YRC counts on “Velocity Network” on return to profitability

John D. Schulz, Contributing Editor -- Logistics Management, 7/15/2008

WASHINGTON—YRC Worldwide, parent of three of the nation’s largest LTL carriers accounting to more than one-fourth of the $33.6 billion LTL sector, is counting on speed to return to profitability after two quarters of losses.

With the launch of its new “Velocity Network” designed to enable YRC to compete with the best non-union regional carriers, it is cutting transit times on more than 30,000 lanes at Yellow Transportation, Roadway and USF Holland. Most of the service improvements are east of the Mississippi River, but YRC officials say expanding on the West Coast is coming as well.

Mike Smid, president and CEO of YRC North American Transportation, says the changes position the YRC-affiliated companies to compete better in a changing LTL environment.

He said only 30 percent of its business comes from “traditional” LTL freight that was suited to the old hub-and-spoke network system. Smid says customers increasingly are asking for additional services, tighter delivery windows or consolidation or other services.

“Our entire network moves on a time-based system,” Smid explained. “That does two things. It makes us more consistent and it gives us tremendous support for our premium services. It also makes us considerably more nimble and considerably more reliable.”

Service is cut by at least one day for more than 15 percent of YRC’s 150,000 shipments a day handled by all its operating companies. YRC officials say the new configuration reduces shipment handling and eliminates approximately 20 million line-haul miles annually for a savings of $40 million.

That’s because YRC companies are moving away from the traditional, outdated hub-and-spoke system where, as Smid said, “In a lot of situations, we had to go east to go west.”

YRC’s changes evolved from its most recent labor negotiations with the Teamsters union, which represents some 66,000 YRC workers. YRC Chairman, President and CEO William Zollars calls the new labor pact “a game-changer” that has effected many internal changes. One is the creation of a new “utility worker” category. For $1 an hour more in wages, these workers can drive a truck one day and work the dock the next—flexibility long sought by unionized carriers to compete with the likes of Con-way, Estes Express, Southeastern and other top non-union regional specialists.

“The labor contract was a big enabler for us,” Zollars says.

YRC also won the right to hire part-time workers on four-hour shifts to handle peak freight periods. It also won the right to use non-union truckload service for some of the 28 percent of its total freight loads that can contractually go by railroads. Some of that freight will go on Glen Moore, a non-union TL carrier that YRC owns.

 To hear Zollars tell it, Glen Moore and other TL carriers may be getting as much business as YRC can give them. Simply put, he is not satisfied with some rail service on routes other than Chicago-Los Angeles or Chicago-Portland, top-flight intermodal lanes frequented by UPS and LTL carriers.

“Rail has been a real challenge for us,” Zollars says. “Service has deteriorated significantly. We can now use substitute truckload service for some of that freight that used to go on rails.”

For shippers seeking speed, YRC’s latest moves are a godsend. Many three-day lanes now operate on a two-day schedule. Thanks to new team driver operations, a transcontinental move can now be done in four days.

“It’s opened the door for us to be involved in new and different services,” Zollars says.

“We are using our density more effectively.”

In one of the largest changes of operations in the 84-year history of the company, nearly 500 Teamsters have accepted new dock, driving and utility positions. In a newsletter to company employees, Teamsters National Freight Director Tyson Johnson said simply, “We’re changing the unionized freight industry. At implementation, the unionized companies will be on a near-level playing field with the competition. The ability to compete will be there.”

YRC could use the boost. It lost $56.9 million in the fourth quarter of 2007 and an additional $45.9 million in this year’s first quarter. Zollars hinted at the company being back in the black in the second quarter when results are announced on July 25.

Much of the past two quarters’ losses were because of steep losses at YRC Regionals, which include Holland and New Penn. Holland has been hurt by its large exposure to auto-related business. Those regional carriers earned in excess of $150 million collectively just two years ago. But their operating ratio in the second quarter increased to 108, meaning they had $108 in expenses for every $100 in revenue.

Such losses were the genesis of YRC’s Velocity Network. With demand for long-haul LTL services flat, any growth YRC achieves is likely at the regional level where shippers increasingly want freight delivered as soon as possible.

“The individual customer wants speed,” Smid said. “Being able to be a little more flexible allows us to get a little better price and to be a little more indispensable.”

Even with the service enhancements, YRC is struggling with record-high diesel prices. Zollars said demand for LTL services has “stabilized,” after nearly a two-year drop. Although pricing remains “extremely competitive,” he called the effect of $145-a-barrel crude oil (or higher) the real “wild card” in the macroeconomic picture.

“The company is not built for $150 oil,'' Zollars said flatly. “And the country is not built for $150 oil. And that's the thing that concerns me.''