Roadway Services, Inc.

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Roadway Services, Inc.

1077 Gorge Boulevard
Akron, Ohio 44039
U.S.A.
(216) 384-8184
Fax: (216) 258-6599

Public Company
Incorporated: 1930 as Roadway Express, Inc.
Employees: 40,000
Sales: $2.97 billion
Stock Exchange: NASDAQ

Roadway Services, Inc. is the second-largest motor freight carrier company in the United States. The company’s principal operating group, Roadway Express, has specialized in less-than-truckload (LTL) shipments across North America for many years, and until the mid-1980s was the industry leader. After being surpassed at that time by rival Yellow Freight, Roadway has taken significant steps to make itself more competitive and was once again in the early 1990s gaining ground.

Roadway Express was founded in 1930 by brothers Galen and Carroll Roush in Akron, Ohio. Although trucking had made great strides during the 1920s, the motor carrier industry was still in its infancy. Railroads provided the primary transportation for goods from point of manufacture to point of sale. Trucks were used for less than full-load shipments, still Roadway’s primary market. In 1930 Roadway entered the business it would come to lead with a load of tires shipped from Akron to St. Louis, Missouri.

Roadway Express started with ten owner-operators, and moved shipments to Chicago; Houston, Texas; and Kansas City. Within several months terminals were opened in Atlanta, Georgia; Baltimore, Maryland; Birmingham, Alabama; Charlotte, North Carolina; Indianapolis, Indiana; Knoxville, Memphis, and Nashville, Tennessee; New York; and Philadelphia, Pennsylvania. Roadway’s rapid expansion reflected the growth of interstate trucking in general.

Before long, railroaders, fearful of unrestrained competition, began to clamor for regulation. In 1935 Congress passed the Motor Carrier Act, limiting the right to operate in interstate commerce to those carriers already in operation and to new ones that could prove “necessity and convenience.” The Interstate Commerce Commission would oversee standard rates, preventing particular customers from receiving preferential rates.

While regulation had its disadvantages, founder Galen Roush, originally trained as a lawyer, saw great potential in the new regulated business climate. Roadway had kept detailed records of its shipments over the years. These records became the basis of Roush’s claim to some of the busiest freight routes in the country. Regulation helped limit competition, and at the same time elevated the status of the trucking industry to the equivalent of a public utility. Although it took 16 years of court battles before Roadway’s routes were finally secured, the company held exclusive rights to its most lucrative routes.

The Roush brothers recognized the significance of hiring good managers, and instituted tight financial controls early on. Roadway was conservatively run, and kept a very low profile. It maintained this approach for decades.

In the 1940s demand for truck transportation increased as the defense economy of World War II eliminated the last effects of the Great Depression. At the same time, new trucks were not being built as the necessary materials were being diverted for war goods. In 1945 Roadway Express began replacing owner-operators with hired drivers to run its own fleet. After the war, trucking gained significant ground from the railroad industry. By 1950 the ratio of truck to train ton-miles was 20%, twice that of two years earlier. Roadway began to stress its less-than-truckload service in the early 1950s. The price charged per pound shipped was sometimes three or more times the cost of a full load, and the flexibility of the service improved the chances of a return load.

Business boomed, and Roadway needed to establish a broader terminal network. The company’s excellent financial record helped Galen Roush convince Chase Manhattan Bank to loan Roadway millions of dollars for expansion. Trucking companies were previously poorly regarded by most financiers. By 1956 Roadway’s fleet and terminal expansion program had progressed to the point where Roadway no longer used owner-operators at all.

In 1956 Carroll Roush, the younger of the two founding brothers, decided to sell his interest in Roadway. He was barely speaking with his brother, Galen, and in a move designed at least in part to annoy him, Carroll sold his shares to the public for about $5 million. Traveling west, he bought ONC Fast Freight, which later became a part of ROCOR International.

In the late 1950s and in the 1960s, Galen Roush set out to expand the terminal network. Population centers were spreading out, and trucking needed to be less centered around big cities. The greater number of terminals allowed decentralized service. Roadway Express expanded its network from 60 terminals in 1958 to 135 in 1968.

At the same time, Roadway instituted the most sophisticated accounting procedures in the industry—the brainchild of cost accountant John L. Tormey. The company could identify profit and loss by route, commodity, weight bracket, and individual customer. As the company expanded rapidly, it was able to focus on profitable business and easily control costs. Roadway truckers continued to haul less-than-truckload shipments and produce higher profit margins. Each terminal was a profit-and-loss center; aggressive managers were enriched with hefty bonuses.

Roadway’s expansion during the 1960s required heavy borrowing, but the decision to risk the debt paid off later. The loans were paid off by the 1970s, and cash flow was high. Meanwhile Roadway’s competitors were still heavily burdened. When the recession hit in 1974-1975, this financial strength kept Roadway the number-one trucker despite hard times. Roadway’s return on investment averaged 20% a year in the early 1970s. Direct coverage grew to 40 states in the mid-1970s, and the company became a transcontinental carrier in 1977.

