SYNERGY the art of bending over, and grabbing your ankles.....
Yellow Roadway Seeks Savings
Bill Carey | Nov 20, 2005 7:00PM EST
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By year-end, Yellow Roadway will have reaped about 44 percent, or $200 million, of the $450 million in cost savings or synergies it hoped to achieve after buying Roadway Express in 2003 and USF this spring, company executives say. Winning the next $250 million in savings from its national and regional LTL subsidiaries may be harder.
Yellow's drive for synergies among the carriers in its trucking empire involves taking many small steps, such as printing invoices on both sides of a piece of paper, and a few large ones - in particular, shutting down USF Dugan.
Speaking Nov. 2 at the Stephens Logistics & Transportation Conference, Yellow Chairman, President and CEO Bill Zollars said "corporate office" synergies "were pretty easy to get ? in the case of Roadway, and in the case of USF we're capturing that now."
Zollars also spoke of harder changes that have been made - or may still be in the works.
USF Bestway and Michigan-based USF Holland are "two companies that need to be fixed," Zollars said.
Robert Zimmerman, formerly senior vice president of field operations and sales for Yellow Transportation, was named to lead USF Holland in June, following the resignation of Steven Caddy as president.
Meanwhile, sister company New Penn Motor Express, of Lebanon, Pa., whose territory overlaps Holland's in the Northeast, and USF Reddaway, of Clackamus, Ore., are operating efficiently in Zollar's opinion.
"Holland ? got mesmerized with what they call [their] Premium Plus business, kind of took their eye off the ball in their core business, which was next-day," Zollars said. "Their service suffered as a result of that, and they ended up pricing the Premium Plus business at too low a level."
Other Yellow executives described the synergy process and reported progress in achieving the company's goals in recent presentations to analysts. Yellow Roadway Chief Financial Officer Donald G. Barger Jr., said relatively small savings - $400,000 a year in the case of double-sided invoices - are being reaped in many areas. The process differs between Roadway and USF in that USF is decentralized, he said.
"We basically concluded that through synergies, we could double the operating income of the combined Yellow Transportation and Roadway Express companies, and we are well on the way to doing that," Barger said. "? When we took a look at USF and drilled down on the synergy side, our conclusion was the same."
Barger said Yellow will finish this year with $200 million in cost savings.
This month, USF workers around the country were updated on the synergy process. James D. Staley, president and CEO of YRC Regional Transportation, the Yellow subsidiary that includes the USF companies, said nothing has been decided regarding any further consolidation or relocation of positions. He said there may be some layoffs, although they are not expected to be substantial.
The synergy effort will be reviewed through the first half of 2006, he said. In meetings with USF employees, "we acknowledged that, yes, there would be some relocations to where we have centers of excellence or scale that has been developed," following the Yellow acquisitions, Staley said.
Soon after buying USF in May for $1.37 billion, Yellow shut down Wichita, Kan.-based USF Dugan, which employed 3,000 people and had struggled financially for years. But Staley said it is "absolutely not correct" that the general office of USF Bestway in Scottsdale, Ariz., now is targeted for closure, as has been rumored.
The consolidation of USF functions is modeled on the synergy process underway at Roadway, which Yellow acquired in December 2003 for $1 billion.
Yellow, the nation's leading LTL carrier with nearly $10 billion in annual revenue, set out to trim $300 million in operating costs from Roadway in the next few years and $150 million from USF. "That was the template we used with Yellow Roadway and continue to use with USF, which we've said publicly," Staley said.