Celadon Group divests its asset-light Logistics division

Celadon Group, Inc. (OTC: CGIP) announced that it sold its freight brokerage and managed transportation business, Celadon Logistics, to TA Services, the asset-light division of PS Logistics on April 16. Two weeks ago, Celadon sold its subsidiary companies A&S Kinard and Buckler Transport to Day & Ross Freight. Financial terms of the deal were not disclosed.

“The sale of Logistics marks another important milestone in executing our strategic plan to simplify our business and reduce debt,” said Celadon CEO Paul Svindland in a statement. “Over the past several quarters, we have divested the former Quality business, the joint venture with Element, our flatbed business, our West Coast dedicated business, A&S/Buckler, and now Logistics. Giving effect to these dispositions, the go-forward Celadon has returned to its roots as an asset-based truckload carrier serving the North American market, with particular focus on the eastern half of the United States and cross-border traffic with Mexico and Canada.”

Celadon has been shedding assets in an attempt to deleverage its balance sheet following the April 2018 revelation that years of previous financial reporting was unreliable. Although it is true that Celadon needs cash to pay down its credit revolver, it is also a great time to sell a brokerage. Last week at the Transportation Intermediaries Association conference, several freight brokers told FreightWaves that last quarter was their best first quarter ever as the spread between contract and spot rates blew out.

Celadon’s decision to “simplify” by selling its asset-light business and focus on truckload goes against the grain of current trends in transportation and logistics. Many truckload carriers – even mid-sized carriers with a few hundred trucks – have been investing in freight brokerage for a number of reasons. Asset-based carriers entered the brokerage business initially in order to offer their customers more capacity and service freight. Now, many carriers have recognized that having a brokerage has other benefits. Hiring brokers is a less capital-intensive way to grow revenue than buying trucks, and a brokerage can be a great counter-cyclical hedge against the asset side, smoothing out earnings.

The deal represents a one-of-a-kind opportunity for PS Logistics. Rarely do trucking carriers sell their asset-based brokerages – because those kinds of logistics operations are tied to a specific fleet with a customer base and a network; they tend not to be as liquid an asset. A freight brokerage built to serve Celadon’s customers and find backhauls for Celadon’s trucks is something of a niche business, not a ‘pure-play’ brokerage that can be easily bolted on to any other third-party logistics provider.

One source with knowledge of the deal said that Celadon Logistics operated relatively independently from the fleet and downplayed the complexity of integrating the two brokerages.

FreightWaves spoke by telephone with Scott Schell, president of PS Logistics.

“It appears that the way they operated pre-close that there was a direct relationship between asset and non-asset services,” Schell said, “and shared clients, but they were also distinct stand-alone businesses, with the asset-based companies on contract freight and the spot business in brokerage. As the two organizations grew, there was a connection between customers and services, but I think they found their own power customers and power lanes.”

Schell said that PS Logistics will continue to grow its asset-light business, TA Services, but declined to specify a “right size” for the brokerage.

“There’s not a number in the drawer that you can run to,” Schell said. “It’s about growing the people, winning the game, rinse and repeat. Look for us to continue to be a material player in the marketplace on all fronts and continue to try to work in a balanced approach.”

Over the next few months the Celadon Logistics acquisition will move over to TA Services’ technology platform, Schell said. Although going forward Celadon Logistics will operate under the TA Services brand, there are no plans to consolidate the two brokerages’ footprint or headcount.

Schell said that the most attractive part of Celadon Logistics was its people.

“They have a solid management team – given the circumstances and environment they’ve been operating in, the business has continued to grow and mature,” Schell said. “It’s a sign of the strength of not only the leadership but the people working there – they’re fighters, passionate, adaptable, and it piqued our interest.”