Velocity Express Corporation
Velocity Express Corporation
Incorporated: 1993 as U.S. Delivery Systems, Inc.
Sales: $471.7 million (2001)
Stock Exchanges: NASDAQ
Ticker Symbol: VEXP
NAIC: 484110 General Freight Trucking, Local; 492110 Couriers; 492210 Local Messengers and Local Delivery; 541614 Process, Physical Distribution, and Logistics Consulting Services
Velocity Express Corporation is one of the largest providers of same-day delivery and distribution/logistics services in the United States. In contrast to the next-day delivery business, which is dominated by major national players, such as FedEx Corporation and United Parcel Service, Inc. (UPS), the same-day sector of the delivery business is highly fragmented, with close to 6,000 firms in operation in the United States, most of them conducting business only locally. Velocity Express has been a leading consolidator within this sector. By mid-2001 the company had in place a network of 200 locations in 86 of the top 100 U.S. metropolitan areas. The company fleet included about 7,000 vehicles, and there were more than 1,500 Velocity Express agents in North America. The firm was making in excess of 150,000 deliveries every day, with a record of 98 percent on-time performance—a particular point of pride given Velocity’s emphasis on service reliability. In addition to its same-day ground delivery services, Velocity Express also offers supply chain management services, fleet replacement, warehousing and storage, and limited long-haul services. The wide range of businesses served by the company includes financial institutions, healthcare and medical organizations, retailers, petrochemical firms, and technology companies.
From Idea to IPO to National Network
The origins of the same-day delivery operations that are the core of Velocity Express can be traced back to those of U.S. Delivery Systems, Inc., which was founded by Clayton K. Trier, a one-time accountant who eventually developed a reputation as an acquirer and consolidator. Prior to founding U.S. Delivery, Trier had served as co-CEO in the late 1980s of a Houston firm called Allwaste, Inc., which grew rapidly through a string of acquisitions of small companies within the highly fragmented industrial waste cleaning business In 1993 Trier was approached by his friend Michael Baker, head of a venture capital firm called Notre Capital Ventures, about taking a similar approach to the same-day, local delivery market. According to a 1995 Forbes article, Trier’s immediate reaction was, “You mean those spiky-haired guys on bicycles?”
Of course, the market was much bigger than just the bicycle messenger business. In the mid-1990s, U.S. businesses were spending $15 billion for the services of same-day local delivery companies. This segment of the market was highly fragmented, consisting of about 10,000 companies, most of which were privately held and operated in only one market. None of the firms held more than 2 percent of the national market share. The idea was to create a national same-day delivery service, following the example set by FedEx in the overnight delivery sector.
As he researched his friend’s idea further, Trier found a number of trends that indicated that the time might be right for a national same-day delivery company. First, companies were increasingly turning to outsourcing for noncore activities, one of which was local delivery operations. Second, to maintain lower levels of inventories, companies were using sophisticated inventory control systems along with just-in-time delivery of components and materials; this increased the demand for same-day delivery services. Third, the same general trend toward a quicker pace of business that had earlier increased the demand for second-day and next-day delivery services (and that continued to be driven by the increasing speed of communication in the high-tech world) was now tending to increase the demand for same-day deliveries. Finally, major companies with locations scattered around the country were clamoring for the efficiencies and cost-savings that could be realized by being able to deal with just one same-day delivery firm rather than the dozens that they had been relying on. There was also an operational advantage to building a national network in that the delivery company itself could realize savings in overhead and certain operating expenses.
Having convinced himself through his research of the merit of the idea, Trier, with the backing of Notre Capital Ventures, formed U.S. Delivery Systems, Inc. in November 1993, basing the firm in Houston. Trier was named chairman, president, and CEO. The firm had no operations at the time, but in a clever maneuver, Trier planned to complete an initial public offering simultaneous with the acquisition of six local delivery companies and one telemarketing services firm, thereby raising the needed funding. On May 20, 1994, the company completed its IPO, selling three million shares of common stock on the New York Stock Exchange at $10 per share. This represented 40 percent of the company’s equity. The remaining shares were retained by the initial investors, who saw the value of their investment skyrocket. At the time of the IPO, for example, the 10 percent stake that Baker’s Notre Capital Ventures had gained for $2.3 million was worth $7.5 million. Out of the $29.2 million netted from the IPO, about $19.4 million in cash went toward purchasing the seven founding companies. In addition to the cash, the acquisitions also involved 3.4 million shares of U.S. Delivery common stock.
