As with many companies these days, YRC Worldwide (Yellow Roadway) is finding that the debt that helped it grow in good times is now a potentially fatal albatross around its neck as the freight industry navigates tumultuous times.
Earlier in this decade, the former Yellow Freight acquired competitors such as Roadway Express and US Freightways to become the giant of the less-than-truckload (LTL) industry.
Now, however, it struggles to survive, with its ability to service its debt and meet so called “covenants” attached to that debt in real doubt.
The company recently bought some time when it renegotiated the terms of its debt agreements that extended some credit lines that were to have expired in April. But the leash isn’t long.
According to Ed Wolfe of Wolfe Research, an analyst firm that covers the transportation industry, with the new agreement “YRCW won a lifeline from its banks but seemingly only for another few quarters, as the new terms require a major operating turnaround by 2Q:09 with even further improvement in 2H:09 despite few signs of such improvement in the market place.”
YRC, however, is making lots of moves. It finished its operational integration of the former Yellow and Roadway networks in December, which should allow it to slash costs. That will be, in part, by reducing redundant capacity and getting higher utilization on the routes that remain for the integrated network. In some cases, it may be dropping customers on poorly utilized routes.
Yellow has said that, independently, each of the networks was lately running at only 75% utilization.
The integration will also allow YRC to eliminate more jobs to save money. It let go 12% of its workforce in 2008, and more layoffs are to come in 2009.
Earlier this year, the company also achieved an unprecedented wage reduction of 10% with the Teamsters union, which will save it as much as $250 million annually.
(Transportation Management Article - Continued Below)