United Parcel Services (UPS) has reached an agreement to acquire LTL carrier Overnite Transportation Co. for a cash transaction of $1.25 billion.
The acquisition, expected to close during the third quarter of 2005, will give UPS its first major foothold in LTL and marks a significant step toward positioning itself as a one-stop transportation business.
“We've wanted to [enter LTL at this time] because the industry has become very attractive,” UPS spokesman Norman Black told FLEET OWNER, adding that UPS has been eyeing LTL for over 10 years. “We've been competing about as aggressively as you can with FedEx on the package side, and now in LTL we'll be a competitor.
“[LTL has become] attractive because of consolidations and watching the survivors grow and flourish as they've been improving operating ratios and developing new types of services… especially in time-definite delivery options,” Black continued. “That is what Overnite has been forefront of and that's a huge trend in commerce now.”
The big move into LTL by UPS mirrors the FedEx acquisitions of Viking Freight and American Freightways Corp., which were re-branded as FedEx Freight in 2002.
“FedEx is making pretty good money in the LTL business,” analyst Chris Brady, president of Commercial Motor Vehicle Consulting, told FLEET OWNER “With UPS, you're talking a giant entering the business. They have the resources to fund what they want to do and [LTL is] going to be more competitive.”
UPS said it is too early to comment on whether Overnite will be re-branded, but stressed that the LTL carrier will remain its own operating subsidiary. Overnite serves over 60,000 customers in the U.S. as well as in Canada, Puerto Rico, Guam, the U.S. Virgin Islands and Mexico.
UPS's Black acknowledged the high price agreed to for Overnite. But even in the face of a U.S. economy that seems to be slowing down, he is optimistic about growing the LTL business, as well as UPS prospects for becoming a global transportation and logistic provider.
“We think this industry is entering one of its brightest periods,” Black said. “You always worry about the economy slowing, but you also have to keep in mind the U.S. economy is very dependent on transportation and specifically on trucking to move all the goods needed to manufacture products,” as well as the products themselves.
The UPS-Overnite transaction will require government approval, as well as the approval of Overnite's shareholders.