Seeing Yellow: CEO Jack Welch Dishes on Merger With Roadway
January 1, 2004
Yellow Transportation president and CEO James L. Welch speaks to Truck News on the impact of the Roadway deal in Canada, overcoming challenges at the border, and the need for a new shipper-carrier rel...
Yellow Transportation president and CEO James L. Welch speaks to Truck News on the impact of the Roadway deal in Canada, overcoming challenges at the border, and the need for a new shipper-carrier relationship.
TN: The strategic reasons behind the Yellow-Roadway merger arrangement have been much discussed, but often mergers run into difficulties not because they don’t make sense on paper but because of cultural differences between the organizations. Are you hoping to escape that because the two companies will be kept separate?
Welch: The road has been littered with nothing but disasters when companies try to merge. Typically the difference between what we are doing and what has happened in the past is that it was a healthy company acquiring or merging with an unhealthy company. That’s been the typical mode of mergers/acquisitions in the past in our industry. This situation is very different. You have two very healthy companies that are very well respected in the marketplace and are doing things to make their companies successful. What we want to try and do is grow both companies. If you look at past acquisitions and/or mergers, the ability to slam two companies together has resulted in very poor service, customers leaving the companies and ultimately disaster. There have been a lot of lessons learned from the past. But, even if we wanted to, there is no way we can merge these two companies together. We physically cannot take $6B worth of revenue and put that into one system. It would require millions of dollars of capital, and just having the physical ability to do it would be very limited. If, for example, in Dallas we have 320 doors and Roadway has something like 280, a 600-door terminal would be so unmanageable you couldn’t logistically handle it, and as you were trying to do it your service would be so bad customers would probably leave you. It would also be hard to grow a company that is trying to slam together such facilities. So we really want to leave the networks separate, cooperating just where we can. And, over time, we want to find ways to differentiate the brands. There are certain reasons why companies do business with Yellow and there are reasons why customers choose to do business with Roadway and we want to continue to deliver that to the marketplace and grow each company and utilize the power of coming together to do things such as invest more in technology. It will be a stronger company because of what we can do with the backroom synergies to help the profitability of both companies.
TN: The one concern that was echoed through most of the commentary from shippers, since the deal was announced a few months ago, is that down the road this arrangement may go beyond backroom synergies towards rationalizing terminals, service and pricing. Have you seen any change in that concern?
Welch: I think our message is being well received. We’ve had virtually no defection of business due to the acquisition and Roadway is saying the same thing. I think both companies have done a good job of steadying customers’ concerns and being honest. We are going to keep the brands separate. It’s not unlike GM that has Chevrolet, Buick, and Cadillac. There are reasons why customers buy a Cadillac and reasons they buy a Chevrolet and that’s really what we are trying to do with our two companies and we think it’s going to work. I know a lot of people in some ways doubt that but I think the doubters don’t really understand the physical limitations of taking a $6B corporation and trying to put it into one network. Even if we had the money to build huge terminals in certain locations, the likelihood is we would not be able to get approval from local government agencies. Cities don’t want huge trucking terminals being built.
TN: How will the Yellow-Roadway merger impact Yellow’s presence in Canada since Roadway owns Reimer, one of our largest carriers?
Welch: Going into the acquisition our position is that we are going to keep the brands of Roadway and Yellow separate. That doesn’t mean we won’t be looking for synergies between the companies but our stated goal – and we are working hard to ensure this happens – is not to have any change at the customer level. We will cooperate where we can and we will have healthy competition in other areas. You will still see Yellow with its current operation and you will still see Roadway-Reimer with their current operations. Where we can figure out ways to work together we will, but those areas have not been identified yet as we are waiting for approval from the Department of Justice.
TN: Will Yellow and Reimer continue to offer different pricing in Canada?
Welch: Yes, you will see pricing differentials between Yellow and Reimer. But there is not a lot of overlap in our lanes. Reimer in a lot of ways is an intra-carrier.
They do more transborder now than they used to but their main presence is in intra-border whereas our presence is in inter-Canada shipments; we really don’t pick up freight in Montreal and deliver it in Toronto.
– For the second installment of this two part interview, see next month’s edition of Truck News.