A Good Ending

It's important to cut ties with what's not working to focus on what is

“We gotta make a change
It's time for us as a people to start makin' some changes
Let's change the way we eat
Let's change the way we live
And let's change the way we treat each other
You see, the old way wasn't workin'
So it's on us to do what we gotta do to survive.” - Tupac

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There’s a saying, “all good things must come to an end.” Have heard it a thousand times. But when someone said it the other day, it made me think of the opposite AND how the flip side is more in our control, as individuals and as businesses.

All bad things must come to an end! 

Why wait for rock bottom? Why throw energy and resources down the drain, if you don’t have to? This applies everywhere - from health to relationships to the corporate world.  There is what you should do…and what you shouldn’t do. It’s usually easier to know what you shouldn’t do.

If your habits are not what you want, stop them.  Yes - easier said than done. If the people you hang out with don’t make you better, find some new friends. If the business results from a new segment or product are not positive, rethink the investment in that area.

In fact, you probably know there’s at least one thing you’re doing now that you shouldn’t, where you know your life would be better if you stopped.  Or, if you’re a CEO, where you know your company would be better off tomorrow, if it stopped doing this one thing.

On a personal level, I recently canceled NetFlix. And it wasn’t to save $10/mth or whatever they’re charging now, it was to reclaim time, energy, and focus. It was costing me way more than $10/mth in productivity. But eliminating one thing is not the end but rather the beginning of a process. Especially the older you get, as an individual or a company, you’re likely to be involved in more things and have a lot of demands for your time and attention. It is important to take a status check and try to enlarge the slices of the pie where there’s the best return (by eliminating those slices that rank lowest on returns).

But if something’s not going the way you want or hoped it would, how do you know if you’re just giving up early (and the payoff is right around the corner) or quitting at the right time (payoff will never come)? For example, launching a new product or service. How long do you market and try to sell it before you give up? This gets into figuring out what’s a probable dead-end vs. what Seth Godin simply calls The Dip. The Dip is the period of work you must slog through to get to the payoff on the other side of something difficult but worthwhile; however, not everything has a payoff on the other side. For many things, it is just more expensive, more frustrating, and more draining.

So, how do you know? You may never know 100%, but focus and think about it - does it really make sense? How does your experience map to your expectations? Is it sucking away energy and/or money away from something more productive?

Via negativa. This is a concept I first read about from Nassim Taleb in Anti-Fragile. Basically, it says that when looking to get better at or improve something, first look at what can be taken away to get there before adding anything. “All bad things must come to an end.” I immediately thought about it in terms of health. Instead of adding another vitamin, bar, or superfood powder, just cut out dessert. That’s via negativa.

So is fasting. Interestingly, intermittent fasting (eating less often, and often less) boosts your health more than adding meals or food/food products. (See this podcast with Dhru Purohit/Cynthia Thurlow, if you want to dive deeper). It also tends to save money! How can not doing something give you more energy? Everyone thinks they need more of something - another Red Bull, coffee, snack, protein bar, etc to give them energy. In reality, less is more. And quality matters. All that other junk just gets in the way and drains energy. If your body knows it must go stretches of time without food, then it has to use fuel much more efficiently (which gets into metabolic flexibility). People can still work out in a fasted state and most are more mentally astute during a fast.

Similarly, it applies to companies and organizations. Less can be more. Focus on fewer things done well, and results improve. In fact, I spoke about the importance of organizational focus earlier this year in this podcast interview.

Below, we look at some specific examples over the years of when transportation & logistics companies either 1) had enough and were essentially forced to exit, or 2) proactively cut segments, products, or services that weren’t working to focus on what gave them the biggest bang for the buck. In either case, it was a good move. Just better when you realize it sooner than later.

Bad things ending (for good reason) in transportation & logistics

A lot of these examples are simply management teams choosing to end prior “growth” strategies (often of their predecessors) after realizing the payoff is not there. Some do it quicker than others. The fastest I can recall was Old Dominion Freight Line reversing course (>15 years ago) when it tried to get into the deferred airfreight business to compete with Forward Air and pulled back out within a couple months after realizing it was not going to work.

