XPO unit sues YRC Freight for allegedly poaching top executives
YRC unit conspired with former XPO executives to steal employees, abscond with trade secrets, suit alleges. Suit asks minimum one-year ban on individuals working at YRC.
Mark Solomon joined DC VELOCITY as senior editor in August 2008, and was promoted to his current position on January 1, 2015. He has spent more than 30 years in the transportation, logistics and supply chain management fields as a journalist and public relations professional. From 1989 to 1994, he worked in Washington as a reporter for the Journal of Commerce, covering the aviation and trucking industries, the Department of Transportation, Congress and the U.S. Supreme Court. Prior to that, he worked for Traffic World for seven years in a similar role. From 1994 to 2008, Mr. Solomon ran Media-Based Solutions, a public relations firm based in Atlanta. He graduated in 1978 with a B.A. in journalism from The American University in Washington, D.C.
XPO Logistics Freight Inc., which was known as Con-way Freight before XPO Logistics Inc. bought Con-way's parent last year, has sued YRC Freight, the long-haul, less-than-truckload (LTL) unit of YRC Worldwide Inc., charging the unit schemed to steal key XPO Freight employees, misappropriate its rival's trade secrets, encourage current XPO Freight workers to breach their fiduciary duties, and deliberately interfere with contractual nondisclosure agreements.
The suit, filed Wednesday in Delaware Chancery Court, requested that YRC be blocked from employing or retaining seven key former XPO Freight executives for at least one year from the date of an order. Among them were Chet Richardson, who ran the former Con-way Freight's highly regarded line-haul operation, and Paul Lorensen, who headed its Central region operations. Their departures are at the core of the animus that has existed between the LTL carriers since the XPO unit's parent closed its $3 billion acquisition of Con-way Inc. on Oct. 29.
According to the complaint, both men resigned from XPO on Nov. 9 without prior notice and immediately went to work at YRC, in similar positions to those they held at the former Con-way Freight. Both men had unfettered access to very sensitive XPO information, which they took with them to YRC, the complaint charged. YRC announced their appointments in a Jan. 26 press release.
According to the complaint, YRC informally offered Lorensen a position by Sept. 19, 2015, at the latest. That date would have been 10 days after XPO announced on Sept. 9 its proposed purchase of Con-way. Though Lorensen immediately accepted the offer, his attorney asked YRC to postpone the tendering of a formal offer letter from Oct. 6 to Nov. 3 because the attorney said it "would be safer this way," according to the complaint. The 27-day delay gave Lorensen more time to access XPO Freight's confidential information, the complaint alleged.
Soon after accepting the offer, Lorensen was encouraged by YRC to help persuade Richardson to jump ship, according to the complaint. Richardson was highly sought after because of his operational acumen, and because he and his team had access to proprietary algorithmic software models that analyzed and selected the most efficient route for a customer's loads from among the countless alternatives on XPO Freight's network, according to the complaint.
The complaint alleged that last September, Lorensen and Sean Saunders, YRC's senior vice president of human resources and safety, said that Richardson's hiring was critical to YRC because of his knowledge of the models and his relationships with the IT community. YRC began targeting Richardson around that time, and he informally accepted YRC's offer by Oct. 6, at the latest, the complaint stated. As with Lorensen, YRC delayed the timing of Richardson's formal offer until Nov. 3, the complaint alleged.
After accepting the offers from YRC but before leaving XPO Freight, Lorensen and Richardson participated in high-level XPO meetings where critical information was exchanged, the complaint said. Among the material was a report prepared by consultancy McKinsey & Co. outlining a 15-step plan to transform the LTL business. The McKinsey report was distributed to high-level executives, including Lorensen and Richardson, on Nov. 6, according to the complaint. Three days later and with the confidential intelligence in hand, the men abruptly resigned and joined YRC, the complaint alleged.
The complaint charged that top YRC Freight executives, including President Darren Hawkins, conspired with Lorensen and Richardson to identify other XPO Freight employees to "hire for strategic reasons, including for their knowledge of the (company's) confidential information and trade secrets." According to the complaint, Saunders, the HR executive, told Richardson that he was "just trying to figure out how many XPO employees [he] can recruit."
YRC Freight and its parent company declined comment, according to Mike Kelley, a YRC Freight spokesman.
