Once you’ve plowed through the entire transcript of the conference call held for analysts to disclose the impending birth of a new trucking behemoth — Knight-Swift Transportation Holdings Inc. — the biggest surprise is that they did not merge sooner.
That is to say, these two companies were made for each other.
That Swift and Knight would now seek to join forces may not have been preordained. But it could not have been a very far-fetched thought for any of the principles, not given their close relationships over the years.
Then consider that the combined power of their respective brain trusts would surely recognize that there is no time like now to merge their operations into a single, massive – albeit double-branded – force to be reckoned with by all comers in the freight market.
“As far as why now, well, the moon and the stars aligned,” Kevin Knight, executive chairman of Knight Transportation, said on the call. “When you do a deal, things really have to come together. And I will tell you, that at every one of our strategy sessions at Knight over the last several years, we've talked about this combination. Some years for five minutes, some years for a half an hour. And we just felt like this past summer that there could be an opportunity. And so we reached out to [Swift Transportation Chairman of the Board] Rich Dozer and talked about it, and it took off from there.”
Knight pointed out that the Knight family has “known [Swift founder and Chairman Emeritus] Jerry Moyes for 50 years, and we worked with him at Swift for over a decade. He trusts us and is fully committed to the ongoing board and leadership team.”
Knight Transportation was founded in 1990 by Knight, his brother Keith, and their cousins Randy and Gary Knight, all of whom had worked for Swift. The family took the company public in 1994.
The merger is a stock swap, which Knight said invests both sets of shareholders fully in what happens next. “The vast majority of the net worth of the Moyes and Knight families will be invested in Knight-Swift,” he noted.
“When we founded Knight,we incorporated the entrepreneurial spirit of Swift and the cost discipline and accountability that we learned from Russ Gerdin at Heartland Express,” said Knight.
He then elaborated, pointing out that “many parts of Knight are similar to Swift, such as our decentralized operation, responsibilities and accountability pushed out to the service center level, our respect for drivers, superior customer service. We believe [we have a] common perspective on key operating principles that will help us find the best practices, and not only find them but implement them.”
Knight conceded that integrating operating networks, customer service, load planning, and driver management is “a big risk,” but said they’re “taking those risks off the table. We won't subject customers to poor service and our drivers to workplace disruption. These key stakeholders will continue to be served by their existing contacts in each company.”
He went on to define trucking, at its core, as “an execution business, where each load matters. Knight has a long history as an industry leader in operating efficiency. We are committed to working with Swift toward the same efficiency Knight has achieved over the years.”
Knight also took pains to emphasize that they’ve been “very deliberate about our description of [the deal as] common ownership rather than [a] merged company.” He said the intention is to “operate the [Swift and Knight] brands separately.”
Accomplishing that may be easier said than done, considering Knight said it would require “managing at the smallest possible business unit with strong accountability, avoiding ‘diseconomies of scale’ that come with size, and minimizing risk of network disruption.” He added that is why there are no plans to downsize facilities or business units.
“Knight-Swift will be an industry leader in many areas, including in profitability,” Knight stated. “Our combined operating ratio will be among the leaders in our industry, even before synergies.” He added that the “expected synergies will be substantial.”
Looking ahead to where the merger that can surely be described as akin to a marriage is headed, Knight got more specific. “Some people would anticipate cutting terminals and consolidating operations,” he remarked. “We don't plan to do this. And let me tell you why. The supply chain is shortening… [and we] will be able to offer customers proximity to every major population center in the U.S. Even relatively short distances can make a difference in the efficiencies of pickups and deliveries and the usage of precious driver hours of service.”
Knight said this vision will appeal to drivers, too. “We want to maintain the convenience for our drivers, many of whom pick their carrier based on the location of their home. These locations will be more and more valuable over the long term as they are positioned optimally for future growth. It would be incredibly difficult and costly to duplicate this combined service center capacity.”
Knight yielded the wire to Knight President and CEO David Jackson, who delved a bit more into why Knight-Swift isn’t planning to shed off bit by bit what it has just brought together. Jackson said the merger will create the single largest truckload operating group in North America, if not in the world.
“Despite being the largest,” he said, “we still represent a very small percent of the industry's market share. Consequently, redundancy in markets served is not an issue. Most of what each company does is substantially similar to one another. We expect to share strengths and promptly address areas in need of improvement. In many ways, the businesses are highly complementary to one another and both are familiar with the types of services each provides, which mitigates risk.”
Building his case, Jackson said that even as each company continues on most, if not all, their respective “revenue paths,” they will do so “while helping one another realize greater efficiencies and improved profitability. Our experience has been that access and transparency with key information can dramatically accelerate improvements, particularly when one is looking to achieve something already achieved by another.”
He advised that Knight-Swift plans “to leverage the freight market knowledge of both organizations. This will help with the strategic consideration for the lanes and loads each company chooses to serve and the degree to which each is willing to commit capacity through contracts and noncontract opportunities. We expect this to lead to market improvement in both companies.”
Jackson closed with this telling observation: “In general, the asset-based carriers are consistently being outspent in technology and innovation investments by the non-asset-based brokers and 3PLs in the space. We believe that accelerated development and implementation of technology will be one of the direct benefits from the consolidation of these two companies. Each company has projects at various stages that can improve visibility for customers, the driver experience, employee efficiency and asset productivity.”
Only time, miles and dollars will tell whether the moon and the stars got this one right.