Vitran Express hopes to find a route back to profitability with a little help from its friends, in this case partner companies that will deliver and pick up freight for the less-than-truckload carrier in areas of the western U.S. where Vitran's freight flow is low.
Vitran, the 12th-largest LTL trucking company in North America, this month said it will close terminals in four western states and serve the region through interline agreements with two other unnamed carriers, a step that will save $3 million a year.
“This partnership will allow our management team to focus on service, productivity and growth in our principal regions in the U.S.,” Chris Keylon, president of Vitran Express in the U.S., said in a statement on the interline agreements, which will take effect Aug. 5.
The interline pacts and the closure of seven U.S. terminals are the latest steps in a long-term strategy to bring the $702.9 million publicly owned Canadian trucking operator back to profitability after five straight years of net losses totaling $165.4 million.
Like larger competitor YRC Worldwide, Vitran is selling operations that aren’t directly concerned with moving LTL freight. The carrier unloaded its truckload business in 2010 for $3 million and sold its supply chain operations for $97 million in March.
Although the truckload business was small, the supply chain unit accounted for 14 to 15 percent of Vitran’s revenue and operated 16 facilities, with 2 million square feet of warehousing space and 10 U.S. sites. The sale to Legacy Supply Chain put Vitran into the black in the first quarter with a $67.7 million net profit, though the trucker still had a net loss from continuing operations of $17.6 million on $161.1 million in revenue.
A new management team, led by Interim President and CEO William Deluce is taking a fresh look at all pieces of the business, working to improve customer service and complete a U.S. turnaround effort launched by Keylon when he joined Vitran last year. In addition to Deluce and Keylon, David S. McClimon, former president of Con-way Freight, now the second-largest LTL carrier, joined Vitran’s board in March.
Rick Gaetz, the former president and CEO who since 2002 had overseen Vitran’s expansion in the U.S., resigned in April, shortly after the supply chain operations sale and before the trucking company reported first quarter revenue and loss figures Deluce termed disappointing.
“Vitran’s board is focused on enhancing and building shareholder value,” Deluce told investment analysts during the company’s April 25 earnings call. “We now see an improved service product in the marketplace, efficiencies are being gained by Chris (Keylon) and his team. Sales and marketing efforts continue to be ramped up.” However, “none of this is showing up in the financial results as of yet.”
Deluce, who has been traveling extensively since taking on the CEO role, was not immediately available to respond to questions from The Journal of Commerce. But a review of recent filings with the U.S. Securities and Exchange Commission suggests areas Vitran aims to improve, starting with on-time service, freight density and revenue per hundredweight and pricing. The company wants to reduce purchased transportation costs and improve linehaul efficiency — Vitran implemented a new linehaul and operating plan last July. That plan is supported by new technology, including in-cab handheld tablets for drivers, a dispatching system and linehaul planning technology.
“The first step was to stabilize (operations) and get back to where we could consistently deliver product to our customers,” Deluce said in the April conference call. “We think we’re at that level. The service level is not where we want it yet, but it’s certainly at an acceptable level, unlike the service levels that we had in the last half of 2012.”
Key service metrics were in the mid-90 percent range, and the company was pushing hard to move those percentages into the high 90s, CFO Fayaz Suleman told analysts.
In the April conference call, Deluce hinted at coming changes. “We’re certainly focused on growing the revenue side and relooking at the cost side. I’ve spent a lot of time looking at those two pieces.”
A big part of Vitran’s challenge is restructuring an LTL network that grew rapidly in the 2000s as the carrier acquired several U.S. truckers, from Chris Truck Line in 2005 through Sierra West Express and PJAX Freight System in 2006 and Milan Express in 2011, a purchase that gave Vitran 19 new U.S. service centers.
Vitran operates two distinct LTL businesses: Vitran Express Canada and Vitran Express in the U.S. The Canadian LTL arm, which has 23 terminals and makes heavy use of intermodal rail to move goods from ports to key inland markets, is much healthier than its U.S. counterpart, which had 101 terminals in 34 states at the end of 2012.
Trucking acquisitions and mergers are notoriously difficult, even in good economic times, and Vitran hit more than one speed bump as it absorbed companies. In 2011, Milan Express came with a 2.5-day backlog of freight that snarled Vitran’s network and led to service problems and some loss of business, according to company reports.
Vitran has been working hard to re-engineer its network in the two years since that merger. By dropping direct service to the Southwest, the company will focus squarely on the eastern U.S., where it gets 85 percent of its freight density. Increasing density in its trucks, terminals and lanes should improve productivity and help boost pricing.