Friday, January 19, 2007

2007 - The Year of UPS

Next year will be a special year for UPS as Big Brown turns 100 on Aug. 28. However, it is the other events that could occur in 2007 that will make it an important year for the company and the transportation industry and thus provide a strong incentive for the UPS management and Teamsters leadership to cooperate in an unprecedented manner in the interest of the customers, investors, employees and management.

The Teamsters and UPS started talks last September. That provides more than nine months (which benchmarks well with previous contract talks) before the August anniversary for the two sides to finalize a new contract, which expires in 2008. During these talks, expect Teamsters to want new members while UPS seeks concessions on items affecting the integration of air express and ground parcel services, such as, part-time air drivers that only handle air express packages.

The future of UPS and the Teamsters union are intertwined.

Teamster cooperation with early contract execution would allow UPS to avert parcel volume diversion and revenue loss to competition, and disruption to shippers operations. By announcing the agreement in 2007, the union would gain by preventing potential job losses that a drawn-out negotiation might bring. UPS gets the opportunity to ramp up its integrated air and ground domestic parcel service from both operational and marketing perspective for a new competitive advantage for market share gain.

While the two sides work out the parcel contract, the Teamsters could sign a new LTL contract covering the hourly workers at all UPS Freight locations. UPS would end up with union workers in its LTL unit, avoiding problems from double breasting and it could gain more favorable work rules (to compete against non-union LTL carriers) that would not have been practical without its cooperation with the Teamsters through the card-check agreement granted last June.

Meanwhile, with mainly YRC Worldwide and Arkansas Best Freightways in the National Master Freight Agreement, William Zollars, CEO of the $10 billion YRC, will control the direction of a new contract that could set the groundwork for creating one YRC national YRC regional (with USF carriers and New Penn) network. ABF is part of the NMFA process, of course, but practically it may be thought of as the "YRC Freight Agreement."

ABF might gain the most from Teamsters consent for its workers to transition to a new UPS LTL contract. This could help ABF get acquired and provide UPS Freight a separate long haul (ABF) and regional (Overnite) network like its two major LTL rivals. With its 92 operating ratio, ABF has achieved better margins than most unionized LTL carriers. With ABF, UPS's LTL business unit would have combined annual revenue of $3.5 billion, enhance its competitive position against the larger YRC and FedEx Freight in a $32 billion market and create three giants with significant leverage to make changes in the LTL industry.

The Teamsters could gain big in 2007. Its LTL unit could get 15,000 new members and protection in the parcel unit for existing jobs and potentially new ones with UPS success in merging air and ground domestic services. And James Hoffa, newly re-elected Teamsters president, would get to participate in a major industry event to help UPS gain new confidence with the shipping community and build momentum to unionize UPS competitors.

Shareholders would also gain. If UPS, with its strong cash flow, is unable to make a large strategic acquisition in 2007, the board of directors could authorize another share buyback on top of two buyback authorizations over the last three years totaling $4 billion.

The industry also can expect strategic changes at UPS' Supply Chain and Freight.

This light-asset and non-asset business unit, the focus for many of UPS's recent acquisitions, has generated operating margins in the logistics business (based on gross revenues) of 2.6 percent, 4.9 percent and 2.2 percent compared to the domestic package business margins of 15.7 percent, 13.7 percent and 14.4 percent in 2005, 2004 and 2003, respectively.

Another thing to watch for is for UPS to announce a new CEO to lead the company into its next century.

Since the retirement of founder James Casey in 1962, CEO terms at UPS have been between four and seven years. John Rogers (1984-1989), Kent "Oz" Nelson (1989-1996) and James Kelley (1997-2001) each have presided over one contract extension with the Teamsters. Michael Eskew has been the CEO since January 2002. During his tenure, Mr. Eskew has overseen one Teamsters contract and moved the company aggressively into light-asset-based logistics and transportation services, which has quadrupled in annual revenue since 2001 to an estimated $8 billion for 2006.

And 2007 also promises to be a challenging year for UPS leadership. It may be faced with several major decisions: How to generate higher margins from the Supply Chain services? Does it bid a high price to acquire TNT Express (if it goes on sale) and deny this prize to its archrival - FedEx? How can it manage changes from integrating the overlapping domestic air and ground services into one parcel market?

No matter what, 2007 should be an interesting year. So tighten the seat belt as the road ahead may be rocky or smooth depending on how UPS and Teamsters deal with these industry-changing events.

