Merging of XPO-Pacer Will Expand the Intermodal Market

Posted : 02/24/14 3:31

Intermodal freight transport, or using multiple methods to move freight, without handling the freight itself, improves security, reduces damage and loss, and results in faster transport of the freight. It also reduces greenhouse gases and reduces transport time. It’s no wonder, then, that the merger of XPO Logistics and Pacer International (the 3rd largest intermodal operator in the US) is an exciting development in the freight world. This $335 million deal is a step in the right direction for the future of truck freight brokerage, encouraging growth in the Northern American markets. Intermodal volumes have been increasing lately, up 7.7% domestically last year. This is rewarding for shippers and truckers alike, because of the resultant cost savings and margin increases. XPO Logistics has been building its intermodal business over the last two years, purchasing ten companies to build its international freight transportation. XPO acquired Pacer International last summer, at the cost of $365 million. Bradley S. Jacobs, XPO Chairman/CEO, stated, “We’re positioning ourselves to be a one-stop, full-service provider. A customer would much rather deal with a single-source provider than several companies. There’s a lot of value in winnowing down your vendor base” With a projected $5 billion in annual revenue by 2017, the Pacer acquisition will help grow XPO as soon as the end of 2014. With less than $20 million coming from intermodal services, Pacer expects the acquisition will help to grow intermodal services domestically. The purchase of Pacer was accomplished with the small and mid-sized shippers in mind, as XPO will sell Pacer’s intermodal services to these customers who don’t typically use intermodal transportation. Using intermodal methods, shippers who are currently using trucks (simply because of their smaller shipments) would significantly benefit by switching to intermodal methods. Since these smaller companies ship over $100 billion in freight every year, even a 5% shift to intermodal would result in $5 billion in freight revenues. The Pacer-XPO deal won’t have as much impact on larger shippers, like the Hub Group and J.B. Hunt Transport Services, according to Justin Long, an analyst at Stephens, a Little Rock, Arkansas-based investment research firm. The larger shippers have recently moved toward purchasing their own containers, resulting in favorable contracts with Class I railroads and a reduction in cost. In recent years, the Hub Group, for example, increased the number of owned containers from 35% to 80%. Intermodal transport just makes sense for everyone involved in transportation domestically.