Accretions

Because of its high capital costs, the transportation industry is closely tied to Wall Street. Whether public or private, operators of the expensive assets that shippers depend on are inexorably linked to the fund managers and equity analysts that control the economic life of the country.

It can be a testy relationship, and the disparate interests of the money managers focused on the short term and industry players trying to put longer-term strategic vision into play can lead to deep tensions, to say the least, and decisions often at odds with the best interests of the transport world and its customers.

Those tensions were on display in the recent conference call Yellow Roadway held with investment analysts on the company's earnings. Most explicitly on display was the sort of shallow understanding of the real workings of the transportation industry and the dynamics that drive the business now and, most importantly, in the future.

We've noted in this space before that whatever the merits of the Yellow Roadway purchase of USF, the acquisition is driven by the long-term strategic direction of the LTL market, not by the opportunity to get $40 million in cost savings over a single financial reporting period.

That's why we found it odd to hear one speaker on the conference call who identified himself as with a private hedge fund group say that the USF purchase was a poor use of Yellow Roadway's cash and that the potential reward simply is not worth the risk to investors.

Another investor on the call had a similar complaint, arguing plaintively against the USF purchase: "Why at this price?"

What would be good use of Yellow Roadway's money, as far as these investors are concerned? A stock buyback, they said. After all, that would artificially inflate Yellow Roadway's share price and bring these in-and-out investors the quick return they're looking for. They've done the accounting on this. "It would be immediately accretive," said one caller.

Of course, it wouldn't do a thing for Yellow Roadway's business or address its role in the LTL trucking industry later this year, next year or, especially, the year after.

Yellow Roadway Chairman and CEO Bill Zollars had a patient reply: "Part of our job here is to position the company to be as successful as possible in the long term. ? We're not in this for the quarter-to-quarter performance. We're in this to create value in the long term."

And Zollars got more detailed when he was pressed a second time to get more accretive, saying the deal "should return value in the short-term and ? build our capabilities."

"We are convinced the consolidation in our industry will continue and at the end of that consolidation there will be four to five players with very broad capabilities and we plan on being one of these," he said.

Zollars is hardly alone in facing such questions. Just about every executive in transportation faces the tension between short-term returns and heavy investment that these asset-based businesses require.

Only time, in that clich? of all clich?s, will tell whether the Yellow Roadway purchase of USF pays off. That time will last longer than a single quarter.

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