November 25, 2008

YRC may lose significant business during Yellow, Roadway integration, analyst says

By DC Velocity Staff

YRC Worldwide, the parent of the nation's largest less-than-truckload carrier, may lose between 30 and 40 percent of its traffic during the year-long integration of its Yellow Transportation and Roadway units, a leading analyst said Nov. 17.

John G. Larkin, managing director, transportation logistics group for Stifel, Nicolaus & Co., told a transportation gathering in Fort Lauderdale, Fla., that the loss of business will be due to "operational consolidation" as the two truckers merge their operations. He did not elaborate.

In September, YRC said it would accelerate the integration of the two units by unifying their sales and operational networks. YRC said the process, expected to run through 2009, would result in $200 million in savings as well as service enhancements and better transit times as it gains greater volume density on many corridors.

Phil J. Gaines, Yellow Transportation's president and the executive heading the integration, disputed Larkin's projections. "It is certainly not our intention to lose anywhere near that level of business," Gaines told DC Velocity during an annual conference jointly sponsored by the National Industrial Transportation League, the Transportation Intermediaries Association, and the Intermodal Association of North America.

Gaines said the companies are currently undertaking the "transition step" of moving operations into shared service centers. He added that 60 of these facilities have been established with the goal of having 150 by March and 470 by the end of 2009.

YRC continues to face questions about its financial condition. On Nov. 19, rating agency Standard & Poor's downgraded YRC's debt rating three notches and raised doubts about the company's ability to meet its obligations. S&P cited YRC's falling profits as the reason for its move. In a statement, YRC said the S&P action would require the company to pledge about $1.5 billion of its remaining unencumbered assets, mostly real estate and so-called revenue equipment, as collateral.

In the interview, Gaines acknowledged that YRC's financial situation has "created a fair amount of noise in the marketplace." Gaines said he and his team normally have to spend up to 30 minutes at the start of each customer visit clarifying the parent's finances.