LTL news: YRCW rolls out plan to spur integration between Yellow Transportation and Roadway
Jeff Berman, Group News Editor -- Logistics Management, 9/8/2008
Editor’s note: This story originally appeared on September 8 and has been updated with additional reporting.
OVERLAND PARK, Kan.—Less-than-truckload (LTL) transportation services provider YRC Worldwide announced it plans to hasten the integration strategy of its two largest subsidiaries—Yellow Transportation and Roadway.
Yellow Corporation acquired Roadway for $1.1 billion in 2003. YRCW officials said that since that time the company has reduced duplicate back-office functions, shared technology applications, formed common management teams, and combined corporate sales operations.
"Given the positive customer response from our recent combination of the corporate sales teams and the increasingly dynamic operating environment, we believe now is the right time to take such significant action," said Bill Zollars, Chairman, President and CEO, in a statement. "The economic downturn has created the capacity in our networks needed to effectively integrate our operations, while improving service reliability and speed. By offering a comprehensive service portfolio through one unified network, we can more effectively serve our customers and simplify their experience."
Other reasons cited for the change, according to YRCW, are positive customer response from combined corporate sales and the competitive opportunity to leverage scale for a broader array of services. And some of the benefits it highlighted included: a comprehensive service portfolio across all brands, simplified customer experience, further growth opportunities, and increased network scale and efficiencies.
With this news, YRCW explained it is bringing together its local sales teams and will provide shippers with a comprehensive portfolio of services through one operating network entitled Yellow Roadway, with the Yellow Transportation and Roadway brands maintaining their own brands and presence in the LTL sector, represented by joint sales team of more than 1,000 account executives. And by operating one national network, YRCW said it expects to increase its network density with the result being lower-fixed costs and service improvements. It added that it expects the integration effort to last through 2009 and result in more than $200 million in annual operating savings.
YRC North American Transportation President and CEO Mike Smid told LM in an interview that these savings will come from various sources. One being consolidating the number of facilities it operates out of from 650 to roughly 450, as it combines capacity in existing facilities as part of YRCW’s “one network, one operation” approach with this integration. Another area where savings will come from, said Smid, is local pickup and delivery handling.
“As is stands right now, we operate two completely different pickup and delivery networks in every metropolitan area of the United States,” said Smid. “By consolidating and increasing the volume that you put through one [integrated] operation, there are a series of efficiencies that are attached to that and a lot of wasted capacity gets eliminated in the process.”
And connection between cities as YRCW begins to consolidate its delivering facilities and further consolidate its distribution functions will result in efficiencies that occur between a distribution facility and an end of the line facility, in terms of balance, timing, volume, and flow begins to increase, said Smid. He added this provides an opportunity to reduce excess or wasted capacity on a regular basis.
While YRCW feels the time is now right to take these integration steps, a prominent industry analyst told LM these steps are actually long overdue.
“This should have happened in 2003 when Yellow acquired Roadway,” said Satish Jindel, president of Pittsburgh-based transportation consultancy SJ Consulting. “But it was not likely to happen right away, because [YRCW] had to wait until its Teamsters contract was finalized.”
YRCW inked a five-year deal with the International Brotherhood of Teamsters earlier this year. The agreement covers roughly 50,000 dockworkers, drivers and certain other union employees of Yellow Transportation, Roadway, USF Holland and New Penn. The new National Master Freight Agreement (NMFA) replaced the current agreement when it expires on March 31.
Jindel said he expected the company to have integrated back-office and IT operations well in advance of today’s news so that when the Teamsters deal was finalized it could have been rolling out the implementation and executing it.
“They do not plan to integrate the two companies which have been suggested in the past,” said Jindel. “UPS and FedEx are $30 billion companies that operate under their own brands, and the LTL industry does not need a $5 billion company with two brands. What they are doing now is something they should have been doing all along and doing it faster. There will likely be some shortfalls in the interim…with the result being some downsizing, but the end result will be a better, stronger, and more profitable company.”
Although both the Yellow Transportation and Roadway brands will still be visible in the marketplace, Smid said shippers will still receive the same customer service that they did when they were operated as separate companies.
“The familiar names will be on our equipment for a long time, and the familiar way that you did business with us will be available as well, with the business being operated as one company with a combination of those attributes,” said Smid.
Downsizing has been occurring in various forms throughout the year for YRCW, with February’s decision to cease operations at 27 service centers for two YRCW subsidiaries USF Holland (six service centers) and USF Reddaway (21 service centers), resulting in roughly1,100 job eliminations, and recent news from Bloomberg stating that YRCW eliminated 200 non-union jobs due to declining business.
In the short term, Jindel said this integration may temporarily cause some service issues, as well of a lack of clarity for customers. But he said it they communicate today’s news correctly they can turn that into a “very positive” customer experience and let customers know where they plan to take this integration, what the customer benefits will be—aside from keeping Yellow Transportation and Roadway separate—and make customers have the patience to endure the integration, knowing that once it is complete they will have a better company to take care of them for a longer period of time.
JP Morgan analyst Tom Wadewitz said in a research note that YRCW’s plans to integrate operations have the potential to result in cost savings in the pick up and delivery area at the terminal level and also in line-haul operations. But, like Jindel, he said there is a risk of a service disruption.
“While the cost savings potential is significant, we note that integration of transportation networks is a source of meaningful risk to service,” wrote Wadewitz. “We believe that a step by step/terminal by terminal approach reduces the risk of disruption, but service missteps in a highly competitive environment could cause further pressure on YRCW’s tonnage performance.”
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