Ready to Roll: The Knight-Swift Transportation Merger

Categories : | Identify Suppliers | Set Strategy Published on : Apr 13 2017

By: ProcurementIQ Analyst, Ashley Cruz

Swift Transportation and Knight Transportation agreed on Monday to a merger deal that is set to become the biggest acquisition in US trucking history. The newly- formed Knight-Swift Transportation will have a combined annual revenue of $5.1 billion, making it the largest non-logistics trucking company in the United States. ProcurementIQ expects the merger to be completed by the third quarter of 2017.

Typically, the Federal Trade Commission needs to approve all mergers to enforce antitrust laws by ensuring that any consolidation activity does not unfairly burden competition within a market. However, because the trucking industry is highly fragmented and the merger between Swift and Knight will not greatly affect market concentration, approval is unnecessary. In fact, ProcurementIQ estimates that currently, both companies each control less than 5% of revenue in most of the trucking markets in which they operate, including national trucking serviceslocal freight trucking services and refrigerated trucking services. Still, in 2016, Transportation Topics News ranked Swift and Knight as the sixth and twenty-ninth largest for-hire trucking companies, respectively. Once combined, only the four largest door-to-door carriers and logistics companies (UPS, FedEx, XPO Logistics and J.B. Hunt Transportation) will outrank Knight-Swift in terms of revenue.

Diesel Fuel Benchmark Price GraphAlthough the merger will not be enough to significantly boost concentration within the trucking services industry (or any specific trucking markets, for that matter), it may negatively impact negotiation power for the largest truck transportation buyers. For example, ProcurementIQ estimates that, despite significant fragmentation, large trucking companies are able to maintain some pricing power in the national trucking services market because of their ability to secure contracts with the largest buyers, including major manufacturers and retailers. Buyers with extensive or ongoing shipping requirements do not have the ability to source services from owner-operators, which dominate the market at an estimated 91% of the estimated 380,000 providers. Moreover, ProcurementIQ estimates that only about 350 long-distance trucking companies employ more than 500 people, which is essentially the minimum number of employees required to maintain an extensive transportation network. Because Knight-Swift Transportation is expected to employ more than 26,000 people, high-volume shippers will face a more concentrated selection of carriers. Furthermore, this merger will weaken competition, and thus, buyers’ ability to negotiate on price.

The two trucking companies are expected to continue operating separately, although under the umbrella of holding company Knight-Swift Transportation. Still, the companies’ executives tout the economies of scale and higher efficiencies that can be achieved through this merger. Ultimately, as diesel fuel prices return to strong growth during the next three years, Knight-Swift’s cost efficiencies will enable them to remain competitive and outperform other trucking companies.

More from Procurement Insider

  • Articles & Insights

Suppliers Need Water and Care

  • Identify Suppliers , Negotiate, Reduce Risk , Vendor Relationship Management, Supplier Relationship Management, Vendor Consolidation
  • Best Practices & Case Studies

Time to Implement a Supplier Diversity Program

  • Identify Suppliers , Implement & Measure, Set Strategy , Supplier Relationship Management, Supplier Diversity, Supplier Optimization
  • Best Practices & Case Studies

Has Your Organization Set Up a Supplier Development Program?

  • Identify Suppliers , Supplier Relationship Management, Supplier Optimization, Vendor Consolidation
  • Best Practices & Case Studies

4 Best Practices for Using Market Intelligence in the Sourcing Process

  • Identify Suppliers , Conduct RFP Strategy, Negotiate , Market Intelligence, Market Research, Category Management