The suit was one of twin headaches besetting Overland Park, Kan.-based YRC this week. After the market closed yesterday, the company posted fourth-quarter and full-year results that didn't sit well with Wall Street, which took down the stock $3.24 a share today to close at $7.47 a share. In the quarter, YRC Freight's operating revenue fell to $733.7 million, from $795.5 million, while the unit swung to a $21.4 million operating loss from a $24.5 million operating profit. Tonnage per day dropped 6.8 percent, and operating ratio, a ratio of revenues to expenses and a key metric of a carrier's efficiency, rose 600 basic points, to 102.9, meaning that the unit spent $1.02 for every $1 in revenue.
The unit's revenue per every 100 pounds hauled—known in trucking as revenue per hundredweight—rose 4.4 percent, excluding the impact of fuel surcharges, and fell 1.5 percent when surcharges were added in. The quarter-over-quarter decline reflects the dramatic fall in diesel fuel prices during the period.
YRC's three-carrier regional unit posted a 3.1-percent drop in quarterly revenue and a 10.4-percent decline in operating income. Its operating ratio rose 0.2 percent. Tonnage per day dropped 2.6 percent. Revenue per hundredweight rose 3.4 percent without fuel surcharges, and dropped 2 percent when surcharges were added in.
In a statement accompanying the results, James L. Welch, the parent's CEO, acknowledged that results were impacted by demand weakness in end markets, especially in the industrial sector where LTL carriers generate much of their business. Most observers believe the industrial economy is in recession and won't rebound until the second half of the year at the earliest. "We would obviously like for the freight environment to be better and improve throughout 2016," Welch said.
David G. Ross, analyst for investment firm Stifel, said in a note today that tonnage at both units ended the quarter weaker than it started. Ross added that January tonnage did not pick up from year's end, a trend that must be watched given that other LTL carriers are reporting that tonnage trends, while still sequentially negative, are moving in the right direction.
One bright spot, Ross said, is that current contract renewal rates are up 3 to 5 percent, a sign that pricing remains rational. "Of course, YRC will need to grow volumes at some point in 2016 ... to see margins head back in the right direction," he added.
Supply chain planning (SCP) leaders working on transformation efforts are focused on two major high-impact technology trends, including composite AI and supply chain data governance, according to a study from Gartner, Inc.
"SCP leaders are in the process of developing transformation roadmaps that will prioritize delivering on advanced decision intelligence and automated decision making," Eva Dawkins, Director Analyst in Gartner’s Supply Chain practice, said in a release. "Composite AI, which is the combined application of different AI techniques to improve learning efficiency, will drive the optimization and automation of many planning activities at scale, while supply chain data governance is the foundational key for digital transformation.”
Their pursuit of those roadmaps is often complicated by frequent disruptions and the rapid pace of technological innovation. But Gartner says those leaders can accelerate the realized value of technology investments by facilitating a shift from IT-led to business-led digital leadership, with SCP leaders taking ownership of multidisciplinary teams to advance business operations, channels and products.
“A sound data governance strategy supports advanced technologies, such as composite AI, while also facilitating collaboration throughout the supply chain technology ecosystem,” said Dawkins. “Without attention to data governance, SCP leaders will likely struggle to achieve their expected ROI on key technology investments.”
The U.S. manufacturing sector has become an engine of new job creation over the past four years, thanks to a combination of federal incentives and mega-trends like nearshoring and the clean energy boom, according to the industrial real estate firm Savills.
While those manufacturing announcements have softened slightly from their 2022 high point, they remain historically elevated. And the sector’s growth outlook remains strong, regardless of the results of the November U.S. presidential election, the company said in its September “Savills Manufacturing Report.”
From 2021 to 2024, over 995,000 new U.S. manufacturing jobs were announced, with two thirds in advanced sectors like electric vehicles (EVs) and batteries, semiconductors, clean energy, and biomanufacturing. After peaking at 350,000 news jobs in 2022, the growth pace has slowed, with 2024 expected to see just over half that number.
But the ingredients are in place to sustain the hot temperature of American manufacturing expansion in 2025 and beyond, the company said. According to Savills, that’s because the U.S. manufacturing revival is fueled by $910 billion in federal incentives—including the Inflation Reduction Act, CHIPS and Science Act, and Infrastructure Investment and Jobs Act—much of which has not yet been spent. Domestic production is also expected to be boosted by new tariffs, including a planned rise in semiconductor tariffs to 50% in 2025 and an increase in tariffs on Chinese EVs from 25% to 100%.
