Does Yellow Roadway's acquisition of USF signal a major change in the freight hauling infrastructure of North America? The answer is a definite maybe.

From a purely numerical standpoint, the $1.37-billion deal announced in late February is huge. The merger will make Yellow one-third larger than it is now, giving it annual revenues of more than $9 billion, more than 70,000 workers and about 1,000 locations. According to Yellow CEO Bill Zollars, the savings through synergies — purchasing leveraging, combining administrative services and technology and consolidating back office tasks — will bring $150 million in savings with $40 million alone in the first year of operation Yellow will take on about $99 million in USF debt.

Not everyone buys the cost savings, though. “Yellow believes it can make USFC more profitable and unlock synergies, but we don't see great synergies between the longhaul and regional LTL space,” wrote Bear Stearns analyst Ed Wolfe in his research report to investors.

The deal is slated to close this summer, pending anti-trust review by the Dept. of Justice. DOJ is expected to look at how the merger will affect the country's entire freight infrastructure rather than its impact on individual players, so chances for approval appear good.

As was the case with the nearly $1-billion Yellow-Roadway merger, USF will keep its brands intact to minimize the effect on current customers. “We found with Roadway that if you don't give customers a reason to change, they will stay,” said Zollars.

One of the primary reasons for the deal, according to Zollars, is that it gives Yellow a stronger footing in the next-day and second-day delivery market. “It's an offensive strategy,” he said of the agreement that gives Yellow almost 30% of both the second- and next-day LTL markets. “This market is growing faster than the longhaul market.” Included in the sale are LTL carriers USF Holland, USF Reddaway, USF Dugan and USF Bestway. USF Glen Moore, which will bolster Yellow's TL capability, as well as USF Logistics, are also part of the pact.

There is some overlap between Roadway's New Penn and USF's Holland in the Northeast, and Zollars said that although no decision has been made, most likely they will remain close to their current configurations — with some tweaking. USF Dugan may be another story. “Dugan is a predominantly non-union carrier and it overlaps with Holland,” said Jason Seidl, an analyst with Avondale Partners. He said he would not be surprised if Dugan is spun off or shut down. He also noted that we might see further carrier consolidation. Names in the running include Old Dominion Freight Line, SCS Transportation, Vitran, CNF and ABF.

Beyond the numbers, the USF deal changes the basic structure of the freight industry. We may be heading toward a time when carriers can only succeed if they offer full freight services — longhaul, LTL and next-/two-day package delivery. “The traditional freight modes are blurring,” said one transportation executive. Clearly the move from LTL to package carrier has been going on for some time as the number of next and second-day parcels under 100 lb. is growing.

The most important change to the industry may be the relationship with union workers. With the merger of Yellow and USF, ABF Freight Systems will be the only major unionized LTL carrier not under the Yellow umbrella. To some, this makes the National Master Freight Agreement a “Yellow Master Freight Agreement.” So far, Yellow-Roadway has been able to deal amicably with the International Brotherhood of Teamsters. In addition, USF reached a $5 million settlement with the IBT after shutting down its Red Star operation last May. The walkout at the northeast LTL led to a companywide stoppage, which financially hurt USF as customers went elsewhere and did not return.

The last agreement was ratified in 2003. It was negotiated by ABF Freight, Roadway Express, USF Holland and Yellow Transportation, which together employed some 80% of the 65,000 Teamsters covered by the agreement.

Noted Zollars of the USF merger: “This gives us an opportunity for a comprehensive labor strategy that will make our relationship with the IBT even stronger.”