The seven founding companies had combined for about $108 million in revenues in 1993. The six local delivery companies had operations in a number of major markets and therefore formed a solid base upon which to grow. Eastway Transportation Services, Inc. operated in eastern Texas and Louisiana. First National Courier Systems Inc. had locations in Woodside, New York, and in Boston. Grace Courier Service, Inc. had operations in New York City, White Plains, and Long Island City, New York; Paramus and Edison, New Jersey; Newington, Virginia, a suburb of Washington, D.C.; and Tampa and Fort Lauderdale, Florida. U.S. Courier Corporation of San Francisco had been serving the San Francisco Bay area for 15 years. U.S. Service Corporation of America had locations in Los Angeles, San Diego, Chicago, and Milwaukee. ViaNet, Inc. was serving markets in Texas, Louisiana, and Tennessee. The telemarketing firm, CallCenter Services, Inc., was based in Salisbury, Maryland, and provided inbound telemarketing services that were used to process home delivery orders for catalog retailers.
From the start, U.S. Delivery offered several different types of same-day delivery services. Scheduled and routed delivery services were offered for time-sensitive local deliveries that were recurrent. Financial institutions were the prototypical users of this type of service, with an example being a bank needing to have canceled checks or ATM receipts picked up from various locations and then transported to a central processing center. A second type of service was “dedicated vehicle,” or what the company later called “distribution services.” In this case, a customer, usually a wholesale distributor, needed a bulk supply of some product divided up into smaller batches for delivery to several locations. For example, a pharmaceutical wholesaler might need a shipment of a particular drug delivered to several local drugstores. On-demand delivery comprised the third category and was usually offered 24 hours a day, seven days a week. In this case, a customer could request immediate pickup and delivery of the item(s) in question, choosing from one-hour, two-hour, and four-hour service. As part of its on-demand services, U.S. Delivery also offered air-courier/freight services. Other services offered by the firm included delivery management, warehousing, and just-in-time delivery services.
Working quickly toward its goal of creating a nationwide network, U.S. Delivery completed the acquisition of an additional 18 businesses by the end of 1994. Among the additional markets added via these purchases were Atlanta, Baltimore, Charlotte, Jacksonville, Orlando, Philadelphia, Phoenix, and Salt Lake City. For the year, the company reported net income of $5.3 million on revenues of $127.9 million. At this point, Trier was involved more in the acquisitions side of the business, while the day-to-day operations were being headed up by Gary W. Grant, who had been named senior vice-president and COO in March 1994. Grant had been one of the founders of ViaNet.
During 1995 U.S. Delivery completed more than two dozen additional acquisitions. By the end of the year, the firm had more than 150 locations that served 70 major markets using more than 6,500 delivery vehicles. The workforce had swelled to 6,400. Also in 1995, U.S. Delivery entered the contract logistics business through the purchase of American Distribution System, Inc. Based in Keego Harbour, Michigan, American Distribution provided logistics management services, which entailed the coordination, distribution, and warehousing of products for commercial and industrial clients.
Subsidiary of Corporate Express: 1996–99
Rather than continuing to expand on its own, U.S. Delivery agreed in January 1996 to be bought by Corporate Express, Inc. in a stock swap valued at about $410 million. Since its founding in 1986, Corporate Express had grown into a national powerhouse in the supplying of large companies with office products and services the same way that U.S. Delivery had built its national delivery network: through the acquisition of small, local, privately held firms. Corporate Express completed the acquisition of U.S. Delivery in March 1, 1996. Both companies viewed the merger as a way of enhancing their national networks, and there were obvious synergies in terms of both firms serving a similar clientele. The executives at U.S. Delivery also anticipated that the merger would enable the company to grow at a faster pace through both acquisition and internal expansion and would give the firm access to highly evolved information systems that had been developed at Corporate Express.
We are Relentless in our pursuit of service Reliability. As a company, we won’t settle for anything less.
Following the merger, Trier briefly joined the Corporate Express board of directors, and Grant also joined the firm as president of the delivery operations, which became a subsidiary of Corporate Express that was eventually renamed Corporate Express Delivery Systems, Inc. (CEDS). The headquarters for CEDS remained in Houston. For the fiscal year ending on March 2, 1996, the delivery subsidiary accounted for $342.5 million of Corporate Express’s total revenues of $1.59 billion.
