What does the Knight-Swift merger mean to the trucking economy?

By Tyson Fisher, staff writer

Knight Transportation and Swift Transportation were recently approved for one of the largest trucking mergers, raising an important question: Is the merger indicative of things to come?

The short answer: No.

The medium-sized answer: The merger has nothing to do with rates or excess capacity and has no effect on other trucking companies.

And the long answer? Let’s ask the experts.


Match made in heaven

There has been a lot of chatter ever since Knight Transportation and Swift Transportation merged. Everything from speculation over whether or not companies like Werner will ponder a similar move to analysis regarding tighter control over capacity.

“It’s not a foretelling of future mergers,” said Donald Broughton, managing partner at St. Louis-based Broughton Capital, a firm specializing in transportation analysis and research.

In fact, it may not be indicative of much for anyone outside the two companies, he says.

Knight and Swift have a history that dates back before Knight was even established. Knight was founded in 1990 by brothers Randy and Gary Knight and brothers Kevin and Keith Knight. The two sets of brothers are cousins. Before establishing Knight, the four cousins worked at Swift, with Randy becoming a part-owner after founder Jerry Moyes bought his interest.

The common ground doesn’t end there. Both the Moyes family and Knight family were raised in Plain City, Utah, and later moved to Phoenix where both companies are headquartered. Being from Utah, both families have been recognized as holding Mormon values.

Merging is the only way to grow

The goal of any business owner is to expand his or her business as much as they can. According to Broughton, it is not economically feasible to expand a fleet organically by adding drivers and trucks. So if the Knight-Swift merger is indicative of anything, it’s how difficult it is for a company to grow.

“In the current truckload economy, it’s difficult to grow your fleet,” Broughton told Land Line. “Especially, profitably grow your fleet. In order to pay enough to attract additional drivers and retain enough drivers so they actually grow the fleet, the current rate environment is not strong enough to allow you to be profitable.”

The best way for a company to grow, according to Broughton, is to merge. Knight and Swift wanted to grow, and considering their strong history together and locations, merging was clearly the most logical way to expand. This isn’t necessarily a response to the current economic climate with low rates and high capacity. It’s simply two companies expanding.

What effect will the Knight-Swift merger have on the industry?

Unless you drive for Knight or Swift, not much.

Market Realist, the investment research and analytics company, has written that “excess capacities will likely result in more mergers and acquisitions going forward.” In fact, if you look up articles talking about the merger and the trucking industry, the phrase “excess capacity” will pop up a lot.

More truck capacity than demand is what’s driving prices down right now. With that said, two giant trucking companies merging will change neither capacity nor demand. In other words, the merger won’t affect smaller operations. Only an economic shift can move freight rates one way or the other, according to Broughton.

If anything, any negative effect will be felt by Swift drivers. Broughton predicts a possible change in driver turnover at Swift, and not in a good way.

Broughton explains that large trucking companies that have driver training schools hire student drivers, and companies that hire student drivers have a higher turnover rate. Why? Because driving a truck is not easy. Broughton said that for some, trucking can be a last resort if no local manufacturing, construction or other blue-collar jobs are available. A student driver will inevitably discover that trucking is not exactly a fun-filled road trip and quit.

Furthermore, drivers have a lot of time to think. Broughton theorizes that with Knight taking over management operations, Swift drivers will notice any and all changes, including changes to dispatch, operating systems, etc. Swift drivers may come to the conclusion that this is not the company they signed up for and leave.

Bottom line: The Knight-Swift merger does not change the competitive environment in terms of rates, capacity or incentivizing other companies to merge.

“The way it changes the competitive dynamic is if I were JB Hunt or Schneider or Werner, I’d be actively trying to recruit Swift drivers,” Broughton said.

Economic factors that need to change

If moves like the latest merger will have little to no effect on other trucking companies, what does need to happen for an improvement in freight rates?

Essentially, more shipping relies on more manufacturing, which relies on an increase in consumer income. After all, the higher the consumers’ income the higher the consumer confidence and spending, and therefore more incentive for manufacturers to ship more product.

So what needs to happen economically for owner-operators? According to Broughton:

  • Lower marginal tax rates
  • Lower diesel tax
  • Restructure the National Labor Relations Board

As of press time, President Trump has released an outline of his tax reform plan, but the details are unknown. According to The Wall Street Journal, Trump’s plans proposed a tax rate of 15 percent on owner-operated companies.

As for the diesel tax, that seems more likely to go up rather than down. In fact, Trump has stated that he will consider raising the fuel tax for the first time in more than 20 years as a way to fund the transportation bill. Whereas a reduced diesel tax would cut down on operating costs, if an increased tax is earmarked for highway use only, money can be saved by avoiding more tolls and other fees that hurt truckers more.

Lastly, NLRB and state courts have started to allow truck drivers to be designated as employees rather than independent contractors, which Broughton suggests will help owner-operators. This started under the Obama administration, so a reversal in NLRB trends is entirely possible.

No matter how you slice it, the future of the economic policies will most certainly have to keep truckers in mind. Broughton phrased it beautifully:

“The owner-operator of a truck is one of the quintessential American cowboy entrepreneurs left in the U.S. economy.” LL