ABF Driver Tony Spero Selected as an America's Road Team Captain

Anthony (Tony) Spero, an award-winning driver for ABF Freight System, Inc., has been selected by the American Trucking Associations (ATA) as one of 16 America's Road Team Captains.

With a combined 366 years of experience and nearly 30.5 million safe- driving miles among them, the 16-member team was selected from a group of 35 finalists. The group competed this week before a panel of judges from the trucking industry and trucking media. The competition included a review of their knowledge of trucking industry safety issues, a test of communication skills and interview abilities and a review of their community service.

Selection as an ATA America's Road Team Captain is one of the highest honors a professional truck driver can achieve. At least one ABF driver has represented the industry on every America's Road Team since 1995. The new team will serve from January 2007 through December 2008.

Spero, a city driver at the ABF Stratford, Conn., service center, also is the reining ATA national champion flatbed driver. He won the flatbed class championship during the 69th National Truck Driving Championships, August 15- 19, 2006. A member of the ABF Road Team in 2001, 2003 and 2006, Spero has 16 years of accident-free driving. He also won Connecticut state competitions in 1997, 1999, 2000, 2004, 2005 and 2006.

"Tony is a testament to the dedication and commitment of all ABF employees to safely and securely handle our customers' freight," says Murray Babb, ABF vice president of terminal operations. "He is an outstanding example of the trucking professionals who are dedicated to making our highways safer for all drivers. ABF proudly supports him in his new role as ambassador for the trucking industry."

After several weeks of team driving with the current Road Team, the newly selected America's Road Team Captains will embark on individual speaking tours on behalf of the ATA. The captains become advocates for the transportation industry, promoting the trucking industry's commitment to highway safety. Road Team Captains are available to testify as experts on trucking and safety issues before Congressional hearings and at the state government level.

"The captains of America's Road Team represent the very best of our professional drivers and serve as goodwill ambassadors in advancing the image of trucking," said Bill Graves, ATA President and CEO. "As exemplary drivers and skilled communicators, we're proud to have these drivers deliver trucking's important messages of professionalism, safety and essentiality on behalf of the entire industry to the general public."

Thursday, January 18, 2007

Three YRC drivers selected to America’s Road Team

Three drivers from two units of Overland Park-based YRC Worldwide Inc. have been selected to the America’s Road Team by the American Trucking Associations.

The association selected 16 drivers as “captains” from a group of million-mile, accident free professional truck drivers. The drivers, selected during a competition among 35 drivers, will spend the next two years representing the industry and delivering safety messages to the public.

Among those selected: Steve Fields, a Yellow Transportation driver who lives in Independence; and Roadway drivers William Kent Durant of Cheney, Kan., and Richard Scholl of Irondale, Ohio.

“The captains of America’s Road Team represent the very best of our professional drivers and serve as goodwill ambassadors in advancing the image of trucking,” Bill Graves, ATA president and CEO, said in a statement. Graves is the former governor of Kansas.

Monday, January 15, 2007

YRC Worldwide Announces Organizational Changes

-- Yellow Transportation and Roadway to be led by a single management team for accelerated business growth -- Enterprise Solutions Group established for easier customer access to the complete service portfolio of YRC Worldwide brands

YRC Worldwide Inc. today announced organizational changes designed to support the corporation's growth through increased efficiencies and focused business development strategies.

"The first phase of our strategy involved gaining sufficient scale and building greater capabilities through our acquisitions of Roadway and the USF companies, as well as our activities in China, such as our JHJ joint venture," said Bill Zollars, Chairman, President and CEO. "YRC Worldwide now has the comprehensive service portfolio needed to support ongoing, profitable growth in the U.S. and around the world."

YRC National Transportation

Zollars announced that the next phase of the strategy will bring the management of the corporation's two largest subsidiaries -- Yellow Transportation and Roadway -- under one organization established as YRC National Transportation. Mike Smid has been named President and CEO of YRC National Transportation.

"Yellow Transportation and Roadway will maintain their strong, independent brands and networks in the marketplace," Smid said. "The new organization will allow us to respond faster and more efficiently to the changing marketplace by leveraging our resources and experience. We are committed to bringing added value to customers for both brands through enhanced services and stronger supply chain solutions."

Smid had been President of Roadway. He will be succeeded in that position by Terry Gilbert, who had been Executive Vice President of Sales and Marketing of Roadway. James Welch, President of Yellow Transportation, is retiring effective January 31. Welch will be succeeded by Maynard Skarka, who had been Senior Vice President of Operations for Yellow Transportation. Both Skarka and Gilbert will report to Smid.