The pace of acquisition was initially faster for CEDS, with 20 more delivery companies acquired during the fiscal year ending on March 1, 1997. The most significant of these was the purchase of Roswell, Georgia-based United TransNet, Inc., the second largest same-day delivery company in the nation. The transaction, completed in November 1996, involved $138 million in Corporate Express stock. Founded only in 1994, United TransNet had combined a number of local same-day delivery companies into a growing national concern whose 1995 revenues were about $254 million. The firm’s operations were centered mainly in the eastern United States. With the addition of United TransNet and the other acquired companies, revenues for CEDS more than doubled during fiscal 1996, reaching $759.8 million.
In 1997 but particularly in 1998 Corporate Express began running into problems digesting all of the acquisitions it had made, the acquisition pace slowed considerably, and the company stock price took a beating. The integration of United TransNet into CEDS proved especially nettlesome, and the same-day delivery subsidiary began losing money. In January 1999 Corporate Express announced it intended to either reduce its ownership interest in CEDS or sell it outright. The delivery business was declared to be a discontinued operation.
Reemerging As an Independent Firm Called Velocity Express
Takeover rumors began swirling around Corporate Express because of its troubles as the firm posted a net loss for fiscal 1998 and the stock continued to languish. Finally, in July 1999, the Dutch firm Buhrmann N.V. reached an agreement to purchase Corporate Express for $2.3 billion. The deal was contingent upon Corporate Express finding a buyer for CEDS. In September 1999 Corporate Express sold CEDS to Minneapolis-based United Shipping & Technology, Inc. for about $60 million.
United Shipping, which was known as U-Ship, Inc. from its founding in 1991 to May 1999, had been mainly involved in making and operating self-service, automated shipping systems that were used by consumers and small business shippers to ship packages and express letters through major carriers such as UPS. Although touted for their convenience (customers could access them 24 hours a day), the shipping centers never really caught on with consumers or businesspeople, and U-Ship posted a string of losses, including a loss of $2.5 million on revenues of just $917,000 for the fiscal year ending in June 1997. By December 1997 the company was close to running out of money and faced a possible delisting from the NASDAQ SmallCap Market. Peter Lytle, a business strategist and turnaround specialist, was brought in as chairman and CEO in early 1998 to save the firm from bankruptcy and revamp the company strategy.
Lytle quickly brought U-Ship back from the brink by raising $2.6 million in new equity through private placements. Then in July 1998 Lytle made the critical decision to expand the company’s operations by moving into same-day delivery services the same way that U.S. Delivery had: by buying up existing local delivery firms and consolidating them into a larger and larger entity. Initially this was viewed as an extension of the company’s shipping kiosk business, and Lytle believed that the firm’s advanced shipping technology would give it a competitive advantage. U-Ship created a new subsidiary called Advanced Courier Services, Inc. as its platform for same-day delivery acquisitions in September 1998, and in late 1998 the first acquisition was completed, that of JEL Trucking, Inc., which operated in the Minneapolis—St. Paul metropolitan area. A second company, Twin Cities Transportation, Inc., was acquired in January 1999. U-Ship then changed its name to United Shipping & Technology in May 1999.
After learning that Corporate Express Delivery Systems was for sale, Lytle boldly suggested to his board of directors that United Shipping make a bid, despite his company having revenues of less than $2 million compared to the more than $600 million of CEDS. Nevertheless, if the acquisition could be pulled off, United Shipping would instantly achieve its goal of operating a nationwide same-day delivery service. Lytle was able to pull off the deal—beating out 21 other bidders in the process—completing the acquisition of CEDS in September 1999 for about $60 million, plus the assumption of $60 million in debt. CEDS’s name was then changed to UST Delivery Systems, Inc., which was set up as a subsidiary of United Shipping.
- U.S. Delivery Systems, Inc. is founded to establish a nationwide network of same-day delivery services.
- Simultaneous with an IPO that raises $29.2 million, U.S. Delivery acquires seven companies, including six local delivery firms; an additional 18 local delivery companies are acquired by U.S. Delivery following the IPO.
- Firm is acquired by Corporate Express, Inc., becoming a subsidiary known as Corporate Express Delivery Systems, Inc. (CEDS).
- United TransNet, Inc., the second largest same-day delivery company in the nation, is acquired.
- Under new Chairman and CEO Peter Lytle, Minneapolis-based U-Ship, Inc. enters the same-day shipping business.
- U-Ship changes its name to United Shipping & Technology, Inc.; Corporate Express sells CEDS to United Shipping for about $60 million.
