Biggest U.S. trucker battling economy's headwinds

By Nick Carey

HOLLAND, Michigan (Reuters) - Keith Graham says times are not good, but they have been worse.

"I was down to two deliveries a week at (auto supplier) Pullman Industries in South Haven," said the truck driver at USF Holland, a unit of America's largest trucking company YRC Worldwide Inc (YRCW.O). "Recently, they went back up to four deliveries a week, which is good news."

"When it comes to the auto industry, Michigan could do with a whole lot more good news like that, " Graham, 47, said.

Those extra deliveries were related to new product lines for General Motors Corp (GM.N), officials said.

But if good news like new product lines at a U.S. automaker is rare these days -- the industry has been decimated by shrinking market share for Detroit-based automakers GM, Ford Motor Co (F.N) and Chrysler LLC -- the same can be said for YRC and USF, which YRC bought in 2005.

Like other U.S. trucking companies, YRC has seen weak demand since the third quarter of 2006, driven by weak auto sales, the housing sector slowdown and lackluster retail sales.

But company officials say business in USF's four core states -- Ohio, Indiana, Illinois and Michigan -- has been hit harder than elsewhere due to struggling automakers.

"We serve many second- or third-tier suppliers and they are all feeling the effects as are other companies" of slower auto sales at Detroit's Big Three, USF Holland President John O'Sullivan said. "In this region, we are all in this together."

But analysts like Morningstar's Keith Schoonmaker say YRC's problems go deeper and its business model needs an overhaul.

"The slowdown in the sector is bad timing for the company," Schoonmaker said. "But YRC is the worst performer in the market for how much profit they generate from $1 of revenue."

The company's difficulties have recently dragged its stock down to the lowest level since spring 2003.

FIERCE COMPETITION

YRC is a less-than-truckload (LTL) operator, a consolidator of small loads into a single truck. The company has national routes as well its regional USF brand. But analysts said the regional operations are where the problems lie.

With the slowing Midwest economy and auto-related business, O'Sullivan said USF Holland is targeting new customers.

YRC CEO Bill Zollars also told Reuters that pricing at the regional operations has caused some "self-inflicted wounds." So he said YRC is rectifying this by "firing some customers."