“Persistent people are able to visualize the idea of light at the end of the tunnel when others can’t see it. At the same time, the smartest people are realistic about not imagining light when there isn’t any.” - Seth Godin

Ryder in the ‘90s To become more focused and more intentional, throughout the 1990s, Ryder got out of its “non-core” business segments. By dropping its school bus business, one-way consumer rental (yellow trucks) business, and aircraft engine services business, it was able to focus on and improve what it still is today - a B2B commercial truck leasing and logistics business.

Sale of UPS Freight (2021) Last year, UPS announced it was getting out of LTL by selling UPS Freight (formerly Overnite) to TFI International. When Carol Tome joined as CEO in 2020, she had said there would be increased focus (see below quote from her first earnings call with investors). As a result, low-margin UPS Freight was let go.

“…like any company who’s 113 years old, we’ve overengineered much of what we’ve done. And I’ll give you an example of that. Depending on how you define products, we have between 400 and 500 products. We kicked off a task force to say, really, are we selling all of those products? Because when you think about it, if you have between 400 and 500 products, you have to build systems and technology to support those products, you have to have accountants to account for those products. You have to have auditors who audit those products. And then you have to have salespeople who sell those products. As we looked at it, and it’s very early days, we found that last year, there were over 100 of those products that we didn’t even sell. So we’re going to rationalize our product offering to make it simpler for our customers and reduce expense here.”

- Carol Tome, 2Q20 UPS earnings call

You read that right - 400-500 products at UPS and over 100 that weren’t even sold - wow! Becoming a better UPS meant becoming a more focused UPS, and ultimately, LTL did not make the cut. UPS bought Overnite in 2005 as a “me, too” acquisition, in my view, upon seeing the success of FedEx Freight (a combo of the former Viking + American Freightways). But the company was never really serious about or able to make it very profitable, typically operating at below-average margins for an LTL. So, while some say TFI got “a steal” - and they did - it really didn’t matter, because UPS couldn’t do anything material with it in 16 years and was unlikely to make it a priority (as it represented <2% of the business). The important thing was to let it go and focus on higher-return and core segments.

Forward Air selling its pool distribution business (2021) When companies make money, they sometimes do things they shouldn’t. When you generate significant free cash flow, basic options are a) pay it back to the shareholders (via buybacks or dividends), b) reinvest in the core business, or c) buy something. The reason the company couldn’t make the (usually) easy decision to simply reinvest in the core business, though, was that it operated in a niche market where, by the early 2000s, it already had a dominant position. Buybacks and dividends aren’t always as exciting (especially to a public company) as “growth”, so M&A became the preferred use of cash for a period of time. The company’s biggest problem we used to say was “the Forward Air dilemma” in that its core airport-to-airport deferred airfreight linehaul business was so good that it was hard to find anything to buy that was not dilutive to margins and returns. But in search of growth, they entered the pool distribution business (which has nothing to do with swimming pools and pool supplies) via acquisition. Even though it was technically “asset-light” via its use of independent contractors for delivery, the model was highly seasonal (retail-focused), and density was primarily one-way (often returning empty after making deliveries). Attempts at diversifying the customer base away from retail to “smooth out the quarters” and to increase density had little success, so after more than a decade of poor performance, Forward Air finally sold this business. Like Carol, Forward Air’s CEO Tom Schmitt would like to focus where the returns are.

Schneider exits last mile business (2019) With the explosion of e-commerce and focus on B2C freight movements, last mile (aka final mile) was seen as a potential growth area for many trucking companies, and truckload-giant Schneider made a big push in this direction with its own assets. After years of trying, however, management concluded that the juice wasn’t worth the squeeze. Industry pricing still was not at the level where they could justify the investment in their trucking assets for this service. So, on its 2Q19 earnings call in August 2019, Schneider’s management team announced it was shutting down its “First to Final Mile” segment. Since then, CEO Mark Rourke and the team have been investing more heavily in the asset-light logistics side of the business and focusing its trucking assets on its core one-way and dedicated truckload products.

