Summary
The fit between Jevic and Saia never proved profitable or logical. On its own with its present business model, Jevic will quickly dwindle into obscurity and be sold for its properties and equipment.
Saia will expand to the Northeast and become a major player in the Midwest-Northeast Market.
Analysis
The article was a very brave attempt to paint the recent sale of Jevic from SCS Transportation to Sun Capital Partners for $40 million as a liberating event that will breathe life into a moribund business model.
The fact is that the former partnership at SCS between Saia and Jevic was engineered to allow expansion by virtue of the shared territories, terminals and customer base. Normally, the plan would work in the near term. However, Jevic never solicited the higher paying Less than Truckload shipments which was the bread and butter of sister company Saia. Saia targeted shipments of an average weight around 800 pounds that paid $11-$12.00 per hundredweight. Saia could not digest the huge 10,000-25,000 pound shipments which filled up their units and paid an average $7.60 per hundred weight. To add equipment and drivers to assist in the delivery by plan was a losing proposition. The costs associated with any thought of partnership would outweigh the revenue split that Saia would enjoy. Worse yet, the Jevic business would divert drivers and equipment in an environment where there remains a chronic shortage. So, from a Saia perspective, this event liberates them and their profitable Less than Truckload business model to expand into the lucrative North East market where market rates hover in the range of $12-$14.00 per hundredweight. I expect them to be fully entrenched in the North East by January of 07.
Jevic, conversely, will now be isolated and will not be able to enjoy the financial security of belonging to the former SCS conglomerate(A profitable entity). Their published revenue of $7.60 per hundredweight is too low for a less than truckload carrier to survive on. One must remember that the Jevic structure mirrors a less than truckload company structure in many respects:
Drivers are paid at the top rates in the North East($21/hour plus overtime).
Management salaries are at the high end of the range for the North east area.
All costs associated with an entity that owns ten terminals with 2500 employees are at a scale representative of a high cost Less than Truckload company.
Price of fuel does not distinguish between Truckload and less than truckload companies. It simply continues to increase and Jevic's last quarter tonnage is decreasing (down 4.7%) so incremental revenue is declining as well.
True, Jevic does not operate a Break Bulk system but in every aspect of its structure, it resembles a Less than Truckload company. At $7.64 per hundredweight, Jevic will continue to invade the Truckload Market, further driving down rates as it competes with lean Truckload companies that are quite content to settle for half of what Jevic now enjoys as a revenue target.
In summary, my feeling is that Sun purchased Jevic and that the value of equipment and properties make the $40million purchase a logical future dissolution.
