News / UPS finally manages to sell freight brokerage arm Coyote Logistics

© Oksana Sazhnieva

UPS has finally managed to offload Coyote Logistics, the burdensome freight brokerage it acquired in 2015, for $1.8bn.

It has agreed to sell the Chicago-based 3PL provider, which works with 100,000 network carriers, managing 10,000 loads a day, to RXO, as it aims to refocus on core business.

Carol Tomé, UPS CEO, said: “As UPS positions itself to become the premium small package provider and logistics partner in the world, the decision to sell Coyote Logistics allows an even greater focus on our core business.”

UPS added: “This decision … frees up resources to build new services and solutions to meet our customers’ future needs.”

Coyote has struggled, along with others in the sector. UPS mentioned in its January earnings call it was holding a strategic review of the Coyote business, with Ms Tomé adding that management had not fully understood the massively cyclical nature of the business.

Freight brokerages have found the going tough recently, Convoy going out of business and Coyote and Uber Freight both making job cuts this year, with margins far lower in brokerage than in the parcel business.

In February last year, Coyote said it was laying off 6.8% of its workforce in “organisational changes that entail the elimination of some positions in response to weakened demand for trucking services, owing to rising interest rates, inflation and consumer spending returning to pre-pandemic patterns”.

And in December, it offered voluntary separation agreements to a number of senior managers and directors in a fourth round of lay-offs last year.

John Manners-Bell, CEO of Transport Intelligence (Ti), commented: “The US truck brokerage market has faced significant excess capacity over the recent few quarters … The cyclical nature of the truckload brokerage industry resulted in earnings volatility which meant Coyote sat uncomfortably alongside contract logistics and freight forwarding in UPS Supply Chain Solutions division.

“UPS has been faced by a ‘freight recession’ in the US, high interest rates and high labour costs driven by union contracts. Divesting Coyote seems to be an effort by management to get back to focussing on UPS core competences.”

The purchase will propel RXO to become the third-largest freight brokerage in North America, with initial projected revenues of $5.5bn. RXO said the purchase would be made with a mixture of equity and debt, and should close by the end of the year.

RXO added that the acquisition reinforced its “key investment highlights”, including: a large addressable market with secular tailwinds; a track record of above-market growth and high profitability; proprietary technology driving productivity, volume and margin expansion, and long-term relationships with blue-chip customers”.

In December, Jared Weisfeld, RXO chief strategy officer, told Loadstar Premium RXO was focused on organic growth, but noted the opportunities in the sector.

“We have so much growth ahead of us; we operate in a $400bn for-hire truckload market where we have less than 1% share. So organic is going to be our number-one path. For the past 5-6 years, 100% of our growth has been organic, over the past decade, almost 90% has been organic and we continue to take market share and do it with best-in-class margins.

“[But] we also will look at M&A opportunistically, as the bar is certainly high from an M&A perspective, given our strong internal return on invested capital. But for something to make sense when looking at mode where we were under-represented, or that classic build-versus-buy decision where ultimately it made a lot of sense to accelerate our growth plans by buying versus building, and it met all our hurdles from a financial, strategic and cultural objective, then we would certainly take a look.”

It appears to have done so.

The sale of Coyote could help rejuvenate UPS’s Supply Chain Solutions (SCS) division. As noted in Loadstar Premium in April:  “US domestic package activities, the group’s chief pillar out of three main divisions, is a lot more significant value-driver for investors than UPS SCS.

“And UPS SCS, after all, currently still carries the freight brokerage Coyote Logistics burden that is on the market… but UPS was silent about it. And Coyote is too small and irrelevant for the analysts to bother.”

The sale comes following UPS’s win of the USPS air cargo business, which will go into the SCS division.

Check out Loadstar Premium’s in-depth analysis of the deal here.