TFI closes ex-UPS Freight terminals to control costs

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TFI International plans to close four old UPS Freight terminals in December as the Canadian company works to cut costs and optimize its US LTL network, CEO Alain Bédard told financial analysts on Friday.

The terminals are not handling enough shipments to justify their continued operation, Bédard said. They include one location in Chicago and two in West Virginia, while Bédard has not identified the fourth.

The closures represent a small portion of the more than 200 facilities acquired by TFI as part of its $ 800 million acquisition of UPS Freight. But Bedard has signaled that there could be more to come next year.

“We’re not going to run a terminal with 50 bills a day,” he said. “I mean, that doesn’t make sense. It’s too expensive.

Bédard made the comments while discussing TFI (NYSE: TFII) third quarter financial results. The Montreal-based firm had a strong quarter, with earnings up 60% from a year ago.

But the results also highlighted that TFI’s efforts to redo the old UPS Freight operation – now called TForce Freight – will not be quick or easy. The company’s US LTL unit, which comprises the vast majority of the UPS Freight acquisition, saw its operating ratio rise six basis points to 90.7% after reaching a remarkable 90.1% in the previous quarter with large trucking operations that had barely been profitable.

CEO targets 80% operating ratio

Bédard’s long-term vision for TForce Freight is much more ambitious. He wants the US LTL operation to operate at an 80% operating ratio, like its Canadian counterpart. But he told analysts the trip won’t be quick.

“The costs will take us a while,” he said. “We say, ‘Guys, this should be a 90 RO business over the next few quarters.’ This is the first step. The second step is, “Hey guys, this could be an 85 business”. Then it’s more expensive [savings] that’s going to take us from 90 to, say, closer to 80. ”

TFI took that first big leap in improving profitability by targeting low-yield freight by fixing prices or reducing it altogether. As the company continues to seek “freight to suit” TForce Freight, it is now moving forward in trying to contain costs.

The company’s decision to start reducing the size of the network is not surprising. But that could generate a retreat from the Teamsters union, which represents most of TForce Freight’s employees. Over the summer, the union filed a complaint with the National Labor Relations Board in response to TForce’s reduction in top truck speeds to 3 mph – a move that angered many drivers.

Bédard has not said what he intends to do about the drivers and other personnel working in the terminals he intends to close. But given that the company has struggled to recruit drivers and dockworkers, it seems likely that they would be reassigned.

The Teamsters did not immediately respond to a request for comment on the terminal closures.

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