We're in for a Wild Ride

All indications are that the US tank truck industry has entered one of the busiest consolidation periods in its history. The current merger frenzy started about two years ago and has involved a number of carriers that are ranked in the top 25 of Modern Bulk Transporter's annual Gross Revenue Report.

We're seeing a steady increase in merger and acquisition announcements. Since the first of the year, Modern Bulk Transporter has published news stories on eight acquisitions or attempted acquisitions. This issue, alone, contains three acquisition news items (see page 8), including a report on Apollo Management's stalled effort to purchase Matlack Inc.

The biggest deal announced this year was Apollo Management's $250 million purchase offer for MTL Inc, parent company of Montgomery Tank Lines. By combining MTL and Matlack, Apollo Management would have created an operation worth about $350 million, with revenues in the $500-million range.

Recently, the biggest deals have involved chemical carriers, but petroleum haulers have been just as active. Dry bulk and edibles haulers have been quietest so far.

A number of factors seem to have prompted the latest consolidation trend. Consultant Martin Labbe suggested at last year's National Tank Truck Carriers annual meeting that acquisitions are the best growth option for many larger tank fleet operators.

Apollo Management has formulated a different strategy. Essentially the Wall Street investment firm is an outsider that is attempting to assemble a tank truck carrier with a significant marketshare in an industry that has been very fragmented up to now.

The top 10 tank truck carriers account for 39% of the revenues reported in this year's Gross Revenue Report, which starts on page 66. The industry is populated by large numbers of medium and small operators.

Whether or not Apollo Management is successful, it would seem that the consolidation direction has been set. Others may be tempted to follow the same game plan, and some companies will be successful.

For the US tank truck industry, this is mostly good news. The merger and acquisition activity is raising company values in a sector where valuations had seemed to lag behind other parts of the trucking industry. This should encourage more owners to give serious consideration to purchase offers in coming months.

As consolidation reduces some of the excess capacity in the industry, rates should begin rising. How much they rise will depend on a number of factors, including the extent of consolidation and strength of the economy.

Some shippers are expressing concern that tank truck industry consolidation could lead to the same sort of problems that have been experienced in the rail sector. That is unlikely. It would take a lot of consolidation to bring the tank truck industry to the same point as the rail industry.

Tank truck carriage does not have the same entry barriers that exist for the railroads. Limits, such as insurance requirements, are in place, but new companies are entering the industry.

All of the merger and acquisition activity suggests that this could be an exciting, if slightly wild, year. We might as well sit back and enjoy the ride.

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