EUR 850.00 For Business Accounts Only

Morningstar | Knight-Swift’s Pricing Backdrop Will Moderate in 2019, but Progress at Swift Continues

Before its September 2017 merger with Swift Transportation, Knight Transportation was the 12th-largest asset-based full-truckload carrier in the United States, with a history of exceptional operational performance, including average ROICs in the low-teens over the past decade--an unusual accomplishment in trucking. Knight's long-standing laser focus on network efficiency has served it well given the asset-intensive nature of the business. Its legacy operating ratio (expenses/revenue, excluding fuel surcharges) averaged 84.5% over the past decade, versus an industry average that comfortably exceeds 90%.Within its legacy dry van truckload unit, Knight has long emphasized short- to medium-haul shipments (length of haul near 500 miles) and high-density lanes near its existing service centers. Regional freight is an attractive niche because shipments face less competition from intermodal and are seeing growth as shippers locate distribution centers closer to end customers. Shorter hauls also offer drivers a higher quality of life (less time away from home), thus enhancing retention--a critical factor given the severely constrained driver pool.In September 2017, Knight Transportation and Swift Transportation merged and both operations continue to operate separately. Following the transaction, former Swift shareholders own 54% of Knight-Swift, and former Knight shareholders control 46%. Knight-Swift is now the the largest asset-based truckload carrier in the industry. Overall, we believe the merger structure was a positive development for previous shareholders of both companies because of meaningful cost and revenue synergy opportunities--most of which we consider within reach (for the dry-van truckload operations at least). Our confidence in the merger's success stems from the 2018 resurgence of industry pricing conditions (tight capacity due to widespread electronic logging device adoption) and the likelihood that Knight will apply its best-in-class operating know-how to Swift’s truckload network. We also expect cross-selling of Knight’s prospering asset-light truck-brokerage services to Swift accounts and Swift’s intermodal services to Knight customers.