BOLTON, Ont. – As Titanium Transportation Group continues to evaluate acquisition opportunities, it is taking advantage of what it sees as a changing business environment that’s conducive to organic growth.
Growing organically has been all but impossible in the trucking industry, largely because of a lack of quality drivers. But Ted Daniel, CEO of Titanium, said on a conference call with analysts that he feels the company’s unique share-purchase plan, currently being rolled out, will help the it overcome that challenge.
“We are the only Canadian trucking company that has this type of plan,” Daniel said. “TSX companies that have this type of plan by far outperform companies that don’t.”
He also said Titanium has a “disruptive,” IT-driven culture that’s attractive to many drivers.
Daniel said organic growth is also enabled by an expanded sales team working out of a new consolidated head office, and general business dynamics that are bringing supply and demand into alignment and allowing rate increases. Titanium posted Q2 results this week. Revenue increases were largely driven by its logistics segment, which benefited from strengthening spot market prices. However, Daniel said contract rates are also improving, though it takes longer to realize those gains as contracts come up for renewal.
He said there’s generally a three- to six-month lag in contract rate improvements versus the spot market, but he added the company has been successful in upping rates as contracts come up for renewal. To accommodate its organic growth, Titanium recently ordered 10 new flatbed trailers and 10 Volvo tractors. But no new van trailers have been ordered, which Daniel said is due to the fact its recently deployed Blackberry Radar trailer tracking system has allowed for better utilization of those trailers.
Daniel said the company has the infrastructure in place to “comfortably double in size.” But its focus on organic growth doesn’t mean it has abandoned its long-term vision to grow through acquisition. It just means there’s not a great sense of urgency to do so, and the company is being selective about any purchases it pursues.
“We’re looking for a good match,” Daniel stressed. “We are looking for companies that are looking for the ability to become a part of the Titanium culture and looking for the next chapter in their lives. We are being rather disciplined in terms of our criteria.”
Titanium has been slower to make deals over the past year. In part, that’s because 2016 was a down year and Titanium didn’t want to make deals in an uncertain environment based on past years’ performance. It has also become apparent that many companies on the block haven’t kept pace with updating their fleet, requiring a large cash injection to bring them up to date. Daniel insisted Titanium remains an active buyer, but deals must be “synergistic and accretive.”
“Given the fact we have a very strong organic growth opportunity, we are not in a position where we’re being pressured to do an acquisition to be profitable,” Daniel said. “I feel our profitability has nowhere to go but up over the next one to two years; we are going to continue to grow.”
When it comes to finding an acquisition opportunity, Daniel said the company prefers an Ontario-based, cross-border, truckload carrier in the van or flatdeck segments. Daniel said he anticipates domestic carriers will face pricing pressures in coming years, as some drivers give up running the U.S. because of the looming electronic logging device (ELD) mandate in favor of running paper logs domestically. For the same reason, he sees an opportunity for stronger cross-border pricing as capacity in the U.S. tightens.
In general, Daniel was upbeat when discussing the trucking industry and specifically Titanium’s position within it. He feels the company’s investment in its infrastructure and IT will give it an advantage in an industry that’s increasingly sophisticated and in the process of seeing tightening capacity.
“I think that the economics of the trucking industry at this point in time, while still a very slow-moving market, is in my opinion headed in the right direction,” Daniel said. “We expect to be able to take advantage of some of our unique talents we’ve got in the business to continue to grow our margins and offset some of the burdens of the industry. We are headed towards a decrease in capacity over a period of time, we just don’t see it turning around overnight.”