Global Logistics: YRCW enters into definitive agreement to acquire Shanghai Jiayu Logistics Co. Ltd 

Jeff Berman, Senior Editor -- Logistics Management, 1/2/2008

SHANGHAI, China and OVERLAND PARK, Kan.—Less-than-truckload transportation services provider YRC Worldwide Inc. said recently announced it has entered into a definitive agreement to acquire Shanghai Jiayu Logistics Co. Ltd, a China-based provider of LTL ground transportation services.

YRCW initially announced its plans to acquire Shanghai Jiayu Logistics Co. Ltd in June of this year, when it entered into a preliminary agreement to acquire the company. Shanghai Jiayu Logistics Limited has more than 30,000 customers, 1,600 employees, 300 tractors, and a 3,000 vehicle network.

YRC Logistics will acquire 65% of the stock of Jiayu for between $29.5 million to $43 million, based upon Jiayu's final 2007 financial performance, according to a YRCW statement. And YRC Logistics expects to purchase the remaining 35% interest in 2010 for an amount not to exceed $32 million, as determined by the level of Jiayu's 2008-09 financial performance, YRCW added.

"China continues to be one of the fastest growing markets for our customers and an important part of YRC Worldwide's overall strategy," said Bill Zollars, Chairman, President and CEO of YRC Worldwide, in a statement. "The acquisition of Jiayu allows us to provide reliable ground transportation and is the next step in building a comprehensive portfolio of logistics services for our customers in China."

And Jim Ritchie, President and CEO of YRC Logistics, told LM that this acquisition was largely driven by its clients requesting service in other parts of the world that they receive in North America.

"When you look at the market information, it's obvious that many of our clients supply chains start in China," said Ritchie. "After looking at over 700 potential acquistions, we targeted Jiayu Logistics as one of the largest transportation service providers in China."

Ritchie added that shippers in China will benefit from this deal in various ways, including: increased reliability from a well known, major service provider in China, which is now part of YRC; increased visibility through Jiayu's technology offerings and a global contact visibility tool YRCW is currently working on that Ritchie said will enable shippers to see their inventory down to the SKU level anywhere in the world; and improved reliability. 

"The transportation market in China is fraught with loss of shipment control and effective shipment management practices," noted Ritchie. "It's very common for a shipper to tender a shipment to an approved service provider, who in turn sub-contracts the shipment to an unknown service provider, who in turn sub-contracts again. In essence the shipper loses all visibility relative to who has their cargo, resulting in serious inefficiencies.

Having a provider they can trust, who will adhere to common place practices they are familiar with in other parts of the world is very important, said Ritchie. "In essence, our research confirms the Multi-National companies (MNC's) doing business in China are looking for improved reliability, visibility, and dependability. This acquisition will for the first time open up this market for U.S.-based MNC's who know YRC Worldwide and the family of brands (Yellow, Roadway, YRC Logistics, USF Holland, USF Bestway, New Penn, and Reimer) to a service provider who knows their requirements, and can now make them happen in China."

Dick Armstrong, Chairman of Armstrong & Associates, a Stoughton, Wis.-based supply chain consultancy, said that this deal, which is one of three YRCW has made in China in recent years, can be viewed as a complimentary acquisition of sorts.

“They don’t seem to be shy at all about going after asset-based operations in China and building a presence that is going to require some assets to do business,” Armstrong told LM in an interview earlier today. “I think this [deal] means that YRCW is really serious about being in the transportation markets in China, and they plan on doing significantly more than to simply have a presence in China that allows them to take care of international traffic. This is a real indication that they are interested in the Chinese domestic market, and they will continue to move in that direction.”

YRC's Ritchie explained that this acquisition is part of its four-phase strategy it has developed since first entering the Chinese market in 2004. He said that the first phase was to enter the market at the major pinch points in which cargo moves in and out of the country. This was done in May 2005, when YRCW acquired 50 percent of JHJ International, a China-based freight forwarder with more than 50 offices and roughly 1,200 employees. The second phase was to acquire a third-party logistics (3PL) company and begin to secure long-term clients, but Ritchie said YRCW found that most self-professed logistics companies in China are simply niche providers in the small distribution/warehousing services space. YRCW revised its strategy in 2006 and launched its own China-based 3PL in 11 months ago. 

Phase three of YRCW's China strategy, said Ritchie was to follow phases one and two and focus on providing additional ground transportation services. 

"Lastly, phase four is to connect the dots for our clients around the world down to the SKU level," said Ritchie. "We have had focused teams aggressively work to build a global supply chain visibility application for our clients, and this part of our strategy will go live [in February]."

Completion of the acquisition is subject to Chinese regulatory approvals, restructuring of certain of Jiayu's operations and other ordinary conditions to closing, said YRCW, and the deal is expected to be completed during the second quarter of 2008.

The trend of U.S.-based logistics services providers making inroads into China clearly is continuing with this news. Other examples of this trend, according to Armstrong & Associates’ research includes:
• Werner Global Logistics (WGL) being founded in 2006 to meet its customers logistics needs in China. Import/export services include: Ocean and air freight forwarding, Non-vessel operating common carrier (NVOCC) shipping, shipment consolidation/deconsolidation, and customs brokerage. WGL has established alliances with select Chinese logistics providers to provide inland distribution from major ports and warehousing and transportation services from 20 distribution centers throughout China;
• C.H. Robinson acquired Dalian Decheng Shipping Agency Co. in 2005., allowing it to establish an international transportation management presence in China. The company has seven offices: Dalian, Tianjin, Qingdao, Shanghai, Ningbo, Xiamen, and Shenzhen. In 2006 C.H. Robinson Worldwide acquired Triune Freight Private Ltd. and Triune Logistics Private Ltd.,  a third-party logistics provider based in India. Triune had 19 offices throughout India;
• In 2005, YRC purchased a China-based forwarder and took a 50% ownership in another. GPS Logistics and JHJ International Transportation added 1,400 employees and 82 offices in Asia for YRC and;
• in September, Schneider Logistics announced an acquisition of Shanghai China based BaoYun Logistics.

Editor's note: This article first appeared on December 21, 2007 and was updated with additional reporting and feedback on January 2, 2008