Certain geographical regions will see greater manufacturing growth than others, since just eight states account for 47% of new manufacturing jobs and over 6.3 billion square feet of industrial space, with 197 million more square feet under development. They are: Arizona, Georgia, Michigan, Ohio, North Carolina, South Carolina, Texas, and Tennessee.
Across the border, Mexico’s manufacturing sector has also seen “revolutionary” growth driven by nearshoring strategies targeting U.S. markets and offering lower-cost labor, with a workforce that is now even cheaper than in China. Over the past four years, that country has launched 27 new plants, each creating over 500 jobs. Unlike the U.S. focus on tech manufacturing, Mexico focuses on traditional sectors such as automative parts, appliances, and consumer goods.
Looking at the future, the U.S. manufacturing sector’s growth outlook remains strong, regardless of the results of November’s presidential election, Savills said. That’s because both candidates favor protectionist trade policies, and since significant change to federal incentives would require a single party to control both the legislative and executive branches. Rather than relying on changes in political leadership, future growth of U.S. manufacturing now hinges on finding affordable, reliable power amid increasing competition between manufacturing sites and data centers, Savills said.
The British logistics robot vendor Dexory this week said it has raised $80 million in venture funding to support an expansion of its artificial intelligence (AI) powered features, grow its global team, and accelerate the deployment of its autonomous robots.
A “significant focus” continues to be on expanding across the U.S. market, where Dexory is live with customers in seven states and last month opened a U.S. headquarters in Nashville. The Series B will also enhance development and production facilities at its UK headquarters, the firm said.
The “series B” funding round was led by DTCP, with participation from Latitude Ventures, Wave-X and Bootstrap Europe, along with existing investors Atomico, Lakestar, Capnamic, and several angels from the logistics industry. With the close of the round, Dexory has now raised $120 million over the past three years.
Dexory says its product, DexoryView, provides real-time visibility across warehouses of any size through its autonomous mobile robots and AI. The rolling bots use sensor and image data and continuous data collection to perform rapid warehouse scans and create digital twins of warehouse spaces, allowing for optimized performance and future scenario simulations.
Originally announced in September, the move will allow Deutsche Bahn to “fully focus on restructuring the rail infrastructure in Germany and providing climate-friendly passenger and freight transport operations in Germany and Europe,” Werner Gatzer, Chairman of the DB Supervisory Board, said in a release.
For its purchase price, DSV gains an organization with around 72,700 employees at over 1,850 locations. The new owner says it plans to investment around one billion euros in coming years to promote additional growth in German operations. Together, DSV and Schenker will have a combined workforce of approximately 147,000 employees in more than 90 countries, earning pro forma revenue of approximately $43.3 billion (based on 2023 numbers), DSV said.
After removing that unit, Deutsche Bahn retains its core business called the “Systemverbund Bahn,” which includes passenger transport activities in Germany, rail freight activities, operational service units, and railroad infrastructure companies. The DB Group, headquartered in Berlin, employs around 340,000 people.
“We have set clear goals to structurally modernize Deutsche Bahn in the areas of infrastructure, operations and profitability and focus on the core business. The proceeds from the sale will significantly reduce DB’s debt and thus make an important contribution to the financial stability of the DB Group. At the same time, DB Schenker will gain a strong strategic owner in DSV,” Deutsche Bahn CEO Richard Lutz said in a release.
Transportation industry veteran Anne Reinke will become president & CEO of trade group the Intermodal Association of North America (IANA) at the end of the year, stepping into the position from her previous post leading third party logistics (3PL) trade group the Transportation Intermediaries Association (TIA), both organizations said today.
Meanwhile, TIA today announced that insider Christopher Burroughs would fill Reinke’s shoes as president & CEO. Burroughs has been with TIA for 13 years, most recently as its vice president of Government Affairs for the past six years, during which time he oversaw all legislative and regulatory efforts before Congress and the federal agencies.
Before her four years leading TIA, Reinke spent two years as Deputy Assistant Secretary with the U.S. Department of Transportation and 16 years with CSX Corporation.