DHL cut US domestic package operation (2009) After losing >$1bn/year, DP DHL finally decided in late 2008 to “pull the plug” and exit its U.S. domestic package operations in January 2009. The DHL acquisition of Airborne in 2003 was an attempt to be a true 3rd player in the large and growing U.S. parcel market, but the acquisition ended up costing them ~$10bn. It didn’t start out all that bad, but the disruptive integration of OH hubs in 2005 dropped service to a level that was so poor that DHL was never again viewed as a real alternative to FedEx or UPS. As a result, they lost significant volume and pricing power - a deadly combo in a network-based business. And then after a few years of losses, management made the correct decision to cut their losses and focus back on DHL’s strength - international express parcel. This was good for the company’s cash flows, Ken Allen’s sanity, Express margins, and ultimately the stock price.

Railroads shedding trucking assets (‘90s-’00s) This happens at the broad industry level as well. After deregulation and years of market share losses to the road, rails made a big splash in trucking M&A in the ‘80s. Then they reversed course (e.g., Union Pacific spinning out Overnite in 2003 via IPO), when it never really worked for them, and they needed to refocus on core railroad operations. Which begs the question, as container line profitability falls/normalizes, “will we see steamship lines at some point unwind recent purchases in the air cargo and domestic logistics space?” Most likely. 

Lastly, “all bad things must come to an end” has been a primary focus in the turnaround of Roadrunner. For background, in the ‘80s, Roadrunner was a long-haul LTL carrier in select markets from the West Coast to the Midwest. Then in the early 2000s, private equity got involved and combined Roadrunner with competitors Dawes and Bullet, in addition to acquiring some logistics services. After the 2010 IPO, the M&A spree really began, but in an undisciplined and unfocused manner. This also left the LTL business (which was 65% of the business at the time of the IPO) on the backburner, and service suffered. There was too much going on in too many areas, and the company eventually was forced to change to survive. The past few years at Roadrunner has been an exercise in via negativa and focus. After shutting down, selling off, or spinning out everything that was not LTL (2018-2020), the company has concentrated squarely on its core LTL product (2020-present). Roadrunner stands today as a healthy LTL carrier with a more defined and focused network, and the service has never been better. This could not have been done with all the prior distractions. Ending what wasn’t core (i.e., exiting all the other businesses) and what wasn’t working (e.g., eliminating rail in the linehaul network and eliminating one-way lanes) was the only way to achieve such significant improvements.

So, what’s NOT a good ending?

SmartPost. FedEx never should have ended its SmartPost product that included its last-mile delivery relationship with USPS. It was working. It was a win/win. Not sure how FedEx planned to do it for less, since the USPS has such a residential delivery density advantage. Bad math? Just didn’t understand that one. Check the financial results - hasn’t looked like a good ending to me. Should be an interesting earnings call coming up Dec 20th, too. What does FedEx need to end now to right the ship?

The series finale of Seinfeld. Not a good ending. Ironically, Seinfeld is an example of “all good things must come to an end.” But they shouldn’t have to end on a low note. Newman…

In short, to get to a “good ending” for a company - a better stock price, higher margins, competitive advantage - it is important to proactively end things that aren’t working as soon as possible. There’s always a healthy search for growth and experimentation with new products and services, but when you realize it’s not going anywhere and unlikely to get much better, get out and get out fast.

“This is the end, beautiful friend
This is the end, my only friend
The end.” - The Doors

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In Case You Missed It

• Beyond Logistics post #1 re: Trucking 101 —> here

• Beyond Logistics post #2 re: Life —> here

• Beyond Logistics post #3 re: Pricing —> here

• Beyond Logistics post #4 re: Communication —> here

• Beyond Logistics post #5 re: Technology —> here

• Beyond Logistics post #6 re: 3PL trends —> here

• Beyond Logistics post #7 re: Comedy —> here

• Beyond Logistics post #8 “Thanksgiving edition” —> here

About the author: Dave Ross currently serves as Chief Strategy Officer at Ascent and EVP at Roadrunner. Prior to his current roles, he was Managing Director and Group Head of Stifel’s Transportation & Logistics Equity Research practice, where he spent over 20 years writing about logistics and stocks. Based in Miami, FL, he’s also an investor, artist, proud dog dad, and serves on a few select non-profit boards (in support of Africa, Animals, and Art).

** All opinions in this piece are solely those of the author and not intended to represent those of Ascent Global Logistics or Roadrunner or other affiliated entities.

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