Forward Air’s Schmitt highlights key aspects of acquisition of Omni Logistics

Last week, Greenville, Tenn.-based asset-light freight and logistics services provider Forward Air and Dallas-based Omni Logistics, an asset-light, high-touch logistics and supply chain services provider owned by Ridgemont Equity Partners announced they will join forces, with the companies having entered into a definitive agreement to create a combined company through a cash-and-stock transaction. 

Logistics Management Group News Editor Jeff Berman recently caught up with Forward Air Chairman, President and Chief Executive Officer Tom Schmitt about what this acquisition means for the company, from a service and competitive perspective, as well as other industry topics, including Yellow's recent exit from the market and the 2023 Peak Season. Their conversation follows below. 

LM: What drove the need for Forward to make this deal to acquire Omni Logistics? How long had it been planned or in the works?

Tom Schmitt: I will start with a little bit of context. So, over the last three years, we embarked on a journey that we call “Grow Forward,” which is made up of four different pieces. This [deal] helps us to unlock the fourth and final piece. The first piece is focusing on one thing and one thing only, which is high value freight, which we sometimes call “shipments of consequence.” This is not patio furniture or wicker furniture shipments. These are shipments of, for instance, MRI equipment to hospitals, or all kinds of setups for national tours.

The second piece of that Grow Forward strategy is pricing that type of time-sensitive, low damages very tight time windows shipments appropriately, and making sure we get paid for the value that we provide. So, we put with the processes, the people, and the tools in place for that. The third thing is generating an operating environment that allows us to have what we have today, which is what we validated last year. We have the lowest damages in the industry. We are the fastest on the large lanes, and we hit the tightest time windows, as the best in on-time performance.

The fourth piece is, we believe, there's about $15 billion worth in the U.S. alone in high-value freight shipments of consequence that is not patio furniture. And for that fourth piece we have always dealt with intermediaries in the past, people who sell to make it to shippers, but not to the shippers directly. Two years ago, we started a small direct sales force that actually sold to small-medium-sized businesses (SMB) directly. And we have made some inroads, but we have consistently thought about how can we actually get to more of that $15 billion high-margin prize of that LTL kind of high-quality freight because we only have about $1 billion, or 7% market share, off that $15 billion prize. Yes, we can continue building our small, direct sales force and perhaps make $20 million in revenue one year, the second year, $50 million, $100 million the third year. But it's going to take a long time to get commercially in that in that pocket. In fact, it took us four decades to become operationally the best in the industry. And this is where this deal comes in. We looked left and right. And then we saw a company, Omni Logistics, that is the best in selling high-value freight to shippers.

And that's where it dawned on us, and it dawned on them that we are the best operations, machine handling high-value freight. They are the best commercial machine selling high value freight. If you put the two of them together, you have a powerhouse that should be the lead category leader in North America handling high value freight from the selling process all the way to getting it to peoples’ destinations. And, so, we just being in the industry, saw something here, where you could get those two complimentary halves—operations excellence and commercial engine—together. And they have been a good growing customer of ours. This is why we know that their freight focus is the same as ours. And that's why we know that in watching them and working with them, they're one of our top five largest LTL customers today. So, we know them quite well, and the first-hand experience, in terms of best-in-class operations and best-in-class commercial is not something that we know through somebody else about. We actually have worked with this company firsthand for the last several years.

LM: Given the recent exit of Yellow from the LTL market, coupled with different factors impacting the freight economy, including the ongoing inventory drawdown, inflation, inventory levels, and slower consumer spending, how does Forward view the market, at the moment, in terms of freight flows, or patterns, given that it is mid-August, with the fall peak fast approaching?

Schmitt: The Yellow situation is obviously a big story for the industry, as it represented about 9% of total U.S. LTL capacity. That capacity going out of the system, at least temporarily, is a big deal. So, for me, I feel sorry for the thousands of people who gave a lot for years, in some cases, decades to make that company what it was, and I know some of them personally extremely well, so it's always sad when you see an icon of the industry, no longer being there.

From a more mundane, or practical, perspective, 9% of the capacity going out of the market temporarily does mean you actually have an opportunity for even further enhanced pricing discipline in the industry. When there's less capacity, people tend to be more rational about pricing. That's a good thing. Yeah. The second thing is that whoever used Yellow for those shipments now has to find a different provider. And we obviously competed for that business, too, and we did get some very good long-haul long, long-strong stretch business that Yellow operated for some of its customers, and we also got some events business. Yellow had a very strong events division. So, we may not have been the biggest beneficiary volume-wise, because some of Yellow’s freight profile matches better to some of the class freight companies like ArcBest, Saia, or Old Dominion. But we did see a bump up in late July. We went from being down 2%-to-3% annually for tonnage, to being up 2%-to-3%, from one day to the next on July 31. So, clearly, we did see not just enhanced pricing discipline with Yellow’s departure. We also saw a volume bump going into August.

