Green Light for Yellow-Roadway

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What the acquisition means for customers of the $6-billion newly formed transportation provider.

Yellow-Roadway Corporation—born in early July when Yellow Corporation acquired Roadway Corporation—will be the largest transportation services provider in the United States focused on big shipments, according to Bill Zollars, chairman, president, and CEO of the $6-billion Yellow-Roadway.

"We will be a solid number-three transportation services provider behind UPS and FedEx, and we will be in the position of being able to offer a wider range of services," Zollars says.

"Roadway Express and Yellow Transportation will be sister companies under the new corporation," adds John Hyre, director of investor and public relations for Roadway. Yellow and Roadway will continue to compete with each other under their respective brand names.

"Both companies have tremendous brand equity and hundreds of thousands of satisfied customers, so our focus will be to continue to grow these brands and add services to them," Zollars says.

Once the new corporation learns the reasons companies select one brand over another, Yellow-Roadway will use that information to further differentiate each brand in order to grow them more quickly. "LTL buyers have solid reasons why they pick the brand they are using and I think that will continue to be true in the future," Zollars says.

"We will continue to serve our customers as we have in the past and we look forward to providing them with the best service and practices available in the industry," Hyre adds.

"Our philosophy is not to change anything that's happening at the customer interface," Zollars says. The synergistic potential is significant, particularly in back-room functions such as credit and collections, payroll, purchasing, and legal.

"So we will be looking at somewhere between $45 million and $125 million in back-room synergies in the first year," says Zollars. "With the financial security of the new entity, we will have additional power to compete in the transportation marketplace and extend our competitiveness," Hyre says.

"From a customer standpoint, it will allow us to do a better job for them and offer them additional capabilities, because we will be able to spread the cost of service improvements and information technology over a broader base," Zollars says.

Readers Weigh In

How do transport buyers feel about the new Yellow/Roadway? After many of you called and e-mailed us with your concerns, we decided to survey readers in a more formal way to get a broader perspective.

Inbound Logistics contacted more than 100 readers who shared their insights on this issue. Forty-two percent are Yellow or Roadway customers, yet the majority (58 percent) say the buyout will not change their LTL buying habits.

As part of the survey, we asked readers: "What about the Yellow/Roadway buyout concerns you?"

Here's a sample of the more pointed responses:

"Less competition in the national LTL sector, leading to higher rates with lesser services. Also, there are major philosophical differences between Yellow and Roadway operational styles and commitments, particularly in services to the retail mass merchandisers/consumers." —Ernest Becker, Traffic/Transportation Manager, Schwarzkopf & Dep Corp.

"I am concerned about service, capacity and price on the long-distance side only. Will the industry be able to maintain a competitive environment that encourages the improvement of services and capacity, a good value proposition, and a competitive pricing environment?" —John Gentle, Global Leader Carrier Relations, Owens Corning

"It reduces competition in the marketplace and could lead to higher prices and service issues once they start to integrate the two operations." —Dennis McMahan, Supply Chain and Logistics Manager, Eliokem Inc.

"It might have a negative impact on future pricing with long-haul LTL carriers overall as providers for this service get fewer from year to year." —Name Withheld on Request

"What concerns me is that we're getting fewer and fewer carriers to pick from, which could cause shipping costs to escalate." —Chris Coley, Traffic Manager General Services Administration, FSS

"The only thing that concerns us is the integration of the two companies. It is being communicated that they will be run as they are today. But if they are to gain any economies of scale, there will have to be some changes. What those changes are is anyone's guess, but we would like to be informed soon." —Steven Huntley, Vice President Global Transportation, Tyco International

"Currently we have a deregulated market. In lieu of this, Yellow will surge into the forefront to become the premier freight carrier and a monopoly in the trucking industry. Currently Yellow and Roadway are in the Top 5 of all trucking companies. Many smaller companies can't compete with a company of that magnitude. Eventually, if mergers and buyouts of this nature continue we will be limited to very few options of LTL carriers, creating a rating structure that cannot be contested by anyone. David slew Goliath, correct? Then who will slay Yellow? If Yellow merges or buys out Roadway, be prepared to pick up the tab for higher freight rates. It's justifiable because the larger the company, the larger the expenses and overhead. They will have to compensate for this somewhere. What can we say or do? Freight has to move. Let us also remember that they both are unionized carriers. You do the math. I see a new lucrative contract on the horizon." —Craig Beverly Sr., Baylor College of Medicine

"As with air, rail, and ocean carriers, this industry is consolidating so that a few major companies will dominate the market. As long as there are three or more companies that can provide similar services, competition will keep the industry in check. If it consolidates to one or two carriers for a given market, then the shipper will ultimately suffer in service and cost." —Name withheld on request

"Any change in LTL capacity is of concern, especially when it decreases competitive forces. The impact this could have on rates and services is likely to ripple throughout the long-haul segment, and reduce future options." —Bill Mallonee, Corporate Transportation Manager, Commonwealth Aluminum

"Does the buyout concern me? Sure it does. We could see fewer choices and it could impact service, price, and capacity in the industry. They cannot continue to operate more than 600 terminals once this is approved and not take advantage of combining those terminals and lanes that are running under capacity. They need to take advantage of the economies of scale if this merger is to support itself." —Larry Faitz, Hallmark Global Services

"Presently, Roadway and Yellow are akin in competitive nature to Coke and Pepsi, at least that is the perception through the eyes of the shipping public. If I randomly named 100 cities throughout the United States I would bet my paycheck that both Yellow and Roadway have dual operations in each of those 100 cities. I hear talk that Yellow will operate Roadway as a separate entity. Really? What concerns me is the fact that over time the Orange and Blue of Roadway will fade entirely to Swamp Hollow Orange. Why would anyone want to operate and maintain dual systems in the same cities? Parallel operations will give way to consolidation. When that happens we have one less choice, and as a result rates will increase. Hard to believe that the Big Three would end up being The Big One." —Greg Andrews, Manager Global Logistics-Transportation, ADTRAN Inc.

