TFI International’s first step in integrating the UPS Freight fleet it purchased in January will be to upgrade the equipment to reduce maintenance and repair costs, and improve driver satisfaction.
“Focus number one is equipment,” Alain Bedard, chairman and CEO of TFI International said during a conference call with analysts this week. “We want to be lean and mean in terms of costs and one big thing we can do without making a mistake – because with customers, you can make mistakes – is replacing old equipment with new equipment. Replacing a 2004 truck with a 2021 truck, you can’t make a mistake by doing that.”
Updating the fleet will reduce maintenance costs, improve safety and translate to happier drivers. The company also wants to immediately focus on reducing cargo claims, which are currently too high at about 1%, Bedard noted. He would like to see that sliced in half in short order.
TFI International closed 2020 with a slight dip in revenue, generating US$3.78 billion compared to $3.9 billion in 2019. (The company now reports its financials in US dollars). Revenue was flat net of fuel surcharge. It generated net income of $275.7 million, up from $244.2 million in 2019.
In the fourth quarter, TFI reported revenue of $1.12 billion, up 13% year-over-year, while net income surged 49% to $86.3 million.
The company made 13 acquisitions in 2020, including five in the fourth quarter, but its purchase of UPS Freight captured the most interest. TFI International, under its TForce Freight operations, must now improve margins on the company that essentially broke even on $3 billion in revenue last year.
In addition to modernizing the equipment, the company will look to eliminate unprofitable freight and look to turn its newly acquired terminal network into a revenue generator. TFI does this in Canada by leasing space to third-party carriers, and Bedard sees the same opportunity south of the border.
“I think a nice feature down the road will be to bring other revenue into our real estate portfolio by leasing space in the yard and on the dock where it makes sense,” Bedard said, noting the real estate assets will be treated as a TFI International subsidiary.
A key challenge will be to work with customers to drive out unprofitable freight. Traditionally the big package delivery companies “bundled” freight with parcel delivery offerings, and that’s not an approach Bedard wants to continue. Especially when the package companies are experiencing volumes that don’t necessitate bundling.
“Our approach with customers is going to be very simple,” Bedard said. “It fits or it doesn’t fit.”
While the freight may not fit within its TForce Freight network, it could be a fit elsewhere, such as in TFI’s growing logistics segment, Bedard added.
“Freight for UPS was minimal in terms of the percentage of their business,” Bedard noted. “It was not really a focus of theirs, but it will be a real focus of ours.”
Bedard thinks it’s possible to its drive operating ratio down to a more palatable sub-90 level within two to three years. But it will be a big project, and you can count out further major acquisitions for TFI over the next couple years.
“We will be laser-focused on TForce Freight,” said Bedard. “That’s going to be our mission – to bring this company to a level of profitability that is normal. Nothing major [in acquisitions] will happen in 2021 or 2022, impossible.”
However, he said the company will continue pursuing smaller tuck-in acquisitions.
“If there’s a deal that fits, there’s a nice payback, we absolutely won’t pass on it,” he said.