Alliances Offer M&A Alternative

July 1, 1999
Alliances offer an option for companies that want to avoid the financial risks of mergers and acquisitions. Alliances have the potential to significantly

Alliances offer an option for companies that want to avoid the financial risks of mergers and acquisitions. Alliances have the potential to significantly boost tank truck carrier productivity.

The alliances being contemplated in the tank truck industry are very similar to those that have been developed by a number of airlines. They would give the trucking companies a chance to improve network efficiency by matching freight flows and support services, such as tank cleaning.

A big benefit is that an alliance can be established with little, if any, upfront investment. Carriers already have most of the support structure in place. One of the few requirements is a dispatch system to coordinate operations among the partners.

Fred Stephenson, associate professor of distribution at the University of Georgia's Terry College of Business, cautions that alliances must be evaluated just like mergers. It's crucial to ensure that all of the members will provide the same high level of service.

"Weak sisters can't be tolerated," he says. "They will hurt all of the other members of the alliance. Companies interested in participating in an alliance must ask the same questions they would if they were considering a merger."

While several tank truck carrier alliances are under consideration, only one is close to being operational. Five of the top 20 tank truck carriers formed the Alliance of Bulktruck Carriers in late 1998. Members are Trimac Transportation Inc, Groendyke Transport Inc, Manfredi Motor Transit Co, Miller Transporters, and Superior Carriers Inc.

On June 7, The Surface Transportation Board (STB) announced approval of the pooling agreement proposed by the five companies that make up the Alliance of Bulktruck Carriers. They are now free to put the alliance into operation.

STB has the authority to review arrangements in which motor carriers "pool" (share) their services, traffic, or revenues. Under the law, the board can approve a pooling arrangement if it finds that the proposed pool is not of major transportation importance, or if it finds that the proposed pool "will be in the interest of better service to the public or of economy in operation and will not unduly restrain competition."

The pooling agreement was set up to coordinate the applicant carriers' operations to avoid traffic imbalances and empty mileage, and provide for the shared use of cleaning facilities by the pool members.

After public notice was published in the Federal Register, comments in support of the proposed pool were filed by several shipper interests, while opposing comments were filed by three motor carriers that compete with the pool members and by one shipper concerned about its ability to inspect the shared cleaning facilities. The Department of Justice did not oppose approval of the pool.

STB noted that there are at least 144 other motor carriers transporting bulk commodities, and that competing modes of transportation also handle bulk traffic. Therefore, the pool should produce operating economies that will permit smaller bulk carriers to compete with larger bulk carriers. The board also found that the pool should enhance service to the public and economy of operation by eliminating empty movements and reducing operating costs. The board stated that it would retain jurisdiction and would take appropriate action in the future if necessary.

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