LTLs must change to survive, says Yellow CEO

By Toby Gooley -- Logistics Management, 3/1/2006

NEWTON, Mass.—Will less-than-truckload (LTL) carriers survive today's challenging business environment? Yes, says James L. Welch, president and CEO of Yellow Transportation—but only if they respond to shippers' changing needs and seek opportunities in non-traditional areas. Welch outlined his views at a meeting of the Council of Supply Chain Professionals' (CSCMP) New England Roundtable last month.

Expansion into international markets must be a priority because international trade—particularly with China—is driving the U.S. economy, Welch said. "Imports will dramatically change the face of LTL" by shaping customers' priorities and demands for service, he predicted. That long-term view, he noted, influenced parent company YRC Worldwide's recent decision to add domestic trucking to its portfolio of services in China.

Longer international supply chains mean shippers are under pressure to shorten domestic transit times; in turn, they are pressing both longhaul and regional LTLs for faster deliveries. Three years ago, Welch said, the average time a shipment spent in Yellow's system was 3.3 days, and 27 percent of the carrier's business was delivered in two days or less. Today those figures are 2.7 days and 43 percent, respectively. In response to that trend, Yellow is rolling out next-day service, which Welch described as "the fastest-growing part of our portfolio," in some Midwest markets. That service is supported by overnight sorting centers with their own flexible workforce. Growing demand for faster delivery eventually will eliminate the distinction between longhaul and regional LTLs, Welch predicted.

Capacity will continue to be adequate over the next two-to-three years, Welch said, but demographic trends could prove to be problematic later on. Nearly half of Yellow's current workforce will reach retirement age within the next 10 years; in an effort to forestall staffing problems, YRC is exploring hiring people who are leaving military service, and possibly setting up driver-training schools for urban high school graduates. "The trucking industry as a whole hasn't done a good job of attracting and retaining younger people," he said. "That must change."

As for YRC's plans for the competing LTL carriers it has acquired, including Roadway Express and the USF companies, Welch said that the company intends to keep them separate unless business conditions dramatically change. One reason is to avoid creating operational bottlenecks and inefficiencies that would arise if the terminals should become too large.

"We can't physically put Yellow and Roadway in one facility. There's too much volume," he explained. "If we tried to slam Yellow and Roadway together, service would get so bad that we'd lose half our customers."

A question from the audience about rates prompted an appeal to shippers to show restraint in an environment where discounts can reach 80 percent. "The level of discounting today is insane, but the industry can't seem to get away from it," Welch responded.

Antitrust restrictions prevent motor carriers from jointly agreeing to cap the discount levels, but shippers could agree among themselves not to press carriers for unreasonable concessions, Welch said. Past efforts to work with shipper organizations on ways to keep discounting under control have failed because the groups were unable to agree on guidelines, he said.