TFI International bought UPS Freight with plans to make the LTL carrier “lean and mean,” a turn of phrase CEO Alain Bédard likes to use. While the company is implementing that strategy, including recent cuts to salespeople, one thing it needs more of is truck drivers.
As of late July, Montreal-based TFI (NYSE:TFII) was employing 5% fewer Teamsters members — about 10,540 people — in the rebranded TForce Freight than the 11,100 UPS (NYSE:UPS) had as of Dec. 31, according to a recent SEC filing. While TFI and the Teamsters, which represent more than 75% of TForce Freight employees, declined to comment on the drop, sources close to the company and union said drivers had been leaving faster than they’re being hired.
The issue reflects, in part, a larger problem facing the trucking industry: hiring and retaining drivers. But comments made by Bédard to financial analysts in July suggested that the change in ownership compounded the issue.
“We had people retire when we took over,” Bédard said after TFI reported second-quarter financial results. “You know, we had some people say, ‘You know what. This is not UPS. Who are these guys? I don’t want to know who are these guys.’ So they just retired. OK, so we’re going through that now.”
The $800 million UPS Freight acquisition, completed on April 30, represented the most ambitious effort for TFI to date, adding a fleet of 6,300 tractors and nearly 200 facilities. The Canadian company has built itself into a North American trucking and logistics powerhouse by buying up and turning around companies with a mandate for ruthless operational efficiency.
Nothing, though, has approached the scale of UPS Freight.
Lack of drivers holding back volume growth
The lack of drivers hasn’t stopped TFI from improving TForce Freight’s profitability. In just a few months, the Canadian company brought the unit’s operating ratio from 99% — barely profitable — to below 95% by targeting unprofitable freight. However, as Bédard noted, the driver issue is one of the reasons why it doesn’t expect volumes to grow in 2021.
“I think it’s not possible. No. 1 is because, you know, we’re looking for drivers. We’re looking for dockworkers as we speak,” he said.
TFI also has the firepower to spend what it needs to in order to attract and retain drivers. The company generated nearly $300 million in net cash flow during the second quarter. It also is hoping that massive modernization of the aging fleet it acquired from UPS will help keep drivers happy.
TForce offering bonuses, hybrid mileage-hourly pay
TFI also would not comment on what it’s doing to improve recruitment and retention of drivers. TForce Freight does not appear to be chasing the eye-popping mileage rates being offered by other carriers, at least publicly.
Positions being advertised on behalf of TForce Freight on UPS’ website quote mileage rates in line with the minimums laid out in Teamsters contracts, which range from 50 cents to 72 cents per mile for long-haul drivers. TForce is free to go above those rates.
Some of the open over-the-road driver positions offer potentially lucrative packages. One linehaul position in New York was offering $25.50 per hour plus 65 cents per mile, while another in Pennsylvania included a bonus of up to $10,000 in addition to $17.70 per hour plus 50 cents per mile.
Beyond the rates, the unionized driver positions include a slew of benefits, such as vacation — which can eventually hit five weeks — health insurance, 401(k) and a pension. Though what happens to those benefits, particularly the pension, will be a big open question the current contract expires in 2023.
Bédard has on several occasions since the acquisition said that the largely unionized operation isn’t standing in the way of growing TForce’s profits. Meanwhile, the company and the union have a vested interest in ensuring that driver rolls remain filled.
TFI cuts sales staff after CEO bemoans high costs
On the sales side, TFI has been addressing what it sees as the opposite problem. Earlier in September, TForce cut a significant number of salespeople, who aren’t unionized, according to sources close to the company. TFI declined to comment on the cuts.
Bédard expressed displeasure with the costs of the sales side of the business. He told analysts in July that TForce Freight had been spending $350,000 a month on sales.
“I fell off my chair when I learned that — impossible,” he said. “So we are now working with the team to address [it]. This is not normal, guys. I mean, what are we doing?”
TFI’s stock has more than doubled since the UPS Freight deal was announced. Investors will get another glimpse at how the integration of the acquisition is going when the company reports third-quarter financial results, likely in late October.