Transportation & Logistics Industry Update
What We're Reading
"With more consumers shopping from home during the coronavirus pandemic, final-mile delivery providers have been dealing with a spike in demand for their services while implementing health and safety protocols designed to protect their employees and customers. Companies have found unique ways to handle the myriad of irregularities COVID-19 has presented, from social distancing to abnormal workforce demands."
"National outbound tender volumes continued to climb this week, increasing 5% week over week and 7% year over year. Overall volumes are surging, led by a drastic increase in imports at the end of April ... 13 of 15 major freight markets were positive on a week-over-week basis. The markets with the largest gains in OTVI.USA were Los Angeles (17.10%), Atlanta (14.76%) and Savannah, Georgia (8.96%)."
"Driven by its dedicated workforce, sustained investments and years of network planning, freight railroads are operating safely amid the coronavirus situation to deliver a range of the critical goods we all depend on ... In Minnesota, BNSF Railway is delivering crucial inputs for producing face masks. In Kentucky, Norfolk Southern is working with a local distillery to pump out hand sanitizer. And across the East Coast, CSX Transportation is delivering wheat and flour to the milling and baking industries. Railroads are serving as a vital link in strained supply chains while prioritizing employee safety in the process."
"Maritime logistics is an indispensable component of international trade, as the bulk of global shipments traverse from origin to destination countries through global sea lanes of communication. Upgrades in the maritime logistics sector – in terms of the ways and means through which the movement of goods takes place – are therefore in continuous motion, an effort to optimize both the process of shipping and end-to-end fulfillments. Alongside advances in technology, digital tools and applications are increasingly finding their place in streamlining operations and securing the movement of containers and cargo across maritime routes."
"Taking a page from neighboring Australia, the government of New Zealand has launched an emergency program to reestablish airfreight supply chains interrupted by the suspension of passenger flights so important exports can get to global markets. The air cargo assistance programs guarantee space for export cargo on key routes under agreements with air carriers. Essential medical supplies ordered by the government are loaded on return flights."
- Public Market Performance
- As of May 26, a composite index of domestic asset-light third-party logistics providers was trading at 11.6x TEV / NTM EBITDA vs. the broader S&P 500, which was trading at 13.8x; the S&P has generally outperformed this 3PL index, as freight volumes have been consistently lower than the 2018 freight peak
- Q1 2020 earnings reflect the initial impact of COVID-19 on global supply chains and shipping volumes, resulting in several players missing quarterly expectations, and most companies retracting guidance for the remainder of the year
- Common Themes
- Performance is expected to further deteriorate in Q2; however, many companies remain optimistic that performance will improve in the back half of the year
- While capital expenditure and cost reductions were made in Q1, investment in technology remains strong and will continue to be a strategic focus going forward
- Interest in M&A remains; however, companies will follow a strict evaluation process considering the current macroeconomic environment
- Public Company Insights
- C.H. Robinson – Experienced margin compression and productivity declines in Q1 2020, and began to see declines in LTL and truckload volumes in April
- Echo Global Logistics, Inc. – Per-day revenue was down ~12% through mid-April, but management believes volume declines were beginning to stabilize and remained confident that they are near the bottom of what will be a U-shaped recovery
- Expediters International of Washington, Inc. – Noted that reduced passenger flight schedules and cancellations have significantly impacted available belly space, leading to spot purchases in a tight airfreight market and increased utilization of chartered planes
- Forward Air Corporation – COVID-19 has significantly impacted the business, both in the context of broad exposure to non-essential freight with ties to Asia, and more specifically within the retail pool business, where volumes were down over 90%
- Hub Group, Inc. – Experienced declines across all four business units, and expects second-quarter volumes to further deteriorate from current levels
- J.B. Hunt Transport Services, Inc. – Intermodal volumes could start to improve around the fourth quarter of 2020 or the first quarter of 2021, but uncertainty surrounding the coronavirus pandemic creates challenges for volume forecasting
- Landstar System, Inc. – Number of loads hauled and revenue per load were consistent with expectations in early Q1 and improved each week as the quarter progressed. Starting in the final week of Q1, truckload volume dropped significantly until stabilizing in late April, down ~20 – 30% compared to the prior year
- Radiant Logistics, Inc. – Believes the industry faces significant near-term headwinds, and has prioritized the safety of employees, viability of customer supply chains, and resilience of the company in the face of challenging economic conditions
- XPO Logistics, Inc. – Total revenue declined ~25% YoY in April, with smaller declines in logistics, LTL tracking in line with consolidated revenue performance, and softer performance from the rest of the transportation segment; issued $850 million of 6.25%, 5-year senior notes in April to strengthen cash position
Historical Public Comparables Valuations
(TEV/NTM EBITDA as of May 26th, 2020)
Source: S&P CapitalIQ, Cass Information Systems
Harris Williams is a leading advisor to the transportation and logistics M&A market. Our Transportation & Logistics Group serves companies in a broad range of attractive niches, including third-party logistics (3PL), truck, rail, marine and air transportation, transportation equipment, and the automotive and heavy duty vehicle market.
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