Logistics firms scale back on economic woes

U.S. economic slowdown has logistics firms cutting costs

By Dave Hannon -- Purchasing, 2/13/2008 8:14:00 AM

The continuing economic slowdown in the U.S. is starting to impact logistics companies, often on the leading edge of economic trends.

Trucking giant YRC Worldwide (parent of Yellow and Roadway) said it plans to close 27 service centers in the U.S. that YRC gained as part of its 2005 acquisition of regional carriers USF Holland and USF Reddaway. The move comes after YRC last month it took a $782 million write-down on the value of the two companies, citing various operating issues and overall slumping demand. 

Bill Zollars, CEO of YRC, said of the decision, "The basic problem was that we extended the footprint past its natural point. We ended up with lots more costs, and when we got there, we ended up with an unprofitable business. We got ourselves in a little bit of a death spiral there, and it ended up in a very poor performance in the second half of 2007."

While the closures may affect service levels at the LTL carrier, it will also eliminate some of what shippers considered YRC’s “low-cost” provider, according to market watchers. In an Associated Press report, Stifel, Nicolaus & Co. Inc. analyst David Ross said the two regional carriers were stretched too thin after being acquired by YRC Worldwide when trying to expand into other regions and/or integrate another lesser carrier into their network. "When these two carriers expanded coverage, pricing became more difficult, less disciplined, and yields and margins suffered, as a result,” said Ross. "These shutdowns should be good for the less-than-truckload industry, as it removes a poor pricer from some Southern and Southwestern regional markets."

Also feeling the effects of a slowing economy is logistics provider DHL Express, which continues its ongoing market share battle with rivals UPS and FedEx. DHL this week announced it was cutting 600 U.S. jobs due to the “current economic climate and market demands."

In a statement provided to the media, DHL Express said this was the latest in a series of moves by DHL and its parent, Deutsche Post, to reduce costs at the U.S. business. The statement says: “In January, Deutsche Post World Net, DHL’s parent company, recognized a non-cash writedown on DHL Express America’s fixed assets. Deutsche Post World Net has signed a letter of intent with HP to outsource all IT operations across the company, a measure expected to reduce costs and improve IT services.”  

And non-asset based freight forwarder UTi Worldwide said last week it was undertaking a major restructuring to reduce costs and “better position the company for the challenging economic environment.” As part of the announced restructuring, UTi will exit the surface distribution operation of its Integrated Logistics business in the Americas, scale back air freight charters and exit loss-making contracts. It will eliminate about 7% of its workforce as a result of the restructuring.

Last month, Summit Global Logistics of Rutherford, N.J. filed for bankruptcy and struck a deal to sell its business to an investment company headed up by a number of Summit executives and insiders.

See also: Logistics merger volume hits 20-year high