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DG&A's Transportation Consulting Blog

The 2022 Puzzle - More Questions than Answers

Posted by on in Economy

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As 2021 draws to a close, many pundits are providing their forecasts for 2022. As I reflect on the past two years, and look ahead to 2022, it is difficult to predict, with certainty, how the New Year is likely to unfold. In fact, unlike prior years, there are more questions than answers. Here are a few items to consider.

Covid-19

Over 200 million Americans and over 20 million Canadians have received their Covid vaccine. Booster shots are now widely available and the eligibility for these shots will be expanded in the days ahead. Vaccines are now available for children. With vaccine, masks and social distancing mandates, many businesses and schools are now open.

Just looking at the traffic on the roads today, as compared to six months or a year ago, life for many is returning to normal, or at least a new and improved state of normal. Early reports on the Omicron virus are suggesting that this mutation may be less dangerous to our health as compared to previous versions. This signals to many that the worst of Covid is behind us.

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Ransomware is a computer virus that takes over the target device, restricts the owner’s access, and demands the victim to pay a ransom to get their device back. Modern ransomware can steal files, target locally-stored backups, spread through the network, and even bring large organizations to a standstill.

The device can get infected through a malicious email, a spoofed website, or in many other ways. Then, the attackers may scan the device for something valuable or, if pressed for time, start encrypting everything at once. After encrypting the data, the ransomware will display a ransomware note with detailed instructions on how to create a cryptocurrency wallet and send Bitcoin to the attackers’ address.

In Canada, two of the most recent high profile ransomware attacks have been to the Toronto Transit Commission (the largest public transportation network in Canada’s largest city) that knocked down some of its communications system and a provincewide disruption of health-care services in Newfoundland and Labrador that affected thousands of appointments and procedures, including those involving COVID-19 testing. The annual Canadian Internet Registration Authority (CIRA) Cybersecurity Survey says nearly 70 per cent of Canadian organizations facing a ransomware attack last year paid the demands to avoid downtime, reputational damage, and other costs.

In 2021, ransomware has increased to thousands of attacks per day and is predicted to cost businesses over $20 billion. Many successful attacks may be left undisclosed.

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These are challenging times for shippers. Driver, labor and truck shortages, port congestion, escalating freight and fuel costs, coupled with the lingering effects of Covid are making life difficult for shippers across the world. Here are a few coping strategies

1. Work in Partnership with Procurement to Create Alternate Sourcing Strategies for both Raw Materials and Transportation

Every day we read and see images in the media of containers sitting at ports, or offshore, waiting to dock at a port. We also read about embargoes and about carriers refusing to pick up or deliver to certain markets.

This is a time when Purchasing and Transportation must work together. It is no longer just a question of finding reliable sources of supply; it is also a question of whether goods can be picked up from or delivered to selected markets. Procurement and Transportation must communicate about alternate sources of supply, particularly about finding vendors in North America to mitigate supply chain bottlenecks and satisfy customer requirements.

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The Covid-19 pandemic has expedited the growth of online shopping. After months of lockdown and quarantine measures, people have revised some of their perceptions about shopping.

• A new survey (source: July 23, 2021, issue of Qvalon) shows that 49% of people are mostly focused on product availability—well ahead of price (36%) and quality (34%), which were the top 2 concerns before the pandemic.

• Brick and mortar shops turned digital to keep their businesses afloat. In fact, global e-commerce has become a $26.7 trillion industry because of Covid-19.

• An omnichannel commerce trend, Buy Online, Pick up in Store (BOPIS) paved the way for 195% year-on-year growth, with 60% of US retailers quickly adopting this strategy.

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This has clearly been the year of the large M & A deal in the freight industry with TFII’s purchase of UPS’ LTL business (https://www.dantranscon.com/index.php/blog/entry/the-first-big-transportation-deal-of-the-year-tfii-s-purchase-of-ups-freight ) followed by Knight Swift’s acquisition of LTL operator AAA Cooper Transportation (https://www.dantranscon.com/index.php/blog/entry/why-are-large-ltl-trucking-companies-such-attractive-m-a-targets ). The Uber Freight purchase of Transplace for $2.25 billion is different from the other two acquisitions.

Unlike the prior mergers that combined two asset-based trucking companies, this merger blends two non-asset-based technology-driven freight brokerage operations. Uber Freight supplies shippers with real-time quoting and booking, using their freight management platform; it provides access to a network of US and Canadian-based carriers. Their focus has been on a transactional, instant gratification shipper-carrier load matching services. While still unprofitable, they have been achieving rapid growth in this segment of the freight brokerage market.

Transplace, while also in the freight brokerage space, has focused on large shippers with consistent freight volumes. Their technology is designed to marry this class of shipper with carriers that have the capacity and coverage to handle recurring traffic in designated areas. This is much more of a contracted business rather than a transactional business model. Transplace states on its website that it counts 62,000 unique users and has $11 billion of freight under management.

So, what made Transplace attractive to Uber Freight? Uber Freight is paying 22 .5 times EBITDA to acquire a company that has a current EBITDA run rate of over $100 million. This is a steep multiple, but Transplace’s earnings will improve the financials of the merged Uber Freight.

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