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By: IBISWorld 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. IBISWorld 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, IBISWorld 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 services, local 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.
Although 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, IBISWorld 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, IBISWorld 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.