YRC Enterprise Solutions Group

Zollars also announced the establishment of the YRC Enterprise Solutions Group to serve customers with transportation and logistics needs that span the comprehensive portfolio of services provided by the YRC Worldwide family of brands. This group will be led by Greg Reid, Executive Vice President - Enterprise Solutions Group and Chief Marketing Officer.

"This group will create a single point of contact for easier access to the portfolio of YRC Worldwide brands," said Reid. "The YRC Enterprise Solutions Group will develop strategic solutions leveraging the services of all the YRC Worldwide companies and provide more value to our customers, resulting in additional growth for our operating companies."

Sunday, January 14, 2007

Analysts Expect Bad News, Good News

If the trucking sector in 2007 performs as some in the industry expect, then it may look just as plain as a median stripe between two lanes of blacktop.

"Executives today are planning for a flat economy in '07 but are better positioned to take advantage of what freight there is out there than they were during the last big slowdown in 2000 and 2001," said Lane Kidd, president of the Arkansas Trucking Association. "In many case, they had too much equipment (before)."

The slowdown in freight demand that began in late 2006 likely will continue in the near term but could pick up in the bottom half of 2007, Donald Broughton, senior transportation analyst with A.G. Edwards in St. Louis, said in December.

Some individual companies though are better positioned than others to profit through the year.

J.B. Hunt Transport Services Inc. is expected to see its 2007 earnings grow by 6.12 percent compared to 2006 and by 21.87 over 2005, according to estimates published by Stephens Inc. on Dec.15.

Hunt's diversified business model gives it the best chance for gains in 2007.
Stephens analyst, Thom Albrecht said Hunt's three-pronged business model helps the company mitigate the seasonal and cyclical aspects of regular truckload carriers. (Stephens Inc. conducts investment baking business with J.B. Hunt Transport and expects to receive compensation for those services in the next three months.)

J.B. Hunt Transport continues to see growth in two of the company's three segments.

Rail operations have helped Hunt catch its gravy train. Hunt's intermodal division provides stackable containers that are transported by railcar. The intermodal segment is benefiting from improved pricing and load growth, with an anticipated revenue growth of 12.4 percent fueled by a 7 percent price increase, Albrecht wrote in a Dec. 15 report.

A few days before, Albrecht reported in another note that ABF Freight System Inc, the largest subsidiary of Fort Smith-based Arkansas Best Corp. and a less-than-truckload carrier, will see a 19.2 percent decline in its 2007 earnings.

ABF Freight System Inc. has expanded its regional transportation network into Central and Southern states as part of its new offering of next-day and second-day delivery service, but Albrecht stated an overall weak pricing environment will pinch the company's earnings.

Van Buren-based truckload carrier USA Truck Inc.recently opened a new operations center in Spartanburg, S.C., to take advantage of regional shipping in the Southeast, but one analyst saw the move as one that isn't likely to help the company's near-term profitability.

Competition for new entrants in regional shipping "can be fierce," Chaz Jones, an analyst with Morgan Keegan & Co. Inc. in Memphis, recently wrote.

Like Albrecht with ABF, Jones sees the company's earnings per share hurt by "lackluster freight demand" and "diminishing pricing power." (Morgan Keegan does business with and seeks to do business with USA Truck.)

P.A.M. Transportation Services Inc. has posted several quarters of relative strength riding the back of the auto industry but analyst Thom Albrecht of Stephens Inc. predicts 2007 will be challenging for the Tontitown-based truckload carrier.

"Potentially lower automotive volumes due to the announced production cuts by General Motors and other as well as rate pressure on the company's non-automotive business are two of the biggest challenges P.A.M. will face in 2007," Albrecht said.

Auto business represents about 48 percent of the P.A.M.'s revenues, according to Albrecht who recently lowered his 2007 earnings estimate from $1.95 to $1.63 compared to $1.83 for fiscal 2006. (Stephens Inc. maintains a market in PAM shares and expects to receive or intends to seek compensation for investment banking services from the company in the next three months.)

Profit still can happen this year, Kidd said, but it might not be enough to satisfy some industry watchers.

"Part of the problem in the industry is the analysts who write about trucking and project what earnings should be frequently overstate expectations, then blame it on the company for not meeting them," he said. "That's what USA Truck has run into. It's not as if these companies aren't making money, they're just not making as much as an analyst thinks they should be."