In 1980 deregulation of rates and services opened new avenues for motor carriers. This gave Roadway Express the opportunity to expand into new areas of business, but at the same time it faced new challenges from competitors. While other trucking companies slashed prices to attract customers, Roadway marketed itself as the high-quality carrier with the widest geographic coverage, and clung to its high margins. By 1982, however, with revenues slipping, Roadway chose to discount its prices. The company had fallen to third in market share, surpassed by Yellow Freight and Consolidated Freightways. Realizing the need to step out of the shadows and reassert its position, Roadway launched its first advertising campaign in history.

After the initial shock of deregulation settled, Roadway embarked on a campaign of acquisition and new services. In 1982 a holding company, Roadway Services, Inc., was set up with Roadway Express as its chief operating subsidiary. In 1984 Roadway Services acquired Spartan Express, Inc.; Nationwide Carriers, Inc.; and Roberts Express, Inc. Spartan Express, Roadway’s first acquisition, operated as a short-haul carrier in the South. Unlike Roadway Express, Spartan handled shipments with 24- and 48-hour service requirements. Nationwide Carriers specialized in irregular route truckload shipments throughout the continental United States. Nationwide hauled dry freight, temperature-controlled freight, and freight requiring flatbed transport. Roberts Express specialized in critical or fragile shipments needing special handling or speedy delivery.

In 1985 Roadway’s earnings dipped for the first time in 32 years. Conversion of Roadway’s truck fleet to twin trailers and start-up costs of a new unit were the chief reasons. The new subsidiary, Roadway Package System (RPS), got a slow start, but became a transportation success story in the 1980s.

RPS set out to take a piece of the $12 billion small-package surface delivery business, then dominated by United Parcel Service (UPS). RPS concentrated on business-to-business delivery of packages up to 100 pounds, and implemented some innovative procedures to keep costs down. By selling or leasing RPS trucks to independent owner-operators, the company cut labor costs to 60% of UPS’s while giving each driver a personal stake in efficient service.

It took three years and $103 million in investments before RPS showed a profit, but considering the scale of the start-up, it was an impressive accomplishment. By 1988 the subsidiary boasted 130 terminals, and geographic coverage of 70% of the United States. By 1990, 147 terminal facilities served 42 states. While UPS had 20 times the revenue of RPS, Roadway’s subsidiary had carved a healthy niche out of a growing business segment. RPS contributed one-fourth of Roadway Services’s profits in 1989. Growth prospects looked excellent.

Roadway Services, meanwhile, continued to seek less-than-truckload carriers that would complement its existing geographic coverage. In 1988 Roadway acquired Viking Freight, the largest regional carrier in the western United States. Viking had two operating subsidiaries: Viking Freight System, a regional LTL carrier, and VFS Transportation, an irregular-route truckload carrier. Viking was almost alone among carriers in being nonunion.

In 1989 Roadway closed its Nationwide Carriers subsidiary. Nationwide had been unprofitable despite reorganization. The Roadway Express unit struggled with discounted rates in the later 1980s, but successfully held its position against smaller carriers. In 1987 a New York City trucking firm, Lifschultz Fast Freight Inc., filed suit against trucking’s big three—Yellow Freight, Roadway Services, and Consolidated Freightways—charging predatory pricing and conspiracy to restrain trade and free competition in certain segments of the industry. The suit was still pending four years after it was filed, and was expected to go to trial. The suit sought $598 million in damages.

Competition from the railroad industry also grew fierce as the 1980s closed. Threatened by the prospect of bigger double and triple trailers hauling freight on highways, railroad lobbyists launched campaigns painting a grim picture of motor carriers’ safety standards. When one such group, the Coalition for Reliable and Safer Highways (CRASH), used a photo of a Roadway Express truck accident at government hearings in California, Roadway’s chairman Joseph Clapp objected, citing Roadway’s top safety record. Competition between railroaders and truckers promised to become increasingly heated in the 1990s.

In March 1990 Roadway’s Roberts Express unit launched a European subsidiary, Roberts Express, B.V., headquartered in Maastricht, the Netherlands. The subsidiary offered Roberts’s traditional services in Belgium, France, Luxembourg, the Netherlands, and Germany. Roadway Express in 1990 set up a Mexican subsidiary, Roadway Bodegas y Consolidación, and expanded operations in Canada.

As Roadway Services entered the 1990s, its various units showed mixed results, although as a whole the company continued to expand. Roadway Express increased revenues and profits. Spartan Express was divided into two geographic divisions in 1988 but remained unprofitable; in 1990 it became a subsidiary of Viking Freight. Roberts Express’s growth was good, but less than expected. RPS and Viking Freight both performed well, but the latter’s VFS Transportation subsidiary did not, and was closed down in 1990. The surface transportation industry was in for some turmoil, as railroads promised to fight for their space, and as air transport became more competitive. Roadway had dropped its image as a stodgy company, and no longer hesitated to step into the public eye as had been characteristic of the company from its founding through the 1970s. The change at Roadway Services was characteristic of the industry as a whole, illustrated by the fact that in 1991 the Dow Jones transportation averages added Roadway Services as one of the key indicators of the industry’s overall performance.