Questions & Answers with Vitran Corporation President and CEO Rick Gaetz

Group News Editor Jeff Berman recently spoke with Vitran Corporation President and CEO Rick Gaetz about the North American less-than-truckload (LTL) market, Vitran’s recent divestiture of its Supply Chain Operation (SCO) 3PL subsidiary, and the freight economy, among other topics.

Q: Vitran recently sold SCO to Legacy Supply Chain Solutions. Is SCO in good hands going forward?
A: Absolutely. This is a really big deal for Legacy and should really put them on the map as a North American supply chain [services] provider.

Q: How long had you been thinking about or planning this deal?
A: For the last several years as we really started to grow and have success in the supply chain space—while primarily being an LTL carrier—we had SCO which was representative of 14 percent of our revenue that was a very nice and healthy company we had been growing organically and performing very well.

It was evident to us that it would always be an undervalued asset buried in our LTL portfolio, so there was a combination of issues that got us to where we were. We have a big North American LTL operation that has performed well in Canada and had its struggles in the U.S. over the last few years.

Clearly, we had a desire to make sure our focus was squarely on the recovery of our U.S. LTL business. We had this SCO asset which had grown nicely and was clearly something we were going to have to deal with, whether it is in one year or five years from now. There are always hard decisions when you divest and this was no different.

Q: What made Legacy a good fit for SCO?
A: It was very important to me that we found SCO find a home where the management and supply chain teams could thrive and prosper. The cultural fit and the management style and the integrity was outstanding and it was very important that we find a place where our people would be happy to work and our customers would be well taken care of. We were very lucky to find a strategic buyer that has the character that Legacy has.

Q: As this sale affirms your commitment to the North American LTL market, coupled with some changes on your management team, a Wall Street analyst referred to it as turnaround. How would your characterize it?
A: It is a combination of a rebirth and a turnaround. We really had to break it down to build it back up. We are on a bit of a journey, there is no question about it. Our team in the U.S. is very talented and is a great group of people. The technology we introduced to the business last year is bringing the company to a new level, and the culture of the company is changing to one that meets Vitran’s standards and expectations that we have at all our other businesses as well as one of service excellence.

Q: Shifting gears from this sale, is Vitran looking at growing through acquisition as it did it February 2011, when it acquired Milan’s LTL operations?
A: The answer is yes; we will always look for strategic fits. But the qualifier to that is we will not make acquisitions until we have solid momentum in the U.S. We want to make sure our ship is right in the U.S. as we are moving in the right direction. Over the years, we have acquired 13 companies so I can see more in the future but there is nothing imminent until we get the U.S. LTL business back to where we need it.

Q: What is your take on the U.S. LTL market? It really has seen its share of ebb and flows over the past five-to-seven years especially, with things like pricing wars, YRC fighting for survival, high diesel prices, and other things.
A: I think it is a stable environment and is an environment where there seems to be a determined effort from carriers to be successful and offer great service at price appropriate for that service. And economically there will always be the odd hurdle that we have jump over but I think fundamentally the LTL industry is in a pretty good place.

Q: Pricing seems to be back in the LTL carriers’ favor, especially when compared to not that long ago. How do you view pricing and rates and working with shippers in an effective manner on that front?
A: We look at the characteristics of the freight that our shippers are offering us and try to make sound, fundamental pricing decisions around our needs and the customers’ needs. There is no question that pricing is beginning to move up although very few carriers are earning their own true cost of capital in the LTL space.

That would indicate that carriers still need to find a way to provide the necessary service for our customers to have success in their marketplace at a price that works for the carriers. I think there is a balance that is kind of slowly evolving in space in that customers that do not have high operating characteristics in their freight are going to pay more in the long term. But I think generally the market is prevailing the way it should in that regard.

Q: The LTL market is very competitive as always, with the various publicly-traded companies like Vitran and others. It seems like some regional players are making inroads, too, with increases in lane density and partnerships to create a larger presence. How are you viewing that?
A: I think it is generally harder to dominate in larger markets through partnerships. I think you can play in markets through partnerships, though. Vitran and other carriers will be successful by focusing on its core market and making sure we have the right level of density in those markets.

I would say on balance in the last several years there has clearly been a consolidation of LTL players, some smaller and some larger, and going forward I would expect to see some continued signs of consolidation. But most of all people are going to pick their segments and decide who they are and what they do well and go about trying to do it with some level of density.

Q: Given the recent rise in diesel prices, how does that impact how you approach that aspect of your business, even with a fuel surcharge?
A: At this point in the LTL world, most players hedge with the surcharge, however, as prices rise like they have recently it gets harder and harder to chase the fuel price with a surcharge. There is no question that in an accelerating fuel cost environment it puts pressure on carriers for sure.

We would much rather see a lower or more stable price, but it is what it is and we have to fight through it. The bigger issue is what it does economically in the macro picture, in terms of what it does to consumers disposable income.