Is Selling Coyote Logistics in UPS's Best Interest?
United Parcel Service (UPS) announced it is exploring the potential sale or other strategic alternatives for its brokerage unit, Coyote Logistics. On a Tuesday earnings call, Chief Executive Carol Tomé stated that the unit, which connects loads with available trucks, is highly vulnerable to trucking market swings and negatively impacts UPS's earnings. During the first two years of the COVID-19 pandemic, freight brokerage activity skyrocketed as demand for space in trailers exceeded supply, forcing many shippers to rely on trucking's volatile spot market.
However, brokerages have been struggling since 2022 due to a prolonged slump in freight volumes. According to the monthly Cass Freight Index from Cass Information Systems, freight rates across U.S. domestic trucking and rail networks decreased by 17.7% in December 2023 compared to the same period in the previous year. The revenue of UPS's supply chain solutions business unit, which includes Coyote, decreased by more than $3 billion, or almost 20%, in 2023 compared to the previous year.
Although the company does not disclose Coyote's financial data, Tomé stated that the brokerage unit accounted for 38% of the unit's decline for the year and 48% of the unit's decline in the fourth quarter. In light of these challenges, Tomé said, "Can we think about an alternative that continues to allow us to provide the service without all the overhead, or perhaps this is worth more to someone else than it is to us." According to transportation industry consultancy SJ Consulting Group, Coyote Logistics was the tenth-largest freight broker in the U.S. by revenue in 2022.
UPS acquired Coyote in 2015 for $1.8 billion. Coyote was an industry leader in using technology to fill trucks after they dropped off a load, reducing waste and improving efficiency. UPS purchased the company to boost its earnings and improve navigation of the peak holiday shipping season.
Coyote earned just over $2 billion in revenue in 2015. Tomé said that revenue peaked at more than $4 billion during the pandemic, only to plummet when freight volumes slumped last year. Evan Armstrong, the CEO of research group Armstrong & Associates, cautioned against comparing 2023 revenue with the previous year or two because of the record freight volumes resulting from consumer spending on goods during the Covid pandemic.
"In the long term, freight brokerage has been a very good sector," Armstrong said. "The growth has been higher than other segments, so if you give it a chance, it will probably bear fruit."
By Paul Berger
Jan. 30, 2024 3:10 pm ET