LM: What are you hearing from your customers, in terms of how things are going year-to-date, given the current state of the freight economy and its many moving parts?

Schmitt: Going into 2023, a lot of forecasts indicated that the first half of 2023 would be sluggish, and then the inventories would be kind of drawn down and depleted by the end of the second quarter. And then the expectation was going into 2023 that then the second half of the year, would be more like regular normal-sized shipments and normal shipment frequencies. That turned out not to be true and was too optimistic. The second half of 2023, I think, so far, is better than the first half, which was sluggish. We're going to continue to expect to see that but in a high interest rate environment with many people obviously having mortgages, as an example, and a somewhat inflationary environment, less so now than it was but still quite a bit, the case, you should expect the second half of this year to continue to be slower than normal and certainly boom times yet. When we run our business, we always focus on let's control what we control. We expect that to be a major tailwind for us. And I do believe the second half of 2023 will still be an economically challenging time and going into 2024, we expect some form of continued pick up so 2024 should be a better year than 2023.

LM: Shifting back to the Omni Logistics deal, once the deal officially closes, what will be the next steps, in terms of integration? Also, how many employees does Omni have?

Schmitt: Omni has around 4,500 employees. We expect the deal to close as we said in the fourth quarter okay, but typically from the announcement to a close, it should be somewhere between 60-to-90 days. Sometime around November 1 sounds like a reasonable target date. Between now and then, both teams can plan for integration. We're still separate companies. We still have to make sure that we honor that that they compete in a normal kind of market terms. But we can plan for the future. So, what do I expect to happen once we are one company? I expect positive things on the revenue side. Omni have 7,000 active accounts. They're all North American companies. And all these companies have LTL truckload into drayage and some of them have final-mile needs. These are our business units that we operate. So, I expect us to go after that business with our current salesforce going forward and feed the beast of our operations in those respective business lines. I expect on the revenue side to see tremendous activity with conversion into business for all of our business lines. Very short-term, Omni does have already $300 million worth of LTL business that they actually operate on behalf of customers today. I expect that we will review how much of that should be operated by what currently is Forward Air’s LTL business line, so we can actually make sure that we turn that business over from whoever is operating it today to Forward Air where we are a good fit. Over the last several years, Omni stood up their own line-haul, meaning when they had enough volume on behalf of their business between major cities, they put up their own trucking network and not used us anymore. So now we have between major cities, both their trucks going back and forth, as well as ours. That probably does not have to be the case. That's duplicative and can be consolidated. So, there's clearly revenue synergies where we utilize that best-in-class sales force to feed the operations that we have. There's clearly overlap between some of the operations that they build up and what we have. So, we should expect in the first quarter or two, a lot of goodness, both on the revenue side and the cost consolidation side.

LM: Given the highly-competitive nature of the LTL sector, what do you think makes Forward Air attractive to shippers, coming out of the Omni deal? In other word, what is the value-add to keep your current customers and also to bring in new ones?

Schmitt: We have a very strong value proposition. We just did not have access to all of the customer base, because we only sold through intermediaries, which is a great group of partners and they will continue to be. But this gives us a chance to do that and to also have quite direct conversations with people who actually make and ship goods themselves. The value proposition is very simple. We are among the fastest on big lanes, on-time performance and low damages claims. So, again, when you ship medical equipment that, in some cases, costs several hundreds of thousands of dollars, or when you ship touring equipment for national tour tours by artists throughout the country, there's a zero propensity and no tolerance for damages or for being late. For those types of value propositions, we now have a chance to get in front of those customers directly and say, “when you have a shipment of consequence where being on time and payment being fast and having absolute best probability for intact shipments, choose Forward Air.” And that's the conversation we can now directly have once we close this transaction and become one with Omni you can that conversation directly with thousands of customers.

LM: Wrapping up, what are your expectations for the 2023 Peak Season? There seems to be a fair amount of sentiment about things being more muted this year and also having a bit of a later bump.

Schmitt: I think that is a perfectly fair expectation for this year, with consumer demand being somewhat still cautious with interest environments still being higher than it has been in years. I think we should still plan for a somewhat muted Peak Season. We obviously will do, as we always do, work with our customers on forecasting so that we already, but I expect that these forecasts will tell us that our customers will expect a more muted Peak Season.