YRC Worldwide CEO Mike Smid knows his customers and competitors are wondering whether the nation's largest LTL carrier will survive. There's no question in his mind that it will, he told DC VELOCITY at NASSTRAC's 2009 Logistics Conference and Expo in late April.
YRC has made substantial changes in its operations while aggressively managing cash, liquidity, and fixed and variable costs, Smid said. "We have not gone to a bank and asked for any additional money—not a dime," he said. (Two weeks after the interview, however, YRC Worldwide Chairman, President, and CEO Bill Zollars told The Wall Street Journal that the company would ask the federal government for $1 billion in Troubled Asset Relief Program (TARP) funds to help it meet pension obligations.)
Smid believes the recently completed integration of Yellow Transportation and Roadway Express—the integrated unit now goes by the name YRC National—will improve the carrier's outlook. The integration included a network restructuring to eliminate terminals in some areas and expand in others—YRC now operates about 100 more service centers than either Yellow or Roadway did individually, with direct service to an additional 21,000 locations. The carrier also says it has cut average transit times by half a day and boosted on-time delivery rates by several points. Meanwhile, it continues to reduce operating and personnel costs.
Smid acknowledged that the road to integration was not easy. Customer service was overwhelmed for the first two weeks, and there were some visibility gaps during the transition to a single IT platform, he said. Those problems were resolved, and performance measurements indicate that productivity and customer service are better than either carrier had achieved before, he said.
YRC had anticipated losing about 10 percent of its volume because some customers would want to "wait out the transition and see how it goes." Smid estimated the actual integration-related loss at 10 to 12 percent. YRC has regained some of the lost customers and has signed up new ones in the past two months, he said.
But YRC is far from out of the woods. The weak economy, coupled with customers' concerns about the Yellow- Roadway integration, dragged down first-quarter volumes. David Ross, an analyst for Stifel Nicolaus Transportation Research, estimated that YRC National's April volumes were down 35 to 40 percent year on year. Furthermore, YRC must contend with pricing pressures triggered by excess capacity and demands for lower rates from customers that are economically stressed themselves. In mid-May, the carrier said it could not meet all of its second-quarter debt obligations and had arranged with its bankers to amend its credit facilities to eliminate the second-quarter earnings before interest, taxes, depreciation, and amortization (EBITDA) covenant. YRC's other financial covenants, including those affecting cash and liquidity, remain in force.
Whatever happens, Smid says, YRC will not just sit back and take it. "There are two ways you can approach the economic situation," he said. "You can work harder and longer, or you can re-create yourself, adding new services that bring short- and long-term value to your customers. We chose to do the latter."
Gartner, Inc.