UPS sells freight unit to TFI for $800 million

UPS Freight
UPS Freight

Shipper cites “better not bigger” strategy, expects $500M charge

UPS said it is selling its freight unit for $800 million to Canadian trucking company TFI International Inc. as part of its “better not bigger” strategy.

UPS Freight, which trucks bulk shipments from suppliers to stores and other locations, has been a low-priority and low-margin unit within a much-larger UPS primarily focused on its more profitable package delivery business.

UPS expects to record a roughly $500 million non-cash, pre-tax charge this year, after paying $1.25 billion to acquire the business in 2005.

The freight business “was like a loss leader for UPS,” said TFI CEO Alain Bedard during an investor conference call Monday. “We’ll change the approach.”

With 14,500 employees, UPS Freight is based in Richmond, Virginia and generates about $3 billion in revenue out of UPS’s more than $74 billion in revenue annually.

UPS CEO Carol Tomé said in a written statement Monday that the sale “allows UPS to be even more laser-focused on the core parts of our business that drive the greatest value for our customers.”

After Tomé took the helm of the company last year, she said UPS would focus more on “becoming better, not bigger” after years of building capacity.

Bedard said he had discussed the potential deal “for a very, very long time,” and that Tome’s arrival “was a catalyst” to finalize the transaction.

Most of UPS Freight’s employees are represented by the Teamsters union, and Bedard said TFI will abide by the union contract, but he hopes to eventually add flexibility in work rules.

The limited value of the freight business to UPS was evident during a labor dispute with the Teamsters in 2018, when UPS forestalled a potential strike by halting pickups from freight customers to empty its network of freight. The company acknowledged that the disruption could cause it to lose customers.

UPS Freight will be renamed TForce Freight. TFI has expanded through more than 90 acquisitions since 2008 and the latest deal will help it gain a major expansion into the U.S. market.

Bedard said he wants to replace older trucks with newer ones that have safety features like collision avoidance and lane assist to reduce accidents and worker compensation costs.

UPS and TFI have a five-year agreement in which TFI will use the UPS domestic package network to fulfill shipments. Bedard said he thinks the TFI-UPS partnership could expand to help handle excess volume for each other when needed.

The deal is expected to close in the second quarter of this year.

UPS Freight’s history

The freight unit being transferred from UPS to TFI has changed hands multiple times through the decades.

1986: Union Pacific acquires trucking firm Overnite Transportation Co. in 1986 for $1.2 billion

2003: Union Pacific spins off Overnite

2005: UPS spent $1.25 billion to acquire Overnite, which it renamed UPS Freight

2021: UPS sells UPS Freight for $800 million to Canadian trucking company TFI International Inc.

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