"The two carriers as one will now be able to control capacity. When CF went out, there was still so much capacity that in the first quarter of this year, the increases they were able to get in the fall of 2002 started to erode. Now Yellow-Roadway will be able to manipulate the capacity of both trailer/tractors and terminal count. We may be negotiating guarantee equipment contracts...tied to pricing levels come next year. The one governor that shippers have is the economy. If it heats up and traffic takes off, the capacity card will be played by Y-R. If the economy continues as it has, we will see softness in LTL pricing. —Al Giunchi, Logistics Dept., Hartz Mountain Corp.

"Obviously the buyout is meant to lower total cost (vs. Yellow and Roadway combined) while adding the Roadway current volumes and capacity. If the financial numbers do not meet the expectation (revenue and margin), I could see Yellow putting pricing pressure on current accounts to help make up any financial gap." —Tom Harshman, Director Corporate Transportation and Logistics, Mail-Well Inc.

Carriers Weigh In

Carriers, brokers, and third parties buy transport too. Here is a sampling of their opinion, from their unique perspective.

"Does this constitute a monopoly? Is there the chance of collusion among the top two to set pricing? What will be the average shipper's chance for alternative pricing relief? How will carriers now address customer service issues such as overcharge claims?" —Michael Wichert, CalState Xpress

"Other than consolidation of operations and sales efficiencies between the companies, I would not foresee any great visible changes in the next 12 months. I foresee that both companies would need to keep services stable to maintain the current account base." —Doug Hlas, LTL Division Manager, Twin Modal Inc.

"Over time there will be upward pressure in long-haul LTL due to less competition. Service interruptions due to labor issues become more of a concern when there is one dominant long-haul LTL provider. I expect shippers will want alternatives for their long-haul LTL due to cost and service concerns. I expect some of the predominantly regional carriers will expand their coverage and/or closely align with other carriers to offer competitive service."

—Mike Fielden, President Supply Chain Services, Pacer Global Logistics

"The buyout of Roadway could potentially make it the second major LTL carrier to disappear in the past year. Eventually a shrinking carrier base will drive rates up." —Russ Dixon, VEXURE Inc.

10 Ways to Keep LTL Costs Down

How can LTL users keep freight costs manageable in light of the Yellow-Roadway merger, fast on the heels of the Consolidated Freightways bankruptcy? Here's a 10-point plan from Tigris Consulting.

1. Know your options. All transportation networks are complex and dynamic. It is critical to understand all lane specifications and volume densities across all modes and geographies. With a holistic view, transport buyers are better equipped to shift shipments from expensive LTL modes to TL through better planning, identification of backhaul opportunities, and/or better incorporation of privately owned assets. The key message? Without knowing where you stand, it's difficult to know the right path. And without that knowledge, buyers in today's seller's market often face the expensive alternative of a price hike.

2. Take on more. Develop an inbound freight strategy to manage freight directly. Suppliers will pass the increased cost of freight on to customers. At a minimum, assessing the opportunity associated with a terms conversion program would send a signal to suppliers that customers are considering taking away their freight leverage if they do not cooperate. Companies with large outbound volumes can manage inbound freight and gain greater leverage with their carrier base.

3. Conduct better, more creative sourcing. It's critical that transport buyers convey to their carriers the importance of relationships when it comes to a strategic category such as transportation. More intelligent expressive bidding sourcing tools can be used to encourage regional carriers to work together to service short-haul and long-haul needs. Such a strategy provides an alternative to the high-priced LTL long-haul carriers, or can be used as a leverage position.

4. Consider up-and-coming LTL carriers. The historical notables are not the only choices. Mega-regionals and many emerging regional carriers offer comparable, if not better, service within their specific geographies.

5. Negotiate. If you are a high-volume LTL shipper, work with your carriers on load planning to minimize handling in their network. Negotiate for your piece of the network efficiency achieved.

6. Ensure suppliers are consolidating shipments to fewer per week. Certainly be sure they are only shipping one LTL shipment to you per day.

7. Re-evaluate mode breaks between parcel, LTL and TL. And don't forget hundredweight programs from parcel carriers.

8. Plug the leaky savings bucket, maintain zero tolerance. Transport buyers need to design, implement, and track better compliance management strategies, and implement tighter controls. Having preferred carriers and aggressively negotiated deals means nothing if people in the field are not using the right carrier or shipping product via the wrong mode.

9. Drive routing compliance. Simplify routing instructions, keep up to date via web communication, make sure expedited shipment requests get adequate consideration. Hold carriers accountable when they ignore your instructions, and get their attention.

10.Be vigilant about carrier performance. Put in place formal loss and damage claims programs to keep service levels up, and you'll get a tangible payback from carriers when they drop.

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