FedEx Freight

FedEx Freight was the Less-Than-Truckload (LTL) shipping division of the global logistics giant, FedEx Corporation. Think of LTL as the carpooling of the shipping world. Instead of paying for a whole truck (known as Full Truckload or FTL), businesses can share space in a single trailer for their smaller shipments, like a few pallets of goods. FedEx Freight operated a vast network of trucks and service centers, making it one of the largest LTL carriers in the United States. It was a heavyweight in moving the goods that power the economy, from machine parts to retail inventory. However, if you're looking for FedEx Freight on the stock market today, you'll be on a wild goose chase. In a major strategic shift, FedEx sold this entire division to the Canadian logistics company TFI International in 2021. The business now operates under a new name: TForce Freight. This sale was a significant event in the logistics industry and offers some fantastic lessons for investors about corporate strategy and business valuation.

The LTL industry isn't one you can just start from your garage. It's a complex and costly operation that creates a strong Economic Moat for established players.

• Hub and Spoke Network: LTL carriers operate like airlines. A truck picks up freight from multiple customers in a local area (the “spokes”) and takes it to a central terminal (the “hub”). At the hub, shipments are sorted and consolidated onto other trucks heading to different destination hubs, where they are then sent out for final delivery. This system requires a massive investment in real estate (terminals) and equipment.
• Capital Intensity: This business is incredibly Capital Intensive. It requires a huge fleet of trucks and trailers, a nationwide network of service centers, and sophisticated technology to manage the logistics. This high cost of entry keeps new competitors at bay.
• The Magic Number: Operating Ratio: A key metric for judging an LTL carrier's health is the Operating Ratio (OR). It's calculated as:

Operating Expenses / Revenue

  A lower OR is better, as it shows the company is keeping its costs in check relative to the money it's bringing in. An OR of 85% means that for every dollar of revenue, the company spends 85 cents on operations, leaving 15 cents as operating profit. World-class LTL operators, like [[Old Dominion Freight Line]], consistently run with impressively low ORs.

On the surface, selling a multi-billion-dollar business seems crazy. But for FedEx, it was a calculated move to streamline its operations and focus on what it does best.

1. Focus on the Core: FedEx's crown jewels are its Express (air) and Ground (parcel) services, which have powerful synergies with the booming e-commerce market. The LTL business, while large, was less profitable and had fewer operational overlaps with the core parcel network.
2. Lower Margins and Higher Capital Needs: FedEx Freight was more capital-intensive and had a higher Operating Ratio (meaning lower profitability) than its sister divisions and top-tier LTL competitors. By selling it, FedEx freed up capital to invest in its higher-margin businesses.
3. TFI's Big Opportunity: For TFI International, the acquisition was a golden opportunity to instantly become a major player in the U.S. LTL market, acquiring a massive network and customer base in one fell swoop.

The story of FedEx Freight is more than just corporate trivia; it’s a masterclass in business analysis for the savvy value investor.

If you're looking to invest in LTL carriers like XPO Logistics, Old Dominion, or the new TForce Freight (under TFI International), here's what to keep in mind:

• A Cyclical Beast: The LTL industry is a Cyclical Industry. Its fortunes are tied directly to the health of the economy. When GDP and manufacturing are up, businesses ship more stuff, and these companies thrive. When the economy slumps, so does their revenue.
• Pricing Power is Key: In an industry with only a few major players (an oligopoly), the ability to raise prices without losing customers is crucial. Look for companies with disciplined pricing strategies.
• Labor Relations: Many LTL carriers have a significant portion of their workforce in a union. Unionization can lead to higher labor costs and less operational flexibility, so it's an important factor to analyze when comparing companies.

1. Look for Corporate Focus: FedEx's decision shows that sometimes, addition by subtraction is a winning strategy. A company that sheds a non-core, lower-return asset to focus on its high-return core business is often making a smart move for shareholders. Always ask: where does this company really make its money?
2. Follow the Capital: Value investors should be obsessed with how companies spend their money. The sale of the capital-hungry FedEx Freight division was a deliberate act of capital allocation. Always analyze a company's Return on Invested Capital (ROIC) to see if it's creating or destroying value.
3. Track the Asset, Not the Ticker: The business called FedEx Freight didn't vanish—it just changed owners and names. This is a crucial reminder that you are investing in a real-world operating business, not just a stock ticker. Understanding what you own is the bedrock of value investing.