MUSCATINE, Iowa (May 3, 2004) — Yellow Roadway Corp. will not renew the outsourcing agreement with Bandag Inc. for Roadway Express tire and wheel services, cutting a contract that in 2003 delivered revenues of $27.5 million to the retreading equipment, materials and services company.
Bandag has had the agreement with Roadway since 1999. The trucking company was bought by Yellow Corp. last year in a deal valued at nearly $1 billion.
Muscatine-based Bandag said Yellow is obligated to repurchase all tires and wheels owned by Bandag and used on the Roadway fleet by Aug. 1. Bandag estimates the value of the tires and wheels to be $37 million, though the definite price depends on various factors.
Bandag said the annual revenue under the contract in 2003 of $27.5 million also included revenue from sales of retread materials to dealers performing services under the agreement. Bandag said the agreement contributed about $4 million to consolidated net income in 2003. The company said these figures overstate the potential financial impact from the termination of the contract since it does not figure in the proceeds from Yellow buying the tires and wheels by Aug. 1.
“While we're disappointed that Roadway Express will no longer be a partner in one of the trucking industry's most innovative outsourcing agreements, we understand that philosophically Yellow prefers to in-source services, such as tire and wheel maintenance,” said Martin Carver, Bandag's chairman and CEO.
He added the company is working with “several fleets” to develop outsourcing partnerships.