TFI International buys UPS Freight for $800 million, rebranding as “TForce Freight”

UPS is selling its UPS Freight less-than-truckload (LTL) unit to TFI International Inc., a Canadian holding company that is parent to truckload giant CFI and other transport entities, for $800 million, subject to working capital and other adjustments. The company will rebrand as “TForce Freight” under Canadian ownership.

The sale of UPS’s LTL and dedicated truckload units shakes up the staid $46 billion LTL sector at a time when most large LTL companies, even including once-troubled Yellow Corp., are making solid profits.

Richmond, Va.-based UPS Freight did an estimated $3 billion in business while ranking in the top 10 of LTL carriers last year, according to analysts. The $800 million sale price is believed to be a bargain for a once-profitable LTL company that UPS bought from then-Overnite Transportation for $1.25 billion in 2005.

TFI said approximately 90% of the acquired business will operate independently within TFI International’s LTL business segment under its new name, “TForce Freight.” The acquired dedicated TL assets will join TFI’s truckload business segment that includes Joplin, Mo-based CFI. The transaction is subject to usual and customary closing conditions, including regulatory approvals.

Alain Bédard, chairman, president and CEO of TFI International, called the acquisition a “highly strategic transaction” that will strengthen its service offerings to customers as well as our ongoing relationship with UPS.

“Our strategy of operating independent business units with a high degree of accountability is well-suited for building on UPS Freight’s strengths and improving margins over time,” Bedard said.

TForce Freight will continue to serve UPS’ ongoing LTL distribution needs, and UPS will continue to provide freight volumes and other services to TForce Freight for a base term of five years after the transaction, both companies said.

“We also look forward to offering expanded strategic network opportunities to UPS in Canada,” Bedard added. “This transaction is a ‘win-win’, allowing TFI to continue our strategic expansion across the US and aligning with UPS’ ‘Better not Bigger’ strategic positioning.”

He called the UPS Freight acquisition a “very attractive opportunity” to extend its longstanding record of successful growth through acquisition. The move vaults TFI International into the upper echelon of North American LTL carriers.

Jerry Hempstead, a veteran logistics professional and analyst, said UPS Freight’s business “was completely different than parcel. UPS can still broker LTL shipments through its supply chain arm. Of issue are revenue-inventive contracts which count freight to achieve thresholds. Rival FedEx has freight. Now UPS does not. UPS can work through this, but it will add some complexity in terms of apples vs. oranges.”

Just for the real estate alone, the deal might be advantageous to TFI. The assets acquired include a network of 197 facilities (147 of which are owned). Combined with TFI’s Canadian LTL operations, this creates what TFI said was North America’s “single most comprehensive” LTL network.

The acquisition also helps with TFI’s expansion into Mexico that is leveraging its existing LTL brokerage operations there. “Given our soon to be expanded, comprehensive and highly efficient network, we’re eager to work with our new colleagues to optimize performance and are very pleased to welcome the entire UPS Freight family to TFI International,” Bedard added.

For UPS, the world’s largest transportation company that did $74 billion in revenue in 2019, the last full year for which statistics are compiled, the sale is a tacit admission that the 2005 Overnite acquisition wasn’t working.

“UPS never had real interest in LTL,” Satish Jindel, principal of SJ Consulting, which closely tracks the $46 billion LTL sector, told LM. “Their primary interest was overnight and non-union freight.”

Jindel added that its contract with the Teamsters union and heavy payments to its Central States pension plan might have been huge factors in UPS’s decision to get out of the LTL business. UPS is under new leadership and this was new CEO Carol Tome’s first major decision since assuming the top spot last year.

“With new leadership, they want to get better not bigger,” Jindel explained. “They are probably finding out they’re not getting opportunities to bundle LTL and parcel. They want to use resources to focus on other things they want to do in the parcel world.”

For her part, Tome said the move made strategic sense at Atlanta-based UPS.

“We’re excited about the future and the opportunities this creates for both UPS and UPS Freight as part of TFI International Inc.,” UPS Chief Executive Officer Carol Tomé said in a statement. “The agreement allows UPS to be even more laser-focused on the core parts of our business that drive the greatest value for our customers.”

UPS said its decision to sell UPS Freight was reached following a thorough evaluation of the UPS portfolio. It aligns with the company’s newly coined “better not bigger” strategic positioning.

Is $800 million a fair price? That depends.

“It’s good for UPS, and it’s good for TFI because they can do what UPS could never do as part of a large organization,” Jindel said. “This is an example of a business that could not develop being part of a larger company. It never got the resources it needed at UPS.”

Because TForce Freight will almost double TFI’s revenue from $5 billion to $8 billion annually, Jindel said, “It will perform better and end up being accretive for TFI.”  

The big unknown is how much cooperation TFI can wrest from the Teamsters for technology, and flexibility. “It is handling more retail than it ever did in its 85-year history and that requires some flexibility on the part of the union,” Jindel said.

The sale is described by TFI as “cash-free and debt-free.” But it does give TFI a huge footprint in the U.S. LTL market and internationally in Mexico.

“In particular, we see compelling opportunities to improve TForce Freight’s efficiency and productivity and apply our proven business model to drive long-term value creation,” Bedard said. “We look forward to the new TForce Freight thriving in the years ahead under the TFI International umbrella.”

UPS and TFI International will also enter into an agreement for UPS Freight to continue to use UPS’ domestic package network to fulfill shipments for a period of five years.

The transaction is expected to close during this year’s second quarter. UPS said it expects to recognize a non-cash, pre-tax impairment charge of approximately $500 million on its statement of consolidated income for last year. Goldman Sachs & Co. LLC is serving as financial advisor.

With an operating history of over 85 years, UPS Freight is one of the largest LTL carriers in the U.S., offering a full range of regional and long-haul solutions and an on-time delivery guarantee for all LTL shipments and is headquartered in Richmond, Va.