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TFI to close ex-UPS Freight terminals to rein in costs

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  • TFI to close ex-UPS Freight terminals to rein in costs

    Company shutting down 4 facilities as it looks to ramp up profitability at US LTL operation

    Company shutting down 4 facilities as it looks to ramp up profitability at US LTL operation

    TFI International plans to close four former UPS Freight terminals in December as the Canadian company works to bring down costs and optimize its U.S. LTL network, CEO Alain Bédard told financial analysts on Friday. The terminals don’t handle enough shipments to justify their continued operation, Bédard said. They include one location in Chicago and two in West Virginia, while Bédard didn’t identify the fourth.

    The closures account for a small portion of the over 200 facilities TFI acquired as part of its $800 million acquisition of UPS Freight. But Bédard signaled there could be more to come next year. “We’re not gonna run a terminal with 50 bills a day,” he said. “I mean, this doesn’t make any sense. It’s way too expensive.” Bédard made the comments while discussing TFI’s (NYSE:TFII) third-quarter financial results. The Montreal-based firm reported a strong quarter, with profits growing by 60% versus a year ago.

    But the results also highlighted that TFI’s effort to remake the legacy UPS Freight operation — now called TForce Freight — won’t be quick or easy. The company’s U.S. LTL unit, which includes the vast majority of the UPS Freight acquisition, saw its operating ratio creep up by six basis points to 90.7% after achieving a remarkable 90.1% in the previous quarter with large trucking operations that had been barely profitable.

    CEO looks toward 80% operating ratio

    Bédard’s vision for TForce Freight in the long term is far more ambitious. He wants the U.S. LTL operation to run at 80% operating ratio, like its Canadian counterpart. But he told analysts that the journey won’t be a quick one. “Costs will take us some time,” he said. “We’re saying, ‘Guys, this should be a 90 OR company within the next few quarters.’ That’s step one. Step two is, ‘Hey guys, this could be an 85 company.’ Then it’s more cost [savings] that’s going to bring us down from a 90 to, let’s say, closer to 80.”

    TFI made that first big leap in improved profitability by targeting low-yield freight through pricing or cutting it altogether. While the company is continuing to pursue “freight that fits” for TForce Freight, it is now moving forward on trying to rein in costs.

    The company’s move to start scaling back the size of the network isn’t surprising. But it could generate pushback 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 cutting the maximum speed of trucks by 3 mph – a move that angered many drivers. Bédard didn’t say what it plans to do about the drivers and other personnel working at the terminals it plans to close. But considering that the company has faced struggles in recruiting drivers and dockworkers, it seems likely they’d be reassigned.

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