FedEx to Acquire Watkins

May 26, 2006
In an announcement on Friday May 26th, Watkins and FedEx put to restrumors that FedExwas in talks to acquire the Lakeland, FL-based less-than-truckload

In an announcement on Friday May 26th, Watkins and FedEx put to rest rumors that FedEx was in talks to acquire the Lakeland, FL-based less-than-truckload (LTL) carrier. The deal announced on Friday calls for FedEx to pay $780 million in cash for the privately held Watkins Motor Lines and certain affiliates. What does FedEx gain?

Operationally, Watkins has 139 terminals in 42 states and provides service in Canada, Mexico, and to Puerto Rico, Alaska and Hawaii. On the surface, that doesn’t appear to add much to the capabilities of transportation giant FedEx. But, according to Chad Bruso of Morgan Stanley, the acquisition would add to FedEx Freight's long-haul capabilities in the three-day-and-beyond LTL market. That would make the LTL unit an even stronger competitor against YRC Worldwide, operator of Yellow, Roadway and a group of regional carriers that includes the former USF companies. It would also strengthen FedEx’s position against the other leading long-haul LTL carrier ABF.

Bruso also points out Watkins’ strength in Canada would be a value for FedEx Freight. With Watkins’ current terminal configuration, Toronto, Montreal or Vancouver are each one-day transits (in addition to domestic transit times to gateway terminals). It can also reach major markets in Mexico – Mexico City in 24 hours, Monterrey in eight hours, and Guadalajara in 24 hours.

Watkins builds strength on strength, according to an analysis provided to Logistics Today by Mastiogale. Shippers responding to Mastiogale benchmark surveys ranked Watkins service nearly identical to FedEx Freight, just above the industry mean. On the Mastiogale 10-point scale, both Watkins and FedEx Freight ranked 8.38 in overall performance on non-price factors. Results on 20 key attributes are nearly indistinguishable between the two carriers.

Morgan Stanley’s recent Freight Pulse 10 survey put FedEx Freight at a slight advantage over YRC Worldwide and ABF on service reliability. Though the difference between the three LTL groups was only a fraction of a point, FedEx Freight ranked nearly a full point ahead of Overnite Transportation, which was acquired by rival UPS and recently renamed UPS Freight. The Morgan Stanley analysis concentrates on publicly traded companies and so does not include data on Watkins, which is privately held.

In its initial announcement, FedEx said it would operate the Watkins unit as a separate networking within FedEx and will be rebranded FedEx National LTL.

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