Term Paper on "Strategic Management Analysis on Yellow Roadway Corporation 2005"

Term Paper 15 pages (4362 words) Sources: 1+

[EXCERPT] . . . .

Yellow Roadway, having made several recent major acquisitions, stands at a crossroads. With their most recent acquisition, USF, they have become the largest trucking company in their segment, and one of the top three in the U.S. They are unsure of their next move - to expand into the largest remaining segment (overnight and next day), or stay put and integrate the acquisitions of the past few years more thoroughly into their operation.

Yellow Roadway began its current acquisition phase in 2003 with the purchase of Roadway. Now, in 2005, they have followed up that transaction with the USF purchase, and have launched into the Chinese market by forming a joint venture with one of that country's most prominent conglomerates, Jin Jiang.

The shipping industry in the U.S. is worth $18.8 billion, with trucking accounting for $13 billion of that figure. YR's market share in its core LTL market ranges between 20-60%, depending on how the industry is defined. The definition is complicated by the fact that two of the largest carriers, FedEx and UPS, area combination of ground freight and air freight. Moreover, one can question whether the post office can be included in this industry. In 2004, Yellow recorded revenues of $6.8 billion, which equates to 52.2% of the trucking industry.

YR has expressed their core purpose as being to "make global commerce work by connecting people, places and information." They have expressed their objective as being "to provide seamless, end-to-end, global transportation solutions to our customers." (Harbin, 2005). The first is more a slogan than a concrete expression of purpose; the second is a broad-based objective from which any number of outcomes could conceivably flow. Now that they are faced with a number of potential directions in which to take the company, they must choose a more specific set of guidelines.

Corporate and Competitive Strategies

The business model that Yellow Roadways is currently pursuing is a mix of different business lines within the long-haul trucking industry, with several key facets. These are high service level; broad network; and wide product range. This is complicated by a vision of itself and a mission statement that do not offer any strong guidance in terms of underlying values or strategies.

YR operates a multitude of different companies, which gives them the ability to offer a high level of service. The vast networks that they have acquired gives them particular competitive advantage in the LTL market, where they have the scale to offer what is essentially a hub-and-spoke system (TMCA, 2008). This allows them to give their customers shorter delivery times than other LTL operators, most of whom do not have the scale to match YR's offering. This strategy is key to YR because they are a unionized shop, and therefore have trouble competing on the basis of price in an industry dominated by non-union companies.

The broad network that YR has acquired through its different purchases gives them competitive advantage, particularly when dealing with companies who do business in many countries. Because YR operates throughout the U.S., Canada, Puerto Rico and Mexico they are able to bring their service level to places other shipping companies simply cannot. They also have access now to the Chinese market.

With several subsidiaries, YR is able to offer their customers a wide range of products. They compete in the following segments of the industry: next day, overnight, LTL, TL, long-haul, regional. This makes them relatively close to being a one-stop transportation service provider, which is one of their stated goals.

Therefore, their strategy appears to be an amalgam of offering a wide range of products and offering superior service. Their recent acquisitions add to their ability to deliver of these core strategies since both of those tend to improvement in this industry with economies of scale. However, one of the major strategic issues facing the company is a lack of a clear, definitive sense of strategic direction.

SWOT Analysis

The strengths of Yellow Roadways are its economies of scale, its wide product range, its service level, and its financial stability. YR has become the number one player in its key market of LTL ground transportation. In doing this, they have achieved economies of scale that allow them certain competitive advantages. For example, they are able to offer a wide-ranging network of next day and short-haul services. Their size allows them to operate a hub-and-spoke system to consolidate their LTL freight at a central location and get it to the customers within a fairly narrow time frame. They are not as proficient at this as two of their strongest competitors, FedEx and UPS, but they are a major player in this market because they can do it well.

Also with their size, they are able to offer a wide product range. This means that they can meet a more diverse range of their customer's needs than can many of their competitors. Because YR operates in so many segments, they can arrange shipping at a wide variety of price points and destinations. This reduces the risk of customers using a competitor to meet some of their service needs, and increases the odds of successful cross-marketing.

They are also able to leverage their size to provide a broad geographic range. Most of their competitors are limited in range, but Yellow can cover the entirety of North America, including Mexico, and add Puerto Rico and China in as well. Their networks allow them to service all of these areas to a standard that most of their competitors will struggle to match.

The service level is another key strength of YR. Because they are a union shop, they are essentially unable to compete with the plethora of non-union trucking firms on the basis of price. Therefore, they have turned to service as their primary differentiating factor. This includes their geographic range, product range and wide network, but also includes elements of personal consultation and the ability to meet a large portion of any customer's shipping needs. The firm recognizes the importance of service as a key factor in their long-term stability and has made it a priority and a key selling feature.

Financial stability is another strength from which YR can draw. They have solid liquidity ratios despite the size of the recent acquisitions. However, those acquisitions have had a negative impact on the company's financials. For example, while they can in all likelihood bear more debt, the present debt-equity level is sufficiently high that they may wish to build up the equity stock again.

Weaknesses at Yellow include having to integrate the new companies into theirs; the high cost of their union labour and tight operating margins. The new companies are a source of weakness at present. Typically, an acquisition is a drag on performance for a parent company until the new company starts to generate revenues of its own and the parent company is able to leverage some synergies from owning the acquired company. In this case, YR has two new acquisitions and one new overseas joint venture. These operations are not yet integrated into YR but until they are, they risk being a drag on YR's earnings.

Another weakness is the high cost of labor. Formerly, the trucking business was the domain of unions. YR's drivers, for example, are represented by the Teamsters. However, the trucking industry has shifted over the past couple of decades to the point where paying union wages hampers competitiveness vis-a-vis the vast majority of the competition. Given that the industry has relatively low margins, but is subject to soaring fuel costs, it is reasonable that YR could be in a position to see its margins erode to the point where it fails to make a profit, while their non-unionized competitors are still going strong.

Those tight margins represent another key weakness at YR. Gross margins for YR relatively fantastic. However their operating margins are very slim. Though they improved in 2004 to 5.3%, the previous year's operating margin was just 3.5%. These margins are being challenged by rising fuel prices, which the company inevitably must pass on to the customer.

The rising fuel prices represent the greatest threat to YR. This is especially true because of the fairly tight operating margins. Increases in fuel costs cannot be absorbed; they must be passed directly on to the customer. This in turn increases customer expectations, in that if they are paying more they expect to get more. The result of this is a decline in customers. Corporate customers and business customers alike have alternatives at their disposal should the price of trucking become prohibitively expensive. For YR, being exclusively in the trucking business, that would spell disaster.

Another threat is that of overall economic downturn. Commerce collapsed, for example, after the 9/11 terrorist attacks. A company the size and scope of YR is an economic bellwether, meaning that their business is likely to track the market as a whole. Economic downturn cannot be prevented, but YR should take some solace in the fact… READ MORE

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