Yellow/Roadway: Changing Directions

Every September, Inbound Logistics offers readers a review of the trucking segment. The big news this year is Yellow Freight buying its competitor, Roadway. This unexpected move was driven by economic, competitive, and strategic reasons. As we saw with Consolidated Freightways’ demise, size alone is not a reliable indicator of stability. Good management, aggressiveness, and a strategic view must be in evidence, or even those carriers with a big footprint can get trampled in this economy.

“The financial security of the combined company will allow us to do a better job for customers,” Yellow’s Bill Zollars told Inbound Logistics shortly after the buyout announcement. Expenses, such as IT investment, can be amortized over a much larger customer base.

The strategic reason Zollars gives for combining the two companies is sound, as carrier investment in IT will only increase. Carriers must continue to rationalize demand for their services to the supply of equipment, skill, and infrastructure if they are to deliver those services efficiently. Carriers use IT to apply the principles of supply chain management to their operations, enabling them to squeeze every ounce of operational efficiency out of their men, women, and machines.

Readers express concern that Yellow/Roadway rationalization of terminals, trucks, and drivers, might diminish capacity, increasing costs not just for Yellow/Roadway customers but across the board. Here’s why. The new company has sales of $6 billion—10 percent of the entire $600-billion over-the-road market, and a huge slice of the LTL market. Readers say they are worried that any change in capacity at Yellow/Roadway will create a ripple effect across the entire segment.

“Our philosophy is not to change anything that’s happening at the customer interface,” says Zollars. According to reader input, that approach suits them fine, given their worries about capacity and pricing. A majority of readers report that they will not change LTL buying habits in the short term if changes don’t affect them.

There are other conflicting trends to consider. The LTL market, despite recent consolidation, still has formidable competition. But, the American Trucking Associations reports three consecutive months of strong growth in the trucking sector as carriers report higher demand for services for the past three consecutive months. That has not happened in three years, says ATA.

This leading economic indicator gives credence to the idea that the economy is mending. As the nation goes, so goes the trucking industry. When it heats up, the laws of supply vs. demand diminish capacity and raise prices. If 87 percent of all transport dollars are spent on over-the-road transport…well you get the idea.

New technology, acquisitions, bankruptcies, new services—change is the commonality in the trucking segment. We hope this annual trucking issue will help you select the right carrier partners during the next year.

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