- United Shipping changes the name of its same-day delivery operations to Velocity Express.
- United Shipping changes its name to Velocity Express Corporation.
Riding high on its acquisition coup and beginning to see the dividends of a new strategy aimed at going after e-commerce clients, United Shipping saw its stock trade well in excess of $10 a share by early 2000. Just two years earlier, the stock was going for 12 cents per share and the company verged on bankruptcy. The firm significantly improved its balance sheet in May 2000 by selling 2.8 million preferred shares, which were convertible to about 13 percent of the outstanding common stock, for $9 each to TH Lee. Putnam Internet Partners, a venture capital firm specializing in e-commerce. The $25.2 million thus raised was used to pay down debt that had been incurred to acquire CEDS and also provided United Shipping with additional working capital. One month later, the company unveiled its new brand for the same-day delivery service, Velocity Express; UST Delivery Systems was renamed Velocity Express, Inc. For the year ending July 1, 2000, United Shipping reported a net loss of $28.2 million on revenues of $471.2 million.
In October 2000 Jeffry J. Parell was named president and CEO of Velocity Express. Parell had been president of the North American Rental Group of AutoNation, Inc., where he was responsible for rental operations. Just four months later, Parell took over as CEO of United Shipping, with Lytle remaining chairman. Meantime, in November 2000, United Shipping sold one of its two air courier units, Tricor America, Inc., in a paring back of a noncore operation. By the early months of 2001 United Shipping was struggling again—it continued to lose money, bad winter weather and a stumbling economy were not helping matters, and the share price had made a precipitous drop to below $1 a share. The company was forced to scale back on its ambitious growth plans—talk of becoming a $1 billion company at least temporarily disappeared—and it launched an $11 million cost-cutting program that involved the streamlining of its existing operations through the consolidation or elimination of loss-making delivery locations. Nearly 250 jobs were eliminated from the workforce as a result of this restructuring. To improve the working capital situation, United Shipping raised $15 million through another private placement of preferred shares. The revenues of $471.7 million were nearly flat for the fiscal year ending June 30, 2001, while the net loss widened to $35.3 million thanks to a $7.1 million restructuring charge.
United Shipping was able to further strengthen its balance sheet in July 2001 by reaching an agreement with Corporate Express in a follow-up to the acquisition of CEDS. Through the agreement, United Shipping was able to eliminate $43 million in liabilities from its balance sheet. The company’s improved financial position enabled it to stave off another threatened delisting from the NASDAQ exchange. In August 2001 Lytle retired from the company board and was replaced as chairman by Vince Wasik, a cofounder and principal of MCG Global, a private equity firm that had helped United Shipping with its restructuring efforts and its negotiations with Corporate Express and had also taken a stake in the company. United Shipping in October 2001 completed its exit from the air courier business by selling its remaining air unit, Air Courier Dispatch, Inc., to an investment group. One month later, United Shipping added two high-profile names to its board of directors: William S. Cohen, former U.S. Secretary of Defense, and Jack Kemp, former Secretary of Housing and Urban Development.
In January 2002 United Shipping was merged into its Velocity Express subsidiary and was renamed Velocity Express Corporation. In April of that year, Velocity Express executed a five-for-one reverse stock split, thereby increasing the share price to a level that it was hoped would make the stock more appealing to institutional investors. Through the first nine months of the 2002 fiscal year, the company saw its income fall significantly, from $365 million to $261.7 million, as a result of the elimination of unprofitable delivery locations, the divestment of the air courier business, and the faltering U.S. economy. On the positive side, the net loss of $11.4 million was a major improvement over the $26.7 million of the previous nine-month period, and the firm was able to report operating income of $231,000, compared to an operating loss of $21.8 million a year earlier. Although its long-term prospects still seemed somewhat shaky, Velocity Express was certainly on more solid ground as a result of its restructuring efforts and its focus on strengthening the balance sheet.
Velocity Express, Inc.; U-Ship International Ltd.; U-Ship America, Inc.; Intelligent Kiosk Company; Advanced Courier Services, Inc.; United Acquisitions, Inc.; United Vehicle Leasing, Inc.
Dynamex Inc.; Dispatch Management Services Corp.; CD&L, Inc.; FedEx Corporation; United Parcel Service, Inc.; United States Postal Service; Airborne, Inc.; DHL Worldwide Express, Inc.
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—David E. Salamie