Regional carrier LaserShip is acquiring competitor OnTrac in a $1.3 billion deal, in one fell swoop changing the equation in domestic last-mile parcel delivery by giving the combined entity coverage of three-quarters of the continental U.S. as ecommerce demand continues to soar.
While some experts said the deal doesn’t pose an immediate threat to the duopoly of UPS and FedEx on a national level, all agree it’s a wake-up call for them – and a boon for shippers facing volume limits, cost spikes and service level challenges. The deal is expected to close in Q4.
American Securities and Greenbriar, which own LaserShip, will provide additional equity financing for the deal and continue to provide strategic support for the combined company. They will operate separately for the balance of the year, with integration taking place in 2022.
LaserShip Chief Commercial Officer Josh Dinneen told the Wall Street Journal that the combined company’s 100+ sorting and delivery hubs in 30 states and the District of Columbia will get it closer to offering “a coast-to-coast solution which doesn’t exist outside UPS or FedEx.”
In the short term a combined LaserShip/OnTrac is certainly poised to steal share away as evolving network configurations bring more volume closer to end customers in high-demand areas, said Nate Skiver, founder of LPF Spend Management.
“We are at the beginning of a shift in package delivery, where local and regional volume will continue to grow as a percentage of total, with inventory moving closer to demand,” Skiver shared in a LinkedIn post. “This decreases the value of a national, integrated network – another reason LaserShip doesn’t need immediate national coverage.”
One immediate advantage gained, Skiver said, was added linehaul capability for OnTrac, which currently relies on large shippers to bring volume into its network. “There should be opportunity to grow volume with existing LaserShip customers, and acquire new ones, from East Coast/Midwest distribution centers to the West Coast,” he said. Specifically, Skiver added expansion into new markets like Dallas and Chicago could lead to profitable growth for LaserShip.
There has been industry talk for several years about regional carriers joining forces to stitch together a national network and seriously challenge UPS and FedEx. But the idea was never workable in terms of network integration, revenue sharing and how the partnership would handle customer relationships.
In a note to investors, Moody’s said the acquisition of OnTrac was a “transformative step” toward being a national player by combining east and west coast networks. Moody’s said it expects pursuit of national coverage to continue in 2022, through further acquisitions or expansion of existing assets or both. At the same time, analysts sounded a note of caution in terms of the combined company’s ability to maintain current service levels as it scales, as did Skiver.
“Both LaserShip and OnTrac have exhibited substantial growth in their ecommerce delivery businesses in 2020 and 2021 with significant new customer wins and substantial increases in delivery volumes,” Moody’s said. “Strong growth is likely to continue over the next couple of years as consumers become accustomed to less than two-day delivery times for ecommerce purchases.”
Even before this deal, regionals had been expanding their coverage to meet increased demand and take advantage of the opportunity. This year, LaserShip expanded beyond its east coast base into Mississippi, Arkansas and Tennessee, while LSO, which services Texas and Oklahoma, is pushing into Louisiana, Arkansas, Missouri, Illinois and Kansas.
Mike Erickson, CEO of shipping consultancy AFMS, said the deal was a big win for domestic parcel shippers, given the good reputation and service levels of both companies, providing more options as the operations are merged.
“It looks like a 12x-15x price they paid for OnTrac, but if they can take advantage of this hot parcel market and future growth, this could be a great acquisition,” Erickson said. “One thing for sure, UPS and FedEx better wake up. I predict more consolidation of regionals especially with the rate increase being slapped on shippers by UPS and FedEx this year. Amazon may also be their next new direct competitor.”
John Haber, president of the parcel business unit at Transportation Insight, also expected further consolidation to follow in parcel/last mile “at a rapid pace.”
“This is great news for shippers,” Haber said. “It provides a more cohesive solution over a much larger geographic area than is currently in place.”
Matt Bohn, a senior consultant with Shipware, said it will be “business as usual” for now with other regional carriers like LSO, Speedy and Pitt Ohio, but market pressure is sure to follow.
“I’m sure leaders at these companies see the likelihood of a third national at this point, so it becomes a question of, do they want to be acquired or do they want to remain a regional?” Bohn said. “My guess is if LaserShip becomes a national, the other regionals will continue to thrive in the short term, but might be less viable long term as it puts downward pressure on pricing.”
He added LaserShip as a national carrier would mean a lot of shippers “will be willing to move” from UPS and FedEx.
Satish Jindel, president of Shipmatrix, said the LaserShip/OnTrac deal proved there is money to be made in B2C delivery, running counter to the duopoly’s growing focus on shifting the mix toward more profitable B2B shipments.
“It’s throwing the baby out with the bath water,” Jindel said. “B2C is profitable, you just have to change how you approach it from an operations, pricing and service delivery perspective. UPS and FedEx fail to understand that the guy in Manhattan has different expectations of when a package arrives than the guy in Pittsburgh or Boulder. Who’s the buyer, who’s the seller, what do they want, and what are they willing to pay?”