Transportation & Logistics Q4 2019

Industry Trends

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

Target
Buyer
Value($mm)

Genesee & Wyoming Inc.
Brookfield Asset Management Inc.; GIC Special Investments Pte. Ltd.
$9,556
LBCT LLC
Macquarie Infrastructure and Real Assets
$1,780
I-595 Express LLC
Teachers Insurance and Annuity Association of America
$400
Petroleum Services Corporation
Aurora Capital Partners
$335
Enviva Wilmington Holdings, LLC
Enviva Partners, LP
$166
Millis Transfer, Inc.
Heartland Express, Inc.
$156
A&S and Buckler Subsidiaries
Day & Ross Inc.
$139
Winchester & Western Railroad Company, Inc.
OmniTRAX, Inc.
$105
Parcel Pending, Inc.
Quadient SAS
$100
All Assets of Joseph Cory Warehouses, Inc.
J.B. Hunt Transport, Inc.
$100

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:

Mitchell, Josh,” U.S.-China Deal Eases, But Doesn’t End, Business Uncertainty,” The Wall Street Journal, Dec. 13, 2019.
Mauldin, William, Wei, Lingling, Leary, Alex, “U.S., China Agree to Limited Deal to Halt Trade War,” The Wall Street Journal, Dec. 14, 2019.
Tangel, Andrew, Cameron, Doug, Sider, Alison “Boeing to Suspend 737 MAX Production in January,” The Wall Street Journal, Dec. 16, 2019.
Smith, Jennifer, Venkat, P.R., “Trucker Celadon Group Files for Bankruptcy,” The Wall Street Journal, Dec 9, 2019.
Smith, Jennifer, “Trucking Market Will Absorb Celadon Shutdown, Transport Experts Say,” The Wall Street Journal, Dec. 10, 2019.
Sheetz, Michael,” Watch out, UPS. Morgan Stanley estimates Amazon is already delivering half of its packages,” CNBC, Dec. 12, 2019.
Ziobro, Paul, ”Amazon Blocks Sellers From Using FedEx Ground for Prime Shipments,” The Wall Street Journal, Dec. 16, 2019.
Smith, Jennifer, “Heavy-Duty Truck Orders Wane as Industrial Demand Declines,” The Wall Street Journal, Dec. 4, 2019.
Kang, Jaewon, “Safeway Owner, Rival Grocers Bet on Smaller Warehouses,” The Wall Street Journal, Dec. 12, 2019.
Smith, Jennifer, “Parcel, Warehousing Companies Boost Hiring for Online Sales Surge,” The Wall Street Journal, Dec. 6, 2019.

Transportation & Logistics Q4 2019

M&A Transaction Trends

Industry Trends

U.S. - China Trade Tensions Ease, but Uncertatinty Contiues

Boeing Suspends MAX Production

Celadon Group Inc. Files for Bankruptcy

Amazon Looks to Disrupt Delivery Business

Heavy-Duty Truck Orders Wane

Online Grocery Orders Pick-up

Continued Growth in Holiday Shipping

Largest Transactions Closed

Additional Resources

Contacts

Woody Whitcomb

Michael Rosendahl

David Jasmund

Eric Zaleski

Melissa Ritter

Michael Rosendahl

Will Stewart

Woody Whitcomb

Michael Poole

Paul Vogt

Mackenzie Moran

Isabel Carta

Philipp Seubert

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Transportation & Logistics Q4 2019

M&A Transaction Trends

Industry Trends

U.S. - China Trade Tensions Ease, but Uncertatinty Contiues

Boeing Suspends MAX Production

Celadon Group Inc. Files for Bankruptcy

Amazon Looks to Disrupt Delivery Business

Heavy-Duty Truck Orders Wane

Online Grocery Orders Pick-up

Continued Growth in Holiday Shipping

Largest Transactions Closed

Additional Resources

Contacts

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