Q&A: YRC Worldwide CEO James Welch

To say that since taking the reins as CEO of less-than-truckload (LTL) transportation services provider YRC Worldwide in late 2011 James Welch has been busy would be a gross understatement.

Welch inherited a company with more than its share of financial issues, considering it lost more than $2.6 billion going back to 2007. But under his watch, things are clearly getting better. This was made clear in November, when the company announced that for the third quarter it an had operating profit of $27.3 million on top of a $15.5 million operating profit in the second quarter, marking the first time in four years that YRC, which is the second-largest LTL carrier behind FedEx Freight, posted two straight quarters of operating profit.

What’s more, YRCW issued more good news in February for its 2012 earnings, reporting a positive annual operating income. And its consolidated operating revenue for 2012—at $4.851 billion—was down 0.4 percent compared to 2011, but its consolidated operating income increased $162.3 million to $24.1 million, including a $9.7 million gain on asset disposals, marking its first positive annual consolidated operating income in six years. It reported that 2012 consolidated operating revenue at $4.869 billion and a consolidated operating loss of $138.2 million, including an $8.2 million gain on asset disposals. EBITDA for 2012 at $241.2 million represented an $82.0 million improvement over 2011.

LM Group News Editor Jeff Berman caught up with Welch at last week’s National Shippers Strategic Council (NASSTRAC) Annual Meeting in Orlando to discuss the company’s recently approved change of operations for YRC Freight, its national LTL entity, regional LTL, and YRCW’s plans to continue improving its bottom line, among others. A transcript of the conversation follows below.

Logistics Management (LM): What is your take of the LTL market at the moment? Things are better than 2009 for certain and appear to be coming back as evidenced by carriers having the pricing advantage.
James Welch: I view things as being somewhat steady at the moment. We have seen the business a lot healthier than it is today, yet it is healthier now than it was 3-4 years ago. I consider the economy to still be a little choppy but not getting any worse or getting substantially better. Things are pretty steady.

LM: What are the biggest headwinds—or concerns—when it comes to the economy in your opinion?
Welch: We are looking at GDP and housing numbers and import tonnage traffic as so much of the U.S. manufacturing space has “moved out” over the years although it is starting to come back a little bit. There are lots of things we keep an eye on, and there is nothing to make one jump for joy, but there are no clear signs that things are heading in the wrong direction either; it is more of the same. We are hoping that the second half of the year is better but true to form over the last two years, things got off to a good start in the first quarter with growth not as robust after. I don’t know if this is the new normal or if it is just the way the supply chain is cycling with inventory levels. It is still kind of a weird phenomenon, because just a few years ago March was the big turnaround month for the quarter for the rest of the year through November and then things would slow down through year end.

LM: How do you view pricing in the sense of working well with shippers to get the rates you need to support your network?
Welch: I am sure people get tired of hearing this, but we still see pricing at a pretty rational state. There are some hot spots here and there, but, overall, things are rational. The industry is still recovering from the years when YRC Worldwide was doing so badly and few specific carriers were working hard to put us out of business. That kind of set the whole industry into a tail spin, but I think the industry is recovering and going to have to be able to do more than re-capitalize itself at some point. Many carriers delayed equipment purchases, and that is starting to cycle back around, but pricing, overall, is rational right now.

LM: Is YRCW buying a lot of new equipment right now?
Welch: We are buying equipment at all four of our operating companies: YRC Freight, Holland, New Penn, and Reddaway. It is a start for what is going to be a long process to upgrade our total fleet because we had to go so many years without investing in our assets, but we started making that move this year.

LM: How are things going in the regional LTL market?
Welch: The need for good regional LTL carriers is going to continue to be in demand. Regional carriers that can offer excellent dependable service will see their business opportunities continue. And with the ever-changing supply and distribution process and how freight flows into this country and then is distributed or flows within the country after it has been manufactured is going to be a continually evolving situation. The demand for regional traffic is not going away.

LM: Diesel prices are seeing declines over the last eight weeks. Generally, do you hear feedback from your customers about fuel surcharges and how they are implemented?
Welch: I don’t hear a lot about it. We all see what happens with prices when we are at the pump and know the spikes for decreases and increases, with the fuel surcharge ebbs and flows, too. It has been cemented in our shippers way of doing business for a number of years and is what it is.

LM: What is the status of YRC’s change in operations plan?
Welch: It was approved and we will implement it in early May.

LM: What is the goal for YRC Freight when these changes are made and what can shippers expect?
Welch: What I felt when I returned to the company was that YRC Freight had a network that was way too large for the amount of business being done. When they put Yellow and Roadway together, in my mind, they did a very poor job of sizing the network for its business levels. What we had was a network that was more expensive to operate than it needed to be, and we handled our customer’s freight too much. It was as efficient as it needed to be from a linehaul standpoint. This change does not reduce any of our coverage from a service standpoint. It merely puts us in a better position to improve our density and allows us to load more direct trailers, as an example, which, in turn, gives us the opportunity not to transfer as much of our customer’s freight as we were. There is a lot of power and efficiencies to be gained by doing that, coupled with the fact that YRC Freight was able to alter its distribution center network and be configured in a sensible fashion from a density standpoint. We think we are going to come out of this on the other side as a better operating company, with our customers being better serviced.

LM: YRCW has seen improved earnings in recent quarters. What needs to happen to keep the momentum going?
Welch: We need to focus on what we do best, which is LTL trucking. This corporation got way too out of whack by kind of diversifying away from what it head always done best. We need to continually focus on doing what we do best and find new and different ways to be efficient and competitive in the marketplace and grow our business a little more and we will continue to produce better results.

LM: How would you describe how 2013 is going year-to-date from a business or volume perspective?
Welch: With earnings coming up, I cannot say much. But I can say we continue to hit our internal forecasts and that is a great sign.

LM: Where do things currently stand with regards to YRCW’s debt load and standing with its creditors and lenders?
Welch: When I returned to the company in August 2011, the restructuring has already been done. But I will say our relationship with our lenders has been really good and we have set targets we want to hit that will help us do things to help ourselves on the debt side over time. We are confident that we are on track for what we want to accomplish.

LM: Earlier this year, YRC announced it was experimenting with LNG-powered tractors. How are things going on that front and what are your goals on that front?
Welch: It is hard to say at the moment, but we are experimenting with it and testing it out. We would like to move forward with more, but the price point for equipment is still pretty high and until we get the company in better shape financially we just cannot go out and make a bunch of investments there. That could change if the prices to entry come down enough for us to make it work and jump into it.

LM: More LTL freight is moving over the rails via intermodal. What is YRC up to in that regard?
Welch: About 25 percent of our YRC Freight LTL traffic moves on the rails. We have had a great partnership with the railroads for close to 20 years, and we consider them a good partner. They have done a nice job of providing very competitive service levels. We have partnered more with the rail based on freight levels so if we can utilize the rails to avoid running on empty, that is good for our costs and the environment. We look at that in the sense of how we can use to rails to balance our network.