state that it will expand the pool of eligible drivers in a time when the industry is as many as 100,000 drivers short. The pilot program is modeled on the bipartisan DRIVE Safe Act, legislation, strongly supported within the industry, and currently co-sponsored by 144 congressmen and 34 senators.10

    Largest Transactions Closed

    • Target
    • Buyer
    • Value($mm)
    • M. J. Van Damme Trucking Inc.
    • Eberhart Capital, LLC
    • $50.00
    • Assets of Comcar Industries, Inc. and CCC Transportation, LLC
    • Bulk Transport Company East, Inc.
    • $6.80
    • Assets of Steer
    • Facedrive Inc.
    • $2.61

     

    Source S&P Capital IQ as of 10/12/2020 and PCE Proprietary Data

    Additional Resources
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    Contacts

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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, Allison. “American Airlines, United to cut 32,000 Jobs as Washing Debates Relief.” Wall Street Journal, October 1, 2020.
    2. “Global Air Freight Market Sees Tight Capacity as Travelers Stay Home.” DC Velocity RSS, DC Velocity, August, 31, 2020.
    3. Smith, Jennifer. “Truckers Are Seeing Growing Freight Volumes.” Wall Street Journal, September 3, 2020.
    4. Smith, Jennifer. “West Coast Freight Networks ‘Bursting at the Seams’ With Surging Imports.” Wall Street Journal, September 10, 2020.
    5. Chen, Elaine. “From ‘Freezer Farms’ to Jets, Logistics Operators Prepare for a Covid-19 Vaccine.” Wall Street Journal. August 28, 2020.
    6. Smith, Jennifer. “Companies Step Up Distribution Automation Under Pandemic Strains.” Wall Street Journal, August 12, 2020.
    7. Kickham, Victoria. “LMI: Logistics Industry Continues Swift Recovery.” Supply Chain, CSCMP's Supply Chain Quarterly, September 1, 2020.
    8. Smith, Jennifer. “Robot Trucks Are Seeking Inroads Into Freight Business.” The Wall Street Journal, September 1, 2020.
    9. “Walmart Plans $220 Million Mega-Warehouse in South Carolina.” DC Velocity, July 20, 2020.
    10. Schulz, John D. “FMCSA Gives Green Light to under-21 Truck Driver Pilot Program.” Logistics Management, September 9, 2020.

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