While it’s not leaving the Mexican market, U.S. Xpress announced it plans to exit its cross-border investment as part of its continuing program to improve its margins.
The Chattanooga, Tennessee-based carrier will execute the plan in stages over the next several months as part of its ongoing capital allocation and profit improvement initiatives. When fully implemented, it’s expected to reduce current and planned invested capital by approximately $40 million and improve its operating margin.
U.S. Xpress said it will continue to offer customers access to cross-border service through a “variable cost alternative” through relationships with its former partners south of the border.
After evaluating the company’s investments in its cross-border operations, including investments south of the border, in Laredo, Texas, and in U.S. assets and personnel, management “concluded that these operations required a comparatively high level of fixed investment per unit of revenue and created lane inefficiency in the U.S., because serving freight to and from the border did not maximize revenue per mile or meet our other network planning priorities,” said Eric Fuller, President and CEO, in a press release.
During 2018, the combined Mexico and allocated U.S. operations failed to keep pace with improvements in the company's U.S. OTR and dedicated truckload operations., he noted. “As a result, the decision to exit this operation was identified as a relatively high return, simple execution initiative.”
The company already has sold its investment in the Mexican entity, a 95% equity ownership of Xpress Internacional S.A de C.V., to the existing managers for an estimated $4.5 million in cash and an additional $8.5 million in cash to be received over 8.5 years. In addition, over the next few months, U.S. Xpress will close and sell its Laredo terminal, dispose of about 700 dry van trailers allocated toward the Mexico business, and reposition some 300 domestic tractors.
U.S. Xpress says its fourth-quarter earnings will be affected. In connection with this plan, as well as the disposition of its remaining 10% equity investment in a former subsidiary, it expects to record an approximate $12.3 million non-cash, pre-tax loss on equity investments for the fourth quarter of 2018. The company expects to repay debt with the cash proceeds generated from the exit.