This is the third in a series of six articles about the volatile financial misfortunes and turnaround of trucking company YRC Worldwide. See parts one, two, four, five and six.
Mark Boehmer was in job-hunting mode. He’d been treasurer for 10 years at Sealy, the mattress company, when he began looking for a new opportunity. Before long, some offers materialized. One was for a fairly traditional treasurer position. Another was for a company where he’d wear a lot more hats, even though it was three times Sealy’s size. The kicker was that the second company, trucker YRC Worldwide, had been in a heap of financial trouble for years.
He was leaning toward the first offer when his wife voiced an opinion. “You should take this other job,” she said. “The passion in your voice is so much greater when you’re talking about it.” She was right, Boehmer decided, and he joined YRC as treasurer in mid-2013.
Mark Boehmer
If Boehmer was looking for excitement, he surely found it. He came to YRC when it was negotiating with its lenders to restructure its credit agreements, so as to take the edge off of its then-ruinous interest costs. “You can restructure this debt,” the bankers told YRC, “if you get an extension of your union contract.” That was a reference to its deal with the International Brotherhood of Teamsters, 26,000 of whose members worked for YRC. The contract still had more than a year to run, but the company had no time to waste, as $395 million in principal repayments were due in 2014, including $69 million in February, and YRC didn’t have the cash to cover them.
Several weeks before the first repayment was due, the extension deal was brought before the union for a vote. It failed. “It felt like a death in the family when that happened,” Boehmer recalls. A week later, there was a second vote, and this time the deal was approved. A month after that, the debt restructuring was completed. “We went through some serious peaks and valleys — the lowest lows and the highest highs,” he says. “You don’t often get that in a finance department.”
As treasurer, one of Boehmer’s most important duties is calculating which investments of discretionary funds will bring the greatest returns. With improving operating earnings, that spending pie was slowly growing at the time he joined YRC. He says CFO Jamie Pierson had told him before he came on board that it was time for the company, which had been in crisis mode since 2008, to resume investing in itself.
That was easier said than done, Boehmer notes. Company managers were stuck in the previous culture, where it was virtually useless to request a fund allocation for anything other than keeping the lights on, as it were. The company had, and still has, what it calls “AFE” (authorization for expenditure) meetings every three weeks. “We’d sit in these meetings, and all we’d get was ‘I need to replace the roof because there’s a hole in it,’ and things like that,” Boehmer says. “Now we’re migrating from a survival story to a growth story. That’s a big cultural shift, and it’s been a challenge.”
YRC is now making some important investments that until recently it wouldn’t have had the cash to do. It bought 41 devices called dimensioners, at $90,000 a pop, a laser technology that precisely measures freight to make sure customers pay exactly what they owe. “We couldn’t have done that two years ago,” Boehmer says. “But that investment provides a really nice incremental revenue stream. It pays for itself in less than a year.”
Another capital expenditure, to be made mostly in 2015, is the purchase of sturdy industrial tablet computers, so-called “dock tablets,” for use at YRC’s freight terminals. Terminal managers, who perform a lot of work on their computers, have been somewhat locked to their desks. If they do get a call from the dock about a loading issue, they have to walk there, which is a time eater, as the terminals are large facilities. Sometimes the issue is fixed by the time they get there. It’s an inefficiency.
The tablets, which were beta tested at two locations in 2014, allow terminal managers to be out on the floor and more proactive. “We get better load rates and are more efficient in addressing issues as they come up, which is really going to improve our productivity,” says Boehmer.
YRC’s four operating companies — national carrier YRC Freight and regional operators Reddaway, Holland and New Penn, all of which are in the less-than-truckload (LTL) segment of the trucking industry — partnered with the IT department to identify the tablet opportunity. “They put together the business case for the investment and the return, and they did the testing and found that the tablet needed to be more temperature-resistant, so they respecked it,” Boehmer says. “Another thing we found was that we needed to improve our WiFi network on the docks; we had never really needed it much, so it wasn’t that great.”
For any trucking company, among the most important investments over time are for “revenue equipment,” mainly the tractors and trailers that haul customers’ freight. YRC’s investments in that area were severely curtailed during the darkest times before resuming in 2013. When the companies two biggest divisions, Yellow and Roadway, were integrated in 2009 (thus creating YRC) just as the recession was depressing volumes in the LTL industry, the company was left with a surplus of tractors and trailers.
“Their remaining life was not as short as their age would indicate,” says Boehmer. “That said, tractors don’t get better with age. So we starting [renewing the fleet] in 2013, picked it up in 2014, and will increase it further this year. It has to be a multi-year project, because we don’t want to create a bubble that will pop someday as this equipment ages.”
For all of its investments, year-end post-mortems are a crucial part of YRC’s strategy. “It’s important to measure whether we got what we thought we were going to get from an investment,” Boehmer notes. “What kind of learnings can we get that we can share with others internally? Did we forget to ask something? Did we get a better benefit than we thought? That’s how you close the capital cycle.”
