Trucking news: YRCW to shut down 27 regional service centers

Jeff Berman, Senior Editor -- Logistics Management, 2/8/2008

OVERLAND PARK, Kan.—Regional subsidiaries of less-than-truckload transportation and global logistics services provider YRC Worldwide Inc. (YRCW) will cease operations at 27 service centers that will result in charges of $30 million, according to a Reuters news report published yesterday.

This news comes on the heels of YRCW’s investor meeting, which was held in New York last month, when it said it was planning to go forward with a “regional recovery plan.”

The service centers for the two YRCW subsidiaries—USF Holland (six service centers) and USF Reddaway (21 service centers)—are said to be closing their doors on February 22, according to a YRCW filing with the U.S. Securities and Exchange Commission, noted the Reuters report. It added that decision is a component of a $100 million improvement plan for the company.  Both USF Holland and USF Reddaway became part of YRCW, when YRCW purchased USF Corp. in 2005.

YRC acquired USF Corp. in in an effort to provide regional shipping services along with its national, long-haul networks operated by Yellow Transportation and Roadway, said an article in The Kansas City Star. The Star also noted that since then YRC has consolidated some of USF’s carriers, including USF Dugan and USF Bestway, into Holland and Reddaway.

The Kansas City Star report added that the USF Holland terminal closures will eliminate 300 employees in Georgia, Mississippi, North Carolina, Arkansas, and Alabama. It also said that the USF Reddaway terminal closures will eliminate 800 employees in Louisiana, Oklahoma, New Mexico, and Texas.

Stifel Nicolaus Transportation and Logistics Group Managing Director John G. Larkin wrote in a research note that this decision makes sense for YRCW.

“We believe this is a step in the right direction for the regional companies that were once solid operators in their respective legacy territories but were stretched too thin (after being acquired by YRC Worldwide) when trying to expand into other regions and/or integrate another lesser carrier into their network,” commented Larkin. “When these two carriers expanded coverage, pricing became more difficult, less disciplined, and yields and margins suffered as a result.”

Larkin added that other YRCW closures may be coming while YRCW continues to evaluate its regional business. And he also said these service center shutdowns may potentially be good for the LTL industry, because it removes a “poor pricer from some southern and southwestern regional markets.”

One transportation analyst told Logistics Management these changes were necessary for YRCW.

“The changes they are making are necessary for them to correct what had not been done right when the company went through restructuring with Dugan and Bestway,” said Satish Jindel, principal of Pittsburgh-based transportation advisory firm SJ Consulting. “They expanded those two companies out and then expanded the footprint of Holland and Reddaway, and the way they did has resulted in them having pricing and profitability challenges. What they are doing to some extent is retrieving these regions to the kind of coverage and service they had before all of the [network] expansion they did.”

And because many of the affected areas will no longer be serviced by these regional YRCW carriers, it creates a dilemma for shippers as to determining what their actual value proposition is by using YRCW regional carriers if YRCW is going to outsource these operations to other LTL carriers, said Jindel.

“It raises the question of what is the value proposition of having so many brands, and what it means in terms of visibility, and service,” said Jindel. “It also creates a great opportunity for the competition.”

With the so-called freight recession ongoing, Jindel said that it has not impacted every carrier badly. While there are economic issues affecting the entire trucking industry, he pointed out there are some company-specific issues involved with what YRCW is doing. These changes, he said, are the correct way to go about making improvements.

YRCW representatives were unavailable for comment.