While fellow truckload carrier J.B. Hunt (NASDAQ: JBHT) has been expanding its last-mile delivery business, Schneider National (NYSE: SNDR) is going in the opposite direction. The company announced on August 1, 2019, that it is shutting down its First to Final Mile (FTFM) operation within its truckload division due to “operating performance of the FTFM business and the assessment that the long-term prospects of that business and its markets were not favorable.”
The announcement was made in a Securities and Exchange Commission 8-K filing in conjunction with the release of the company’s second quarter earnings results. The company will take total pre-tax restructuring charges of between $50 million and $70 million through the end of the year as a result, separate from a one-time goodwill impairment charge of $34.6 million recorded in the second quarter. The operation will be fully closed by December 31, 2019, the filing said.
“We have made the difficult decision to execute a structured shutdown of our FTFM service offering,” Mark Rourke, chief executive officer, said in a statement. “This decision followed a careful assessment of the near and longer-term prospects and alternatives. We believe this course of action allows us to fully focus on our services within truckload, intermodal, and logistics, is consistent with our portfolio management and capital allocation disciplines and is in the long-term best interest of our company and our stakeholders.”
In the second quarter investor earnings call, Stephen Bruffett, executive vice president and chief financial officer, said FTFM amassed $26 million in losses in the first two quarters of 2019 and another $9 million in losses are expected in the third quarter.
FTFM offered services for business-to-business and business-to-consumer movements of product categories such as furniture, carpet and appliances. The network was comprised of 26 terminal locations. All freight currently in the system will be delivered over the next few weeks, the company said. Bruffett said the facilities in the FTFM operation are all leased with variable terms. “Those with the longer lease terms that we are obligated to, we will be in the market to sub-lease those,” he said.
Equipment in the FTFM business, mostly tractors and trailers, will be redeployed, Bruffett said. “We’re in the unique position where we can repurpose a fair amount of the equipment from the First to Final Mile business,” he said. “There will be roughly 800 tractors and 2,000 trailers that will come out of the [broader] business as a result.”
People, though, may not be as lucky. “Unfortunately, there will be people that will be coming out of the organization,” Bruffett added. “The total amount will be determined as we assess the broader business need going forward,” but some would be offered jobs in other Schneider divisions.
In the earnings call, Rourke noted that Schneider was not leaving the final mile. “We’ll play in e-commerce in different ways in our portfolio, we just won’t play in the way [we have],” Rourke said.
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http://www.freightwaves.com/news/as-losses-mount-schneider-shutters-first-to-last-mile-delivery-business
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