Forward Air’s CEO said on Wednesday that customers “still trust us with their business” after the company announced a deal that would change some of the competition in domestic shipping.
The asset-light shipping company announced last month that it had reached a deal to buy forwarder Omni Logistics. This was done to get rid of the middleman. This “middleman” has been Forward’s main client for decades, but this change could make it harder in the future to tell them apart from the rest of the sending community.
Forward Air was mostly known for a long time as a linehaul capacity provider to forwarders looking for other ways to move freight. Less-than-truckload ground transfer of air freight between North American airports was the company’s first business. Some of Forward’s other sending clients are worried about how the purchase of Omni will affect the way the forwarding business is competitive.
Maintaining Confidentiality and Neutrality with Domestic Forwarder Customers
Forward Chairman, President, and CEO Tom Schmitt informed investors at the 2023 Jefferies Industrials Conference that the company has been facing a challenging and delicate period with its domestic forwarder customers. He stated that this segment of the market is referred to as a “co-opetition.” He also mentioned that some of its forwarding clients have established or acquired their own mini-linehaul networks in recent years.
Forward can keep its claims of “confidentiality and neutrality” to both its present domestic shipping clients and its direct shipper clients by keeping its sales teams separate. He said that the plan is “an and, not an or” and that different information and prices will be used. Some of Forward’s present customers didn’t like hearing about the deal, saying that Omni would have access to private information like client account lists and shipping data.
Domestic Forwarder Customers’ Trust and Cooperation
Schmitt continued, stating that it will be earned trust. We need to ensure that the separate sales force continues to provide the best service, offers every opportunity to retain and acquire business, and secures the best rates. By doing so, we can work together to achieve success.
According to him, management has engaged in discussions with all of Forward’s major domestic forwarding customers. These customers have expressed their willingness to continue working with us, on the condition that we help them secure more business opportunities.
Financial Impact of Omni Acquisition on Company’s Sales and Profits
Forward Air’s yearly sales will go up to $3.7 billion because of the merger, and the company’s adjusted profits before interest, taxes, depreciation, and amortization will go up to more than $600 million. Schmitt says that the deal would help the company do better in the $15 billion rapid LTL market, where about half of the business comes from middlemen.
Half of the $1 billion premium LTL market is served by domestic forwarders, which is where Forward is now.
Omni uses the services of other capacity providers to make up the other $250 million of its LTL income. Schmitt thinks that most of those goods will switch to Forward’s network in the first three months after the deal closes.
Potential Savings and Improvements from Omni Acquisition
He said that the company could make 20% or more in running rates through direct sales by mixing the 10% to 12% profit that Omni makes on the shipping side with the 15% or more that Forward makes on the freight.
Schmitt said that now there is a way to tap into both halves equally powerfully.
Forward thinks that the savings and improvements from lower costs and better profits will add up to $125 million in adjusted EBITDA by the end of 2025. The first $60 million is expected to be done within the first six months. Many of Omni’s 26 hubs and more than 30 major lines will be added to Forward’s existing system. Schmitt says that this is similar to how the company got rid of duplicate work when it bought Land Air Express earlier this year.
The company also said that the revenue estimate is based on the three new salespeople who started in July keeping the customers they just got, as well as a “macro uplift” that lasts until 2024.
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Overall, Forward Air’s acquisition of Omni Logistics and the impact it may have on Forward Air’s relationship with its domestic forwarder customers. Lading Logistics is dedicated to staying up-to-date with the latest developments in the trucking industry. They offer a wide range of services, including:
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