What does the Yellow Roadway deal mean for Reimer Express Lines customers?

by Canadian Shipper

Shippers can rest assured there will be no changes to the operations and customer interface of Reimer Express Lines resulting from the proposed purchase of its parent, Roadway, by LTL giant, Yellow Corp.

That’s the word from president and CEO of Reimer Allan Robison.

In fact, there are to be no immediate changes to the operations and customer interface for Yellow and Roadway either. Nor will there be changes to Roadway’s Next Day Corp., which owns New Penn Motor Express, a next-day, ground LTL carrier of general commodities serving Quebec, twelve states in the northeastern U.S. and Puerto Rico.

Bill Zollars, currently chairman, president and CEO of Yellow, said although the back-office operations of Yellow and Roadway would be merged , the operations in the field would remain the same. The two companies have about 600 terminals between them.

"There will be no change in the way these brands go to market. ..Initially we are not going to change the operations of either company. ..The customer interface will stay the same as it is," said Zollars. He likened the future relationship between the two companies as that between Pontiac and Buick for General Motors.

Under the terms of a definitive agreement announced this week, Yellow, which is headquartered in Overland, Kansas, will pay $966 million or $48 per share to acquire Akron, Ohio-headquartered rival Roadway (all figures in U.S. dollars). Yellow will also assume an expected $140 million in net Roadway debt, bringing the total value of the deal to about $1.1billion.

The combined enterprise, which will be known as Yellow-Roadway Corporation, will be one of the largest transportation service providers in the world. The combined revenue of both companies for the 12 months ending the first quarter of 2003 was nearly $6 billion.

The two companies figure to save a "conservative" $45 million by integrating their back office operations in the first year of the deal and up to $125 million a year within five years.

Reimer’s Robison said his Winnipeg general office functions already have the advantage of paying wages in Canadian dollars but this integration could result in further benefits for his firm.

"I don’t know what will eventually happen with the administrative functions but if they decide one day to make them all identical, that means that whatever enhancements Roadway or Yellow have, we will end up with them. And that will help our customers," Robison said.

Several analysts, however, have noted that Yellow and Roadway may have to look beyond their back office operations to realize larger scale savings. After all, $125 million is not a particularly huge amount of savings for a $6 billion outfit.

"That’s something they are going to have to decide," Robison said. "My personal opinion, take Canada for instance, it may make some sense later on where we have an operation and Yellow has one to look at some common operations. But the first thing that you have to do when you do that is that you have to almost become seamless on the administrative side. Once you do that the operational side works pretty easily. But these are things the corporation will have to decide if it’s in their best interest from a marketing standpoint not just a cost stand point. You don’t always end up doing these things. For instance if you were to say let’s merge all of Roadway and Yellow in the U.S. that would be a disaster. There is too much to bring together and they both are so strong there is no reason to do that."

The merger may also give Roadway and Yellow, already giants in the LTL market, the muscle to launch new services outside their traditional and go head-to-head with powerhouses such as UPS, FedEx and DHL.

Zollars’ comments indicate the new company is in tune with this thinking: "In the longer term, having a company that can compete with anybody is our goal. And I mean anybody in the transportation space."

Robison added that many Canadian shippers are now serving the world mostly in the U.S, but also Mexico and other countries and LTL carriers must grow to serve their needs.

"If you are supplying a transportation service for them and you can’t do that, that’s where your problems start. As an LTL carrier you have to keep asking yourself can I provide the kind of service my customers need or am I becoming isolated and they are going to find someone else? That is usually what drives LTL carriers to start looking at mergers," Robison told Truck News. "What it brought to Reimer when Roadway purchased us was the ability to serve the world. We had the ability to do a good job in Canada but we didn’t have the ability to do that in the rest of the continent. Now there isn’t a place we can’t go. And now that we have Yellow as well, it gives us that much more than we had before, so the opportunities for our customers in Canada have become that much greater."

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