a different kind of Yellow alert

Bill Zollars insists that Yellow Transportation and Roadway Express will continue to compete with one another a fter the two carriers merge. But last month's announcement that Yellow Corp., parent of Yellow Transportation, would acquire Roadway Corp., parent of Roadway Express, has raised a number of concerns among shippers, industry analysts and representatives of organized labor.

The proposed merger, in which Yellow would pay about $966 million for Roadway, would join together two of the biggest and best-known brands in transportation. The combined entity, to be known as Yellow-Roadway Corp., would represent one of the largest transportation service providers in the world, with combined annual revenues of about $6 billion.

Though changes might not be noticeable right away, the proposed merger—which executives hope will take place by year's end—would certainly alter industry dynamics. For one thing, the merger immediately brings to a halt any further ventures by Roadway into the regional trucking business (like its recent acquisition of New Penn Motor Express in the Northeast). For another, it substantially narrows the LTL field. More than two decades of industry consolidation and last year's failure of Consolidated Freightways have left only three major longhaul LTL carriers standing in the United States: Yellow Transportation, Roadway Express and ABF Freight System.

That has raised shipper concerns about the service, pricing and capacity picture down the line. John Gentle, global leader of carrier relations for Owens Corning and chairman of the National Industrial Transportation League's highway transportation committee,says that even if the merger results in no more than consolidation of internal functions, he's concerned about the prospect of deteriorating service. "No one is running at superior service levels," Gentle says. Noting that many carriers are already charging premium rates for guaranteed services, he warns, "I'd watch the primary level of service, standard ground. If that erodes, shippers will have to take some action to assure consistency in transit times and may have to pay a premium for what was standard ground."

Gentle says that industry consolidation could hit small shippers particularly hard."I wonder about the small shipper and whether he will be able to effectively move freight, and at what price."

Union blues
The merger proposal is also getting close scrutiny from the Teamsters union. Zollars, who is chairman of Yellow Corp.,and Roadway President and CEO James D. Staley met with Teamster President James Hoffa the day after the announcement in an effort to reassure the labor chief that the merger would have minimal effect on union employees of the two carriers.

Their efforts may have been in vain. Hoffa and his team remained skeptical after the meeting. In a press release, the union noted the two carriers had closed more than 600 terminals between them during the last 10 years. "Further, there appears to be no apparent economic value [to the merger] without reducing operations or a significant rebound in the economy," the release said.

At least one party says he thinks that rebound is imminent. Zollars told analysts during a teleconference following the announcement that he believed the economy was on the verge of a recovery and reported that Yellow had begun to see increased freight volumes in its network.

In any event, Zollars said he expected changes in operations to come slowly. "One of the advantages of this acquisition is that we can be thoughtful about changes," he said. "We don't have to slam the companies together. Both brands are strong and have loyal customers. We don't expect there to be any change in the relationship between customers and either one of the companies."

Neither Zollars nor Staley would speculate about when or if the two carriers would start consolidating portions of their operations. "There will be more impact in the back office in the first year than with field employees, "Zollars said in the teleconference. "We expect the impact on those employees to be close to zero. Beyond that, I'm not prepared to say. We hope to grow the business and add employees."