As the trucking industry appears to have rapidly fallen from boom to bust, Heartland Express, Inc. announced that it has acquired 100% of the equity of dry van truckload carrier Smith Transport, Inc. and related entities, for approximately $170 million. One of the largest and most profitable trucking companies, Heartland is betting on a rebound – and Smith’s fleet and customers are key to future success.
Michael Gerdin, Chairman, President, and CEO of Heartland Express, explained, “We were attracted to this opportunity for three main reasons: the safe and experienced professional drivers, the high level of service offered to a blue-chip customer base, and the management depth that demonstrate the ability to continue operating independently and profitably.” His confidence arrives as his company – and the broader economy – face significant headwinds.
During the pandemic, American consumers displayed a ferocious appetite for products, with shipping and trucking industries struggling to keep up with demand. However, as consumers have returned to restaurants, travel, and various in person events, they demand has rapidly shifted from goods to services. This change has been so rapid that one industry insider has described US import demand as “dropping off a cliff.”
As consumers pull back on their purchase of physical products, retailers face an inventory glut. After record import volumes as retailers struggled just to keep their shelves stocked, container imports into the country have dropped 36%
Source: https://www.freightwaves.com/news/top-heavy-inventory-hits-walmart-target-and-other-retailers-shares-carrier-demand
And the industry is facing pressure on additional fronts. First, diesel prices are causing costs to soar, thereby decreasing profits. And at the same time, there is a critical lack of drivers. Many have left the profession, and the long hours, transient lifestyle, and health issues that accompany it. At the same time, pay has dropped precipitously: the mean pay for a driver was $50,340 in 2021, compared to an inflation-adjusted $110,000 in 1980. As such, truck drivers constituted a significant portion of the 4.5 million workers who quit their jobs during the “Great Resignation.”
The industry has responded by turning to autonomous driving. Walmart is running a pilot program in Arkansas where driverless trucks transport materials day and night, stopping at traffic signals and pedestrian crossings. This technology will have tremendous spillover effects on the economy – as trucking is supported by a broad network of restaurants, gas stations, cleaning services, and other businesses that depend heavily on a steady flow of trucks rolling through.
Trucking serves as an important barometer of the broader economy. As companies respond to weakening consumer demand, they purchase fewer goods, which requires fewer shipments. Of the past 12 recessions in trucking since 1972, broader economic downturns have followed half.According to Matterhorn’s M&A database, which harnesses both AI and attorneys to digest the granular deal points of publicly announced transactions, Heartland was advised by Scudder Law Firm and Smith was advised by McGuireWoods LLP.
