Schneider National Buys Two ‘Last-Mile’ Delivery Companies

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The Wall Street Journal  /  June 2, 2016

Acquisitions will push business-to-business trucking company into home-delivery market amid growth in online retail sales

Schneider National Inc., one of the largest business-to-business trucking companies in the U.S., said Thursday it has acquired two operators that will push the company into the growing field of delivering furniture and oversize goods to homes.

Schneider said the acquisitions were driven by the growing willingness of consumers to buy big-ticket items online, a trend that is pressuring traditional retailers that operate brick-and-mortar stores and reshaping distribution patterns and putting a bigger premium on home-delivery.

The Green Bay, Wis.-based company said it had acquired Lodeso Inc. and Watkins & Shepard Trucking Inc. for undisclosed sums. Lodeso helps retailers arrange “white glove” service for difficult-to-delivery items that require extra care or installation, like refrigerators or sofas. Watkins & Shepard is a Montana-based operator of less-than-truckload, or LTL, service, in which orders from multiple customers are combined on each truck, and was one of Lodeso’s strategic partners.

The acquisitions come as more logistics and freight companies are moving to serve the fast-growing market for online furniture sales. They bring Schneider into direct competition with XPO Logistics Inc., which has acquired both last-mile and LTL businesses in recent years, is the largest player in the arena with $693 million in revenue in 2015, according to Satish Jindel, president of SJ Consulting Group Inc. J.B. Hunt Transport Services Inc. is also one of the largest last-mile carrier for oversize goods, counting $200 million in revenue from that business last year, Mr. Jindel said.

The market for such deliveries grew 8% last year to $6.8 billion, excluding private fleet deliveries, and is likely to accelerate with growth of 10% or more in 2016, he said.

Mark Rourke, Schneider’s chief operating officer, said the transportation of furniture and oversize items is the fastest-growing segment with the greater opportunity in the e-commerce market, for Schneider. “As we talked to our customers and looked to where the market is growing, what we heard was there are pain points—product categories that don’t run through the parcel network for home delivery,” he said. “We felt that was an underserved need.”

Experts say oversize items have become an attractive niche because it is a growing and profitable business where products can’t efficiently move through the home-delivery networks of well-established parcel carriers FedEx Corp. and United Parcel Service Inc. Both of those carriers recently raised their prices for handling bulky items.

“FedEx and UPS are quick to tell you that they love the depth to which e-commerce is expanding—that more and more of the population buys more and more online. But they struggle with the breadth,” said Donald Broughton, an analyst at Avondale Partners LLC. “People order everything from refrigerators to microwave ovens to bicycles and trampolines to aboveground swimming pools and barbecue grills, and those packages don’t fit through their sortation systems.”

Last-mile home delivery is a departure from Schneider’s core business as the second largest truckload carrier in the U.S., meaning each of its trucks haul freight for single customers, often on long distances to distribution centers. Privately-held Schneider, which closed the deal on Wednesday, will gain 800 drivers for a total of 1,300 employees, and new customers including online home goods retailer Wayfair Inc. and Home Depot Inc.

Mr. Rourke said the company, which counted about $4 billion in overall annual revenue before the acquisitions, hopes to package its truckload services with the new last-mile operations together for retailers. Between the 20 distribution centers operated by Watkins & Shepard around the country and other carriers working on Lodeso’s delivery network, Schneider will be able to cover most ZIP Codes in the U.S.

The executive added that the last mile business will be “one of our top two or three growth drivers” and that the company expects to expand the new operation in scale and geography.

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Schneider Acquires Watkins & Shepard and Lodeso to Expand Services

Transport Topics  /  June 2, 2016

Truckload carrier Schneider announced the acquisition of less-than-truckload specialist Watkins & Shepard Trucking and final-mile delivery carrier Lodeso Inc. on June 2 to capitalize on trucking opportunities related to fast-growing e-commerce.

Schneider, which didn’t disclose terms of the deals, had not made an acquisition since 2005, although the Green Bay, Wisconsin-based carrier has built out its intermodal and bulk networks to complement truckload and related logistics services.

Watkins & Shepard, based in Helena, Montana, is headed by former American Trucking Associations Chairman Ray Kuntz. The company, founded in 1974, has 20 terminals and 1,300 drivers. Michigan-based Lodeso operates with nearly 600 agents.

The moves by the company that ranks No. 7 on the Transport Topics Top 100 list of the largest U.S. and Canadian for-hire carriers, along with the Big G Express June 1 purchase of Ike Transportation, injected new activity into the industry’s merger and acquisition market. Schneider’s action also could be a sign of much stronger future carrier interest in the final-mile delivery of large products such as appliances and furniture, an analyst said.

Chief Operating Officer Mark Rourke told TT that Schneider’s moves represent an opportunity to capitalize on the rapid acceleration of e-commerce and omnichannel retailing by moving overdimensional high-value freight right to consumers.

“There is an unmet need for delivery of items like furniture, exercise equipment or gun cases that do not go well into the parcel guys’ networks,” Rourke said.
Both UPS Inc. and FedEx Corp. in recent months have announced their intention to surcharge or restrict those overdimensional shipments.

Watkins & Shepard is “the gold standard in the carpet and furniture segments,” Rourke said. The Helena-based carrier was listed at No. 27 among LTL carriers in the for-hire TT100, with revenue from that business of $162.1 million. The Montana carrier also offers truckload and logistics services. That LTL revenue would add about 4% to Schneider’s $3.9 billion total.

Rourke said the moves also offered the advantages of technology that is already in place, to link Watkins & Shepard and Lodeso. In addition, he said the acquisitions enabled Schneider to acquire a network that already has been built out, including facilities at major import centers and regional manufacturers to support e-commerce in the furniture sector.

“It makes a lot of sense that Schneider wants to be in that market. Final-mile is the part of the trucking landscape that almost no one of scale does,” said Jason Seidl, a Cowen & Co. analyst, saying that only No. 14 XPO Logistics and No. 3 J.B. Hunt Transport Services Inc. are in that market now. “You are seeing a much more focused and professional approach to heavyweight home delivery now. Think about it: When a consumer goes to order a refrigerator, who usually shows up? It’s two guys in an unmarked truck with dirty T-shirts.”

Seidl told TT that, given the fast growth of e-commerce, he expects there will be several more acquisitions of final-mile carriers over the next year to 18 months.

Kuntz, the Watkins & Shepard CEO, said his company has been working with Lodeso for about 10 years, and over the past 18 months, they have been offering customers a combined one-bill rate for shipping. He said the arrangement allows for delivery of rugs, furniture and other large goods to any home in America.

“We’re the first mile, and they’re the final mile,” said Kuntz, adding that 70% of his company’s revenue comes from LTL work and the 30% in truckload is usually for backhauls. Kuntz said e-commerce has been one of his main efforts for the past three or four years.

Kuntz, who turns 60 this year, also said he has committed to remain with the company for at least three years.

“Schneider is very excited about the creation of a world-class e-commerce provider. We open up the whole world of e-commerce logistics — or at least all of the lower 48 states,” Kuntz said.

“The ability to provide differentiated experiences for retailers, manufacturers and consumers is a primary area of strategic growth for Schneider,” said CEO Chris Lofgren. “We will continue to make significant investments to capture the full potential the combined companies now have to connect the first mile to the final mile.”