YRC Worldwide makes cuts at logistics subsidiary

Jeff Berman, Group News Editor -- Logistics Management, 10/14/2008

OVERLAND PARK, Kan.—In what has been a somewhat difficult year for freight transportation services provider YRC Worldwide Inc., the company’s subsidiary, YRC Logistics Inc., laid off nearly 50 employees earlier this week.

According to a report in the Kansas City Business Journal, which was confirmed to LM by an YRCW spokesperson, these cuts were due, in part, to a change in service providers by an YRC Logistics client that was unnamed. But even though the nearly 50 employees—that were mainly comprised of drivers and warehouse staffers—will no longer be YRC Logistics employees, effective mid-November, YRC Logistics COO John Carr told the Kansas City Business Journal that another logistics service provider—which he declined to identify—has offered jobs to the employees that will no longer be part of YRC Logistics.

The ongoing economic downturn has been tough on the freight transportation industry, and YRCW has not been exempt from these difficult market conditions, which have been exacerbated by a pronounced slowdown in consumer spending, surging oil prices earlier in the year (which have since subsided), and the crisis on Wall Street and related credit crunch.

YRCW has faced various challenges in recent months, including:

• ceasing operations at 27 service centers for YRCW regional LTL subsidiaries USF Holland and USF Reddaway, which resulted in 1,100 employee terminations;
• closing down a revenue management center in Topeka, Kansas, due to declining volumes;
• 400 non-union employee job cuts over August and September; and
• drawing down $325 million on its senior revolving credit facility to be used to pay off a $225 million Roadway notes payment due December 1, according to a Stifel Nicolaus report, along with an outstanding $100 million 6.5 percent senior notes which is due on May 1, 2009, with the redemption of the notes due December 1, 2008.

But even with these obstacles, YRCW recently announced that it expects to have a positive cash flow for the third and fourth quarters of 2008, with a significant reduction for the year.

"With more than $9 billion in annual revenue and comprehensive networks in the national and regional markets, we continue to provide excellent service to our customers each and every day," said Bill Zollars, Chairman, President and CEO of YRC Worldwide, in a recent statement. "Despite the continuing unrest in the broad financial markets, our current financial position is solid and we remain well positioned to weather this economic environment."

Network integration: In September, YRCW announced that it plans to hasten the integration strategy of its two largest subsidiaries—Yellow Transportation and Roadway. Zollars said that the time was right for this move, due to excess network capacity caused by the economic downturn which he said will allow YRCW to effectively integrate operations while augmenting service reliability and speed. Zollars added that by offering a comprehensive service portfolio through one unified network, YRCW can more effectively serve [shippers] and simplify their experience.

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. 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 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. Another area where savings will come from, said Smid, is local pickup and delivery handling.

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.”

“The idea of combining the two companies makes a lot of sense, and it is the right idea,” said Satish Jindel, president of Pittsburgh-based SJ Consulting. “The part that I disagree with is that YRCW wants to maintain two separate brands. I think they would be better off combining them and maintaining one brand, which would provide increased density, lower operating costs per shipment, and higher profitability, but it comes down to how they execute.

Unique challenges: An industry source who declined to be named said that while the LTL market has been challenging across the board, YRCW has had some issues that are unique to the company alone, in terms of its financial condition and the integration of Yellow Transportation and Roadway.

“If you look back over history, these types of integrations in the LTL industry tend not to go well, and that challenge is ahead of them,” said the source. “In the meantime, even with its other subsidiaries, one would suspect they have to cut costs at any and all levels. In both trucking and logistics, the demand environment is soft and companies are doing what they can to protect market share. And shippers are turning to these companies, asking to help them manage through this difficult time.”

While YRCW’s challenges appear to be a little more company-specific than industry specific, the global financial markets situation is impacting the credit market and the entire LTL industry as a whole, Jindel.

And with what YRCW has endured in recent months, Jindel described the next few weeks and months as “critical” for the company.

But despite whatever the future holds for YRCW, Jindel said that there should not be an effect on YRCW’s service quality.

“Companies go through downsizing and restructuring without [hindering] service,” said Jindel. “In fact at times, reducing the number of employees can at times speed up the decision process and improve service. The two are not related, but how each company manages staff reductions affects what the customers experience is.”