MONTREAL, Que. – TFI International – Canada’s largest for-hire truck fleet – remains focused on profits and cost controls as it emerges from a record-setting second quarter for 2019. But it’s hardly immune from industry challenges such as slowing freight volumes, the economic hangover of metal tariffs, and rate-cutting competitors that follow the Driver Inc. business model.
“The freight environment in ’19 is not the same that it was in ’18,” chairman, president and CEO Alain Bedard said today, during a call with investment analysts.
Last year rates were on the rise because of tighter capacity linked to a new U.S. mandate for electronic logging devices (ELDs), and customers who stocked up on inventory in the face of tariffs on Chinese products. That helped to push truck driver wages higher.
This year it’s a “different world”, he said of the softer market. Competitors who raced to order new trucks when times were good are now chasing after lower business volumes. “This,” said the outspoken CEO, “is the stupidity of our industry.”
“We got to work on the costs. This is something we can control,” he said of TFI’s business philosophy. “We cannot control the market.”
The specialty truckload segment, for example, is expected to be soft in Canada and the U.S. for the remainder of 2019, he said. A drop in flatbed business was largely to blame for a slump in Canada’s truckload revenue during the second quarter of this year.
“Steel tariffs created a mess in our flatbed because we’re the largest hauler of steel in Ontario,” Bedard said. “Those tariffs have been removed now, but you can’t turn on a dime.” He expects it will take six months for that business to return to normal.
Meanwhile, the business of hauling cement in eastern Canada is facing competitive pressures from fleets that follow the so-called “Driver Inc.” business model – those who misidentify employees as independent contractors as a way to bypass source deductions.
“The rest of our steel, or lumber, or chemical, or food-grade business, it’s really steady,” he said, referring to other specialized freight.
Bedard stressed several times during the conference call that TFI International is only interested in profitable business. He’d rather leave other LTL operations to chase after the $50 pallets that need to move between Toronto and Montreal.
In Canada, the fleet’s LTL business has focused on serving dense areas over the last two three years. “Canada is a big country, and you need density because serving a customer with LTL costs a lot of money,” he said.
“We’re making sure all the accessorials, all the different stuff, are invoiced to our customers,” Bedard said, referring to TFI’s approach to the LTL business. Tools such as FreightSnap, which captures the size and weight of freight, has already helped the fleet to keep shippers honest, he added.
Other technology-related investments in the coming year will include a new transportation management system for the U.S. truckload business segment.
The investments are not ending there. This year TFI International will buy back a Vitran Express terminal in Toronto for $38 million, and another $10-12 million will be put into a new Calgary hub to serve Canpar and Loomis operations. The latter location is scheduled to open late in the year.
Next year there are plans to invest $15-20 million in a new Calgary intermodal hub to serve Vitran, Clarke Transport, Quik X and NFF. The fleet will buy back another terminal in Montreal, too.
Further investments in final-mile activities are expected in Edmonton next year, followed by a Toronto-based project in 2023.
The latter investments align with a broader strategy that recognizes how LTL freight is shifting to final-mile operations, as customers in malls lose ground to e-commerce activities.
“We’re looking for sure to beef up our last mile operation in the U.S.,” Bedard said, noting that efficiencies can still be found in the acquired BeavEx fleet.
“We should be announcing a small transaction in this segment very soon in Canada,” he added.
In terms of M&A activity, Bedard doesn’t expect to land a “big whale” in the second half of 2019, although he hinted that there will likely be a few deals as the year comes to a close. Next year he predicts another $200 million to be invested in buying operations that “tuck in” with existing operations.
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