The 2:00 Minute Warning

How about we take a break from all this talk about tariffs or LTL pricing changes and focus on some truly seismic things happening in the transportation industry? Between the Union Pacific and UPS, there are big things happening that will affect shippers in the future.

Last week, the Union Pacific announced its $85 billion offer to purchase the Norfolk Southern railroad. This would lead to the creation of a transcontinental railroad - something that railroad folks have dreamt about for the past 100 plus years. Will that merger occur and will any potential merger involving two major railroads be approved by the US government?

On the "will it occur" front, there are some factors that have to be considered. First, Warren Buffett's company owns the BNSF railroad and that company is purported to have in excess of $350 billion in cash. Will they top the UP's offer and create a bidding war, or will they go out and buy CSX and create a second transcontinental railroad? Interestingly, last week CSX announced plans to explore their options - are they signaling that they're open to merger discussions?

On the "will it be approved" item, that depends on who you talk to. People who like railroads and companies who are served by the railroads, like intermodal companies, have all sorts of reasons why they think a merger would be a good thing. The companies seeking the deal will likely argue that it provides benefits such as greater efficiency or better coordination.

Shipper groups are saying "Not so fast." They are concerned about creating a duopoly that would limit their options and raise their costs. Candidly, a major reason for shipper concerns about the merger is because the railroads haven't had the best track record when it comes to managing their clout and power. They have used it in the past and with their duopolistic position, could use it in the future.

When it comes to UPS, the announcements are more about continuity than growth. During their earnings call last Tuesday, UPS shared some really interesting facts.

For one, the loss of Amazon cost them 600,000 packages a day in the first quarter. Overall, UPS is still doing real well, but they announced that they haven’t completed their cost restructuring. We predicted this in light of what was going on with the Teamster contract and now they’re offering early buyout for many as 20,000 jobs.

More importantly, UPS stated that they’re looking at their business models. One of the models that they’re not particularly thrilled with is the business to consumer area. They’ve been facing challenges, especially in light of what happened last year when they severed their connection with the United States Postal Service and had their drivers take over last-mile deliveries. UPS announced that they’re going to get back into discussions with USPS because they don’t want their drivers delivering these parcel shipments.

How do you respond as a shipper?

In a time of growing complexity and instability, it’s important to have a team that can help you navigate it all. We encourage you to reach out and to take advantage of our Rapid Assessment process if you haven’t already. During this process, our team can evaluate your entire logistics operations or specific areas and provide recommendations. We can also walk through different issues and address how they could potentially impact your business and the alternatives your company could be considering. If you want to have your supply chain be an asset, let’s talk.

To get in touch, give us a call at 630-833-0890 Ext 190, send me an email, or schedule a time to meet via Calendly.

BY MIKE REGAN, CO-FOUNDER OF TRANZACT

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