USF Back in Northeast

USF Back in Northeast

Copyright 2004, Traffic World, Inc.

The terminal gates hardly were shut at USF Red Star when USF drove back into the Northeast. The LTL operator''s USF Holland unit set up shop in select Red Star facilities and rehired some Red Star Teamsters.

USF''s quick return to the Northeast brings some relief to shippers in one of the nation''s busiest trucking markets, a region that has lost more than $1 billion in LTL capacity over the last several years as carrier after carrier went belly up.

USF Holland''s eastward expansion also resolves a dilemma for USF - how to move freight between the Northeast and other regions. When USF shut down Red Star May 23 it lost about $50 million in annual interline revenue.

In addition, Holland''s expansion salves USF''s bruised relationship with the International Brotherhood of Teamsters.

The union lost 1,600 jobs when USF shut down Red Star after a two-day, company-wide strike. By agreeing to rehire about 500 of those Teamsters and create up to 700 new union jobs in the Midwest, USF defused a potential labor conflict and reassured investors, analysts and financial markets.

"While we had anticipated USF moving back into the Northeast either through acquisition or organic expansion we were surprised to see action taken so quickly and with Teamster endorsement," said Bear, Stearns investment analyst Edward Wolfe. Labor reprisals, "while always possible, are growing less likely," said Wolfe.

"Given what appears to be a near-term agreement with the Teamsters and the current red-hot LTL environment we believe management''s swift action has mitigated most of our concerns about USF''s turnaround," said Morgan Stanley transportation analyst James Valentine.

The Teamsters said Holland agreed to hire former Red Star workers at a significantly higher rate than provided for under the National Master Freight Agreement and on a faster schedule. They will participate in the same health and welfare programs and pension fund they belonged to at Red Star. They also will retain seniority, said Tyson Johnson, national freight director for the union. "This is a step in the right direction for those workers who were harmed by USF Red Star''s closure," said Teamster President James P. "Jimmy" Hoffa.

For USF, the return to the Northeast means it is replacing a long-troubled unit with the largest and most profitable of USF''s four regional LTL carriers.

USF Holland is on track for 11 percent revenue growth and 22 percent year-over-year operating growth in the second quarter, with a 92.9 operating ratio, Bear, Stearns estimates. USF Holland had about $984 million in revenue last year.

Holland is led by President Steve Caddy, who until last November was in charge of USF Red Star. His new company enters the Northeast with more flexibility and lower labor costs than Red Star, said Valentine. "Given that Holland is starting with a blank slate in the Northeast we believe it will selectively enter the most profitable lanes vacated by Red Star," he said.

USF Holland only plans to operate from eight of the 27 terminals formerly operated by its sister company. That would allow for managed growth at USF Holland while keeping upward pressure on LTL rates in the region, which have been rising as capacity has left the market.

"Holland will be a more formidable competitor than Red Star," said DavidWard, president of Ward Trucking, an 11-state regional carrier based in Altoona, Pa. "They''ll fill with very little interruption the void left by Red Star."

USF''s move is similar to what Con-Way Transportation pursued in the 1990s when it expanded Con-Way Central''s territory into the East after closing Con-Way Eastern. But Con-Way replaced a unionized company with a nonunion operation. USF is expanding a successful unionized company.

Moving into the Northeast through acquisition such as Roadway Services'' purchase of Coles Express has proved more difficult. Roadway Services'' successor Caliber System tried to combine Coles and several other regional carriers and failed.

USF shut down USF Red Star May 15 following a two-day strike against the company that began when 15 nonunion office workers in Philadelphia walked off the job. About 20 percent of the company''s shippers immediately shifted freight to competing carriers, a loss the 70-year-old carrier said it could not sustain. "Realistically, we know many of those customers are gone forever," USF Chairman, President and CEO Richard P. DiStasio said in May.

Now he hopes that the expansion of USF Holland and peace with the Teamsters can bring them back. "After looking at a number of options as to how best re-establish USF''s national LTL service area, we felt that USF Holland''s plan to expand would be the most beneficial for our customers," he said.

USF already has eliminated a problem faced by Red Star - its agreement with the Teamsters includes an election protocol for USF Holland office workers.