us xpress

The grass is not always greener on the other side, apparently; truckload and transport provider US Xpress has turned its back on the cross-border trucking business with Mexico.

The company, which conducts more than 200 daily border crossings through Laredo, is selling its 95% stake in Mexico-based Xpress Internacional.

The sale, to an unidentified buyer, will bring in $4.5m, with a further $8.5m to be paid over the next eight-and-a-half years.

US Xpress is also selling its trucking terminal in Laredo, along with some 700 trailers, while some 300 tractors are going to be repositioned to serve the US domestic market.

Management described the exit from the Mexican market as part of an ongoing capital allocation and profit improvement effort. US Xpress president and CEO Eric Fuller described the cross-border trucking segment as too costly to provide satisfactory returns.

Last year, this business generated about $50m for the company, but “insignificant” operating income, according to the company.

“We concluded that these operations required a comparatively high level of fixed investment per unit of revenue and created lane inefficiency in the US, because serving freight to and from the border did not maximise revenue per mile, or meet our other network planning priorities,” Mr Fuller explained.

However, the domestic US market has been strong. According to the American Trucking Association, truck tonnage climbed 6.6% last year, the largest year-on-year gain since 1998. This year trucking companies are forecasting “mid-single-digit” increases in volume and many shippers have accepted double-digit rate hikes on contracts to hedge against volatility.

Cathy Morrow-Roberson, founder and head analyst of Logistics Trends & Insights, noted that costs for truckers had gone up. They have had to raise wages to recruit and retain drivers, and fuel price fluctuations had not been fully compensated by fuel surcharges.

Despite all this, domestic margins are better than in the cross-border segment with Mexico, she added.

Rules, toll roads and security issues add to costs south of the border, said Carlos Duron, president of cross-border airfreight trucking firm Mexpress.

“The majority of (US) carriers just do interline agreements. I don’t think it was a good deal for them, overall, from the beginning. It seems a lot of equipment was dedicated to this particular operation,” he added.

And competition is fierce, as most large US trucking providers are engaged in the cross-border trucking arena, added Ms Roberson.

Cross-border trucking has also lost ground to other modes. According to HDT Truckinginfo, trucks carried 69.1% of the value of US-Mexico freight flows in 2017, down 1.9% from the previous year. According to some reports, US importers in the south-east have been turning to ocean transport to move goods from central Mexico as a faster and cheaper alternative. It is also less cumbersome, they say, as trucking involves multiple vehicles and stopping points, and more paperwork.

HDT Truckinginfo identified vehicles and auto parts as the top commodity moving between the two countries. In 2017, this was worth $104.8bn.

Ms Roberson suspects many trucking firms may feel they have to offer cross-border trucking to their automotive clientele to retain their domestic flows. A number of US trucking firms have expanded their cross-border activities, she noted. Ryder System opened a 109,000 sq ft facility in Laredo last year to handle thousands of cross-border shipments.

For its part, US Xpress management has concluded it can do better in the intra-US market.

“This strategic decision reflects the latest step in the company’s transformation, as we methodically evaluate our capital allocation, improve our operational execution  and target industry-leading profitability,” Mr Fuller said.

Ms Roberson added that it should also help straighten out the company’s balance sheet, which has been weighted with debt.

COMMENTS 0


Leave a Reply