As Jeffrey A. Rogers, president of YRC Freight, tells it, 2013 will be the year the long-haul unit of YRC Worldwide Inc. finally asserts itself in the marketplace after five years or so of manmade misery.
Left unsaid is that 2013 could also be the year that Rogers puts his stamp on YRC and positions himself to be running the whole shooting match by the latter part of the decade.
Rogers, 50, was tapped in September 2011 to run YRC Freight as part of a major revamp launched by James L. Welch, YRC's 58-year-old CEO. Welch himself had been hired only three months prior to rescue the Overland Park, Kan.-based company, which had once been king of the less-than-truckload (LTL) hill but was nearly run into the ground during the recession.
Rogers has the pedigree for the role. He spent three years running YRC's Holland regional subsidiary, one of the nation's most successful carriers and the jewel in the corporate crown. Prior to that, he was CFO of YRC Regional, YRC's successful regional transportation unit. Before joining YRC, Rogers spent 14 years at UPS Inc.
But turning around the battered long-haul unit—which accounts for about three-fourths of YRC's $4.9 billion in annual revenue—amid a brutally competitive market, a subpar traffic mix, high freight claims, and low employee morale is shaping up to be Rogers' toughest test.
The early reviews seem favorable. YRC said Friday the unit posted a fourth-quarter operating income of $21.1 million, its second consecutive quarter of operating gains and a near $48 million improvement over the 2011 period. YRC Freight's fourth quarter operating ratio—the ratio of revenues to expenses and a key gauge of a transport carrier's efficiency—improved 600 basis points year-over-year to 97.3, the company's best fourth quarter operating ratio in six years. The ratio means YRC Freight generated $97.30 in expenses in the quarter for every $100 in revenues.
In a sign that YRC Freight has made slow but steady progress in shedding unprofitable freight, the unit's revenue per hundredweight—a central measure of tonnage profitability—rose 3.2 percent both in the fourth quarter and for the entire year, even though tonnage and shipment count were down in the same periods. The unit's revenue per shipment rose 3.1 percent in the quarter and 2.9 percent for the year, the company said.
For the full year, the unit's operating revenue rose 0.1 percent to slightly more than $3.2 billion. In the fourth quarter, revenue was off by 3.4 percent. Fourth-quarter revenue, shipment, and tonnage figures were affected by mega-storm Sandy, which disrupted supply chins and reduced freight movements throughout the Northeast.
Per usual, YRC Regional—comprised of four operating units in the United States and Canada—was the star of the show in 2012. It posted full-year gains across all metrics and showed fourth-quarter increases in every area save for daily tonnage and shipments, again a partial byproduct of Sandy's impact.
LOOKING BACK ON 2012
In a joint interview Friday with DC VELOCITY, Welch and Rogers said the improvements at YRC Freight in 2012 are due to a better mix of business, a drop in freight claims ratios, and dramatic companywide declines in workmen's compensation claims. Workmen's comp claims in 2012 fell to their lowest levels since YRC began tracking the data in 2000, the company said.
Freight claims ratios, which were a big problem at YRC Freight when Welch and Rogers came onboard, have declined for seven straight months on a year-over-year basis through the end of last month, Rogers said. Without disclosing specifics, Rogers said the unit's freight claims ratio is at its lowest level in years.
Welch said better profitability and lower freight claims go hand-in-hand because freight that is difficult to handle and subject to damage often becomes an unprofitable shipment.
Both men said freight demand in general was choppy in 2012 and will continue that way through the rest of 2013. "The marketplace is very fickle," Rogers said. "Some days it feels good. Some days it doesn't feel good."
Like other LTL executives, Welch and Rogers have tried to restore rational pricing to the sector after several years of destructive rate wars. The strategy has included reducing truck capacity and culling unprofitable freight from the carrier's system. It has also involved an ongoing process of balancing YRC Freight's customer mix. The general rate increases imposed on YRC Freight's noncontract customers have been sticking, according to both.
Rogers wants to attract more local and smaller accounts that generate higher margins and to de-emphasize larger corporate accounts that use their sizable volumes to drive down prices and compress YRC Freight's margins. The big accounts represent about three-quarters of YRC Freight's business.
Welch and Rogers said each day at YRC Freight is a balancing act as some accounts sign on while others, perhaps looking for better rates if the unit won't accept their business, go elsewhere. With larger accounts, both said the unit has to analyze each traffic lane to determine which are profitable and which aren't.
"It's like hand-to-hand combat," Welch said.
STILL MORE TO ACCOMPLISH
After 20 months, Rogers seems heartened but not satisfied. In a Jan. 11 letter to YRC Freight employees, Rogers noted the 2012 accomplishments but said they will mean nothing "unless we deliver results in 2013." "We simply must win in the marketplace," he wrote, adding for effect, "and I mean NOW."
In the letter, Rogers said employees could either unite as a team or "continue operating in virtual silos, going through the motions, and letting competitors beat the crap out of us." He said the ultimate goal is that 10 years from now "people are still talking about YRC Freight as the most remarkable comeback in the history of our industry."
Neither man said they plan to go anywhere in the near- to medium-term. Welch is 18 months into a four-year employment agreement and said he plans to honor the agreement, unless, he said half-jokingly, YRC falls flat on its face and he gets fired.
Welch added that he's having fun at the helm after spending most of the last year-and-a-half "cleaning up the garbage that had built up at this company."
Both men said that there is so much ground to be made up at YRC that the idea of focusing on corporate succession plans is not even on the radar.
"There is an enormous of work to do at YRC Freight," Rogers said. "I'm not even looking past that."