YRC Worldwide CEO Welch to retire

YRC Worldwide CEO Welch to retire

The CEO who pulled YRC Worldwide back from the abyss in a critical, strategic refocus is retiring. Photo credit: YRC Worldwide.

James Welch, the CEO who pulled YRC Worldwide back from the abyss, focused the company squarely on hauling palletized less-than-truckload (LTL) freight, and put it back on the road toward profitability after deep losses will retire at the end of July, the company said Thursday.

“Freight is not a dirty word,” Welch told YRC Worldwide’s executive team and employees we he arrived as CEO in 2011.

For many at the company, that was a breath of fresh air after years of chasing non-freight business as far away as China amid mounting losses in the United States.

There have been bumps in the road to recovery, but financial and operational improvements made under Welch lifted YRC Worldwide back into the black in 2015, following eight years of losses that totalled $3.2 billion. Last year, YRC Worldwide had a $21.5 million net profit.

The losses came after years of rapid expansion through acquisition that saw the former Yellow Transportation combine with Roadway Express and USF Freightways to create what in 2006 was nearly a $10 billion company. Then the freight recession and economic crisis hit.

By the time the smoke cleared in 2010, the company’s annual operating revenue had plummeted to $4.3 billion. Since Welch arrived in 2010, that number has climbed to $4.7 billion. YRC Worldwide is the fifth-largest US trucking operator, according to SJ Consulting Group.

“We still have a ways to go, but we are a much better and much different company than we were seven years ago,” Welch said Thursday. “There’s been a great deal of satisfaction working alongside employees to get the turnaround started, but we still have a lot of progress to make.”

The amount of reinvestment in YRC Worldwide’s businesses, particularly when it comes to replacing its aging fleet of tractors and trailers, is a sign of that progress. The company spent $253.1 million on capital expenditures and reinvestment last year and $239.7 million in 2015.

That reinvestment may have helped stunt earnings before interest, taxation, depreciation, and amortization (EBITDA), which dropped by $35.8 million to $297.5 million in 2016, but new equipment and technology is key to the trucking company’s ability to grow and remain competitive.

Getting EBITDA growing again earlier in its recovery enabled YRC Worldwide to “meaningfully invest back in the business,” Welch said. “In 2011, the company was just keeping the lights on. But we couldn’t do anything until we got back out of the gate” with higher EBITDA growth.

Keeping EBITDA and bottom-line profit growing will be a key challenge for Welch’s successor, Darren Hawkins, currently president of national LTL carrier YRC Freight. Hawkins will become president and COO of YRC Worldwide Jan. 1 and succeed him as CEO next July.

Hawkins, who started his career at Yellow Transportation before working for Con-way Freight, rejoined YRC Worldwide in 2013, after Welch returned and embarked on his turnaround program. Welch was president of Yellow Transportation from 2000 to 2007.

Hawkins will also face contract talks with the Teamsters union, whose members made significant wage and benefit concessions in the last two YRC Worldwide contracts. The current five-year contract expires in 2019. YRC is the largest Teamster employer in LTL trucking.

Over the past few years under Welch, the focus at YRC Worldwide has shifted from financial survival (aided by a series of agreements with creditors and the Teamsters union) to improving operational efficiency and increasing the speed and freight capacity of its network.

Earlier this year, YRC Freight reorganized its network to add eight new distribution centers, for a total of 31 hubs. The new facilities effectively added 837 doors of “transfer capacity” to its network and helped YRC Freight handle an additional 7,000 shipments per day.

“Customers have appreciated the progress we made so far,” Welch said. Wal-Mart named YRC Freight its "National LTL Carrier of the Year" four times in the last seven years, he noted. “The fact that we can bring to market 14,000 tractors [and] 45,000 trailers is valued in today’s market.”

At the moment, YRC Worldwide and its four operating carriers — YRC Freight, Reddaway, Holland, and New Penn — need those tractors and trailers, with freight volumes and tonnage rising after two straight quarters of better than 3 percent GDP expansion.

At national LTL carrier YRC Freight, tonnage per day increased approximately 1.7 percent year over year in October and 1.1 percent in November 2016. In the first two months of the quarter, YRC Freight’s revenue per shipment rose about 5 percent from a year ago.

The regional carriers increased combined tonnage per day 5.5 percent in October and 6 percent in November, and revenue per shipment rose 4.1 percent in the first two months of the quarter. YRC Freight boosted yield by 3.7 percent, and the regional carrier group by 0.8 percent.

In the third quarter, YRC Worldwide’s consolidated operating revenue rose 2.4 percent to $1.25 million. The company’s net income dropped from $13.9 million in the 2016 third quarter to $3 million in the 2017 third quarter, cut by rising costs associated with the hurricanes that hit Texas and Florida.

Welch thinks the outlook is good for LTL volume growth and profitability in 2018. “We’ve got to keep on a steady pace of recapitalizing our fleet, continue to invest in technology, and keep investing in our people,” he said. He said YRC has raised wages and benefits in recent years.

“We want to pay our people more, but we also know we have to compete in a very competitive industry,” he said. Having “good solid talks” with the Teamsters “about what we need to do to be more competitive is going to be very important” when bargaining begins, he said.

He also believes tightening truckload capacity and e-commerce will push more freight toward LTL trailers. “If fulfillment centers continue to pop up as close as they can be to customers, that will create shorter replenishment cycles and that can lead to more frequent shipments.”

Contact William B. Cassidy at bill.cassidy@ihsmarkit.com and follow him on Twitter: @wbcassidy_joc.