And perhaps valuable?

ImageThis trio of snowbound COEs sleeping in Waterloo may be getting a wake up call. I was perusing the bankruptcy court filings of Hostess Brands the other day, the proposed sale of much of Hostess operations in the northwestern U.S. in particular. While the proposed buyers of some of Hostess other operations were only interested in the brands and bakeries and none of Hostess aging truck fleet, the buyer in the Northwest, U.S. Bakeries AKA Franz Baking wants the trucks too. Yup, the whole kit and caboodle, even trucks from the 80s and some even older trailers. And this is the fleet with an average age of 18 years that Hostess’ overpaid “expert” consultant said was only worth $400 apiece?

Unlike Hostess management of recent history, Franz knows how to run a bakery, and they’ve been baking and growing for over a century. Their transportation network is a paragon of efficiency, taking maximum advantage of the northwestern states allowance of long commercial vehicles (LCVs) on the highways. It’s common to see their semitractors pulling triple trailers in Oregon where they’re allowed. In Washington where they’re not, they put a “drom” box on the back of their semitractors to take maximum advantage of Washington’s length limits. When you’re hauling light stuff like bread space is more important than weight capacity as they seldom get near the weight limits anyway, and in many cases the LCVs are limited only in overall length, unlike the 50 state legal tractor trailer rigs where only the trailer length is restricted and you can run as long a tractor as you like. Thus the demand for short cab COE semitractors that can make the most of the allowed overall length to haul more bread and less hood and thus make more of the other kind of “bread”.

Problem is, there hasn’t been enough demand from these niche markets to keep COE semitractors in production, with Navistar, KW, and Pete dropping there COEs in the first years of this century and last holdout of the COE, Freightliner, pullin’ theirs off the american market in 2006. Thus Franz has been forced to replace their worn out COEs with conventionals and give up five feet or so of loadspace to stay within the overall length limits. And in adding 4 Hostess bakeries to their existing six and more than doubling their distribution area, Franz is suddenly going to need a lot more trucks. And when your fleet prefers COEs, what could be a better find than Hostess, with what is probably the largest fleet of COE semitractors in America? So even though the Hostess COE fleet is old, when you can’t buy new COEs those old COEs suddenly get valuable. Sure, there’s some 1980s models in there that will probably get parted out, but there’s also a bunch of 2000 to 2003 or so Freightliner Argosy cabovers that still have some life in them. You need converter dollies under the back trailers of doubles and triples, and the Hostess fleet includes a bunch of  Silver Eagle dollies, widely recognized to be the best in the business.  And that’s just the frosting on the cake…

ImageThe market implosion for new step vans is similar to the implosion of the COE market, except there’s one supplier left. The market keeps shrinking, and it was always pretty much big buyers like UPS, USPS, FDX, Hostess, Bimbo, etc. and other than UPS and FDX they haven’t been buying much lately. Then throw into the mix the 2007 and 2010 emissions requirements that added as much as $10k to the chassis cost, and the withdrawal of GM and Navistar from the chassis market. So it’s no surprise that the only place you can get a new chassis for a step van is from Ford, Daimler, and strangely Isuzu, and Ford don’t even offer a diesel anymore… So the cheapest new stepvan starts at $60K and even old ones that barely run seem to sell for at least $5k. So Franz is going to need a bunch of these, and with new ones going for $60k a pop and up, rebuilding a decade or even two old step van becomes a reasonable proposition. Besides, the market for step vans has shrunk to the point where few dealers stock them and it takes months and sometimes years to get a new one built.

So Franz is crazy buying all those old Hostess COEs and step vans, crazy like a fox. And given that the going price for a conventional bakery is around $10M and they’re getting 4 and a few hundred trucks for $30M, Franz is darn near gettin’ those old trucks for free! When a truck’s almost free and hauls a bigger load than a new one, even thousands spent on repairs and rebuilding ain’t a bad investment!

This keeps up, they’ll start making COEs again…