U.S. - China Trade Tensions Ease, but Uncertatinty Contiues
U.S. and China agreed to a limited “phase one” deal on trade, tariffs and agricultural exports. Under the agreement, the U.S. calls for China to import $200 billion of U.S. goods over two years, including $40 billion to $50 billion per year in farm exports. Industries expected to benefit are agriculture, manufacturing and tech industries. In exchange, the U.S. will halve its 15% tariff to 7.5% on $120 billion of Chinese-made apparel, shoes and accessories and cancel a 15% tariff on $156 billion of smartphones, laptops and toys. Meat and poultry enterprises, farmers and ranchers stand to benefit if the deal leads to improved market access and lower tariffs.1 2
Boeing Suspends MAX Production
Boeing Co., the nation’s largest manufacturer and top private employer announced the removal of its CEO in light of two fatal crashes in 2019 involving the company’s 737 MAX jetliner. Boeing will suspend the production of the 737 MAX aircraft in January and plans to reassign rather than lay off up to 13,000 affected employees. The temporary production suspension will increase the company’s per plane costs, causing an expected burn of half of its $4.4 billion cash reserves. An estimated loss of 0.3% of annualized U.S. GDP growth may occur for every quarter of inactive 737 MAX production.3
Celadon Group Inc. Files for Bankruptcy
Celadon Group Inc., one of North America’s largest truckload carriers, filed for Chapter 11 bankruptcy protection this year caused by its failed 2015 turn around after an accounting scandal leading to a management overhaul. The company will continue to operate its Taylor Express business in Hope Mills, N.C. while it explores a sale of its operations. Celadon’s fleet includes 3,300 trucks, employing 2,500 truck drivers and 1,300 additional employees. The trucking company’s exit from the $200 billion for-hire truckload market is expected to cause minimal market disruption as excess trucking capacity in the industry will be able to absorb the demand.4 5
Amazon Looks to Disrupt Delivery Business
Amazon Inc., which delivers approximately 50% of its packages, has put pressure on the package delivery industry. Its in-house logistics operation, Amazon Logistics, more than doubled its market share in 2019, delivering 2.5 billion packages a year and rivaling the 4.7 billion packages delivered by UPS and 3 billion packages at FedEx. The e-commerce giant expects to ship 6.5 billion packages per year by 2022 by focusing on high density suburban and urban area delivery. For the 2019 holiday season, Amazon banned third party sellers from using the FedEx ground delivery network for its Amazon Prime shipments due to delivery performance issues and expects to lift the ban once improvements take place.6 7
Heavy-Duty Truck Orders Wane
Truck-equipment makers are scaling back production and laying off workers this year due to weak Class 8 truck demand and a lower-than-expected backlog in October. Factors including the cooling U.S. industrial economy, trade tensions, and 2018 fleet overexpansion continue to weigh down freight-capacity Increases. Manufacturers spent 2019 fulfilling October 2018’s record backlog of 304,500 units, resulting in 175,500 fewer backlog unit orders in October 2019. Large players in the space such as Cummins Inc. and Daimler Trucks North America LLC plan to lay off 2,000 and 900 workers, respectively.8
Online Grocery Orders Pick-up
Food retailers are investing in small fulfillment centers adjacent to stores to expand a growing delivery business. In 2019, food sellers garnered a 15% growth in online grocery sales. Albertsons Cos. and Walmart Inc. are leading the trend to fill orders placed online quickly. Small fulfillment centers offer closer proximity to customers, a broader assortment of fresher items, and lower uptime. Small or micro-fulfillment centers can be built in three to six months and become profitable within a year, fulfilling up to 4,000 orders a week. Larger facilities require two to three years to build, reach profitability in four years, and accommodate 65,000 orders a week, offering economies of scale, a strategy that Kroger is wagering to improve its competitiveness but at the cost of slower delivery time. Some smaller grocers are relying on companies such as Instacart Inc. to outsource their delivery capabilities.9
Continued Growth in Holiday Shipping
Parcel delivery and warehousing companies hired 13,000 workers in November in preparation for the e-commerce holiday surge. UPS, FedEx Corp., the U.S. Postal Service and Amazon Inc. expected to handle a total of 2.5 billion parcels between Thanksgiving and New Year’s Eve 2019. In addition, seasonal workers a greater portion of workers are predicted to keep their jobs after the holiday season, as employers struggle to fill positions in a tight U.S. labor market.10
Largest Transactions Closed
- Genesee & Wyoming Inc.
- Brookfield Asset Management Inc.; GIC Special Investments Pte. Ltd.
- LBCT LLC
- Macquarie Infrastructure and Real Assets
- I-595 Express LLC
- Teachers Insurance and Annuity Association of America
- Petroleum Services Corporation
- Aurora Capital Partners
- Enviva Wilmington Holdings, LLC
- Enviva Partners, LP
- Millis Transfer, Inc.
- Heartland Express, Inc.
- A&S and Buckler Subsidiaries
- Day & Ross Inc.
- Winchester & Western Railroad Company, Inc.
- OmniTRAX, Inc.
- Parcel Pending, Inc.
- Quadient SAS
- All Assets of Joseph Cory Warehouses, Inc.
- J.B. Hunt Transport, Inc.
Source S&P Capital IQ as of 1/10/2020 and PCE Proprietary Data
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.
EBIT - Earnings Before Interest and Taxes