Taking Trash Can Save Canadian Truckers

By: Bubbajunk.com

After the collapse bring to light their dependence on core trucking businesses like cargo an small freight shipping, Canadian truckers diverted into less traditional field such as collecting garbage and delivering packages.

Mid-tier haulers like Mullen Group, Contrans, and TransForce Inc. are considering to widen their portfolio of specialized, niche services for protection against a possible return to pricing pressures.

Jason Granger, an analyst with BMO Capital Markets Canada, forecasting deals in the $5 million to $10 million range, escalating to $50 million in waste management, said "Deal sizes in waste management, for instance, can be all across the map."

Expecting Trans-Force and Contrans to be the foremost gainers from procurements in waste management – from garbage collections to landfills -- is Walter Spracklin, an analyst with RBC Capital Markets.

Trucking is expected to rebound – as the economy picks up – triggering more competition in truckers' core less-than-truckload (LTT) and truckload (TL) businesses. This would, again, put pressure on pricing.

During the collapse, truckers' capacity and costs slumped, hurt by low freight demand and trucking overcapacity. This even pushed giants like YRC World wide to the wall.

Other non-traditional acquisition targets that could bolster truckers' profits over the next year are package and courier and oilfield services.

Other than the dominating Deutsche Post's DHL and U.S.-based UPS and FedEx Corp., TransForce is the only eminent Canadian player in a package and courier delivery business.

Granger of BMO Capital reveals, "Given that DHL has scaled down its operations in the U.S., there may be an opportunity for TransForce's package and courier business to partner DHL in Canada."

According to TransForce CEO Alain Bedard, a major chunk of next year's $60 million capex budget would be poured in the package and specialized services division.

As activity picks up in the Canadian oilsands during winter, both Mullen and TransForce – two trucking companies that posted better-than-expected gains last week – will be looking at deals in energy services.

In 2004, Mullen's enterprise – which includes cleaning the tailings ponds around mines – is responsible for only $10 million in profits, but has increased 10-fold and could grow bigger even faster through acquisitions.

Dana Benner, an analyst with Stifel Nicolaus & Co., explains "Given all the focus on water management around the oilsands, the dewatering business looks to be a terrific strategic move for Mullen."

Truckers are focusing its attention on distressed assets. They follow TransForce's lead in its July's $32 million purchase of assets of Enquest Energy Services. The acquisition is meant to bolster the company's oilfield services division.

Spracklin explained that it is better to buy today while they are cheap, rather than waiting for the recovery to kick in, which will definitely escalate the prices.