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Comment by tgtweak | Hacker News Reader

I think it's closer to the "shed dead weight" theory of any common sense business.

TFI is a machine in this space and has acquired double-digit numbers of regional trucking services over the last 5 years. They own enough of them that there is government-level scrutiny when they acquire a new trucking company to ensure they don't have more than 50% of the business in a given region.

LTL trucking is a capitally intensive and margin-thin game, if UPS is getting a decade worth of profits of that unit from this deal, which they can allocate elsewhere to better effect, then by all means. Don't dismiss the organizational overhead of running such an entire division, even at the executive level.

>UPS Freight generated approximately US$3 billion in revenue in 2020 and was approximately breakeven from an operating income perspective.

https://tfiintl.com/en/press_releases/tfi-international-to-a...

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>UPS Freight generated approximately US$3 billion in revenue in 2020 and was approximately breakeven from an operating income perspective.

800mm for that kind of business seems like a very very good deal for UPS then!

It looks like the value of this business unit has dropped though, UPS acquired their LTL operation for $1.2 billion in 2005. Maybe they just about broke even with the operating profit?

They essentially operated it at cost with themselves as the main client.

As is often the case with internal business units operating as cost centers and not forced to be externally competitive, they attrition over time and become less attractive vs external alternatives which competed and improved over the same time.

I suspect this is the case here and after 15 years they calculated it would be more efficient to have it run externally. UPS already uses TFI for a lot of these needs and the deal sees them continue to do so for the next 5 years.

It's not uncommon for businesses who own their building to sell the building to a real estate company and lease it from them when they can better allocate that capital for growth.

It is. And the business will be wound down and the excess business integrated into current capacity by the purchaser. Kind of a win/win in that way.

It may have been a good deal to the buyer as well. Assuming UPS put little effort into making it profitable (likely), there's little risk and lots of potential upside in 3B/year breakeven.

If it's dead weight, why is someone buying it?

Selling is different from shuttering.

Efficiency.

Consider a semi truck as a server. Belonging to UPS it's a dedicated server - when UPS doesn't need it, it's idling for the most part. When it belongs to TFI it's offered as a VPS. If it's sitting in a parking lot because UPS doesn't have a need for it and can't rent it to someone else, it's a quarter million dollar lawn ornament.

If TFI can instead, through increased client demand and smarter routing/logistics management ensure that the fleet is moving and making money 85% of the time vs UPSs 60%, that 40% improvement is mostly margin. Throw in economy of scale for things like fleet maintenance, financing, fuel and workforce/driver management and you drive operating costs down on the same fleet doing the same work.

Add that up and of TFI can service UPSs demand for less + add their own on top as extra margin, they just created value.

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