It’s hard to sustain long-term business growth with short-term strategies. That’s what Michael E. Uremovich discovered in 2006, shortly
after assuming his new role as chairman and CEO of Pacer
International Inc., an intermodal and logistics freight transportation
Pacer’s former management team had made 14
acquisitions leading up to an initial public offering in 2002, sidestepping the challenging and often expensive task of dealing with acquired
owners and fully assimilating the acquired companies.
important not to disappoint investors in the early stages after going
public,” Uremovich says. “So the former management team chose not
to address some of the strategic acquisition issues, until the company
became more mature. It was clear to me that I needed to act and redirect the company in order to stimulate growth.”
Much of the capital raised during the IPO went toward reducing
acquisition debt, not infrastructure consolidation, and soon the company’s revenue and earnings growth slowed. Incongruent computer
systems were costly to run and failed to satisfy customer needs, while
a patchwork leadership team failed to operate under a unified vision.
Now, Uremovich would have to tell shareholders that he needed to
make a number of changes, some of which would require significant
Uremovich is regarded as a logistics industry guru, who helped revolutionize the business. He was a member of a team that invented the double-stack train, where one cargo container rides atop another, doubling
the train’s capacity for transporting goods and reducing costs. He also
served as managing director of the worldwide transportation practice
for Coopers & Lybrand and was a principal at Booz Allen Hamilton.
Prior industry experience gave him knowledge about the needs of customers, which he quickly put to work as part of a plan to reinvigorate
growth at Pacer.
Uremovich spent his first days as CEO listening to Pacer’s staff discuss
key business issues. His initial impression was that many of the conversations centered on internal problems and not the needs of customers. Then,
through in-depth financial reviews, he discovered that $400 million, or
roughly 25 percent, of the company’s annual revenue was unprofitable,
which represented nearly $20 million in lost opportunity. To Uremovich,
that was conclusive proof that the company’s division leaders were not
focused on the right priorities.
“All you had to do was be a fly on the wall and listen to the conversations,” Uremovich says. “Everything I heard was ‘we’ oriented, no one was
talking about our customers.”
Pacer was structured in five autonomous business units, each headed by
its own president. One of Uremovich’s first goals was to work with each
business leader to make his or her division profitable.
“I asked each of the presidents to come to me with a plan to get the
business moving,” he says. “I wanted the plans to be tightly focused,
because I also felt that we were focused on too many things and not all
of them were important. So I asked each president to focus on six
things, and I stated that I expected some of those to be customer initiatives.”
An example of one initiative that delivered increased revenue by satisfying customers occurred in the company’s transport service unit. The team
began a focused sales campaign offering heavy haul services to customers, but the initiative also included a program to improve safety and
reduce claims. As customers gained confidence in the safety of their
cargo, they began buying more of the specialized trucking services.
“I’ve never been a fan of scorecards, because they only measure where
a company’s been, not where it’s going,” Uremovich says. “I prefer benchmarking against future business objectives because it’s more effective in
Several things happened as Uremovich maintained a vigilant schedule of
monthly follow-up meetings with each division leader, tracking the
progress of the initiatives. First, he discovered that he benefited from the
discipline of a monthly review schedule, because he avoided distractions
and remained tightly focused, and second, he also found that some of his
management team didn’t buy in to his vision of a unified company or could-n’t execute on the critical few components, so he began making changes.
“I think I was guilty of the same mistakes that many CEOs make,
because we’d all like to believe people will see the right path, but that’s
not always true,” Uremovich says. “I tried a couple of public executions,
in the hopes it would be a motivator, but in hindsight, I think I should have
acted more quickly.”
Now two years later, three of the five company business units have
turned around, one is improved and one is still struggling.
Create operational efficiencies
Pacer was operating a number of systems and programs, including four
disparate general ledger systems, the remnants from acquired IT infrastructures. The result was higher costs and more frequent mistakes.
Without a common financial or human resources system, there were multiple people involved in processing every transaction, creating the opportunity for costly errors.
In addition, customers were unable to track their cargo through a single
portal as it passed from one Pacer transportation division to another,
including the invoicing and payment application processes. That created
back-office redundancies, and it failed to meet customer demand for a single logistics provider with a seamless process.
But developing an ERP system for a company the size of Pacer is expensive, and while the decision was ultimately made to build a single platform
using SAP, Uremovich had to manage the expectations of investors, telling them to expect some short-term pain in order to realize long-term
“I communicated to the shareholders the importance of integrating
to one system across all service units, because ultimately, it would
drive profitability and growth,” he says. “Fortunately, there was recognition on the part of the shareholders that this had to be done; in fact,
most shareholders thought we should have done it earlier. But the
potential size of the commitment was substantial, in excess of $35 million in capital.”
Uremovich says that Pacer was experiencing another post-acquisition hangover — out- of-control spending.
“I’d give us a C-plus in terms of spending control in today’s business
climate,” he says. “I instituted more rigorous control processes and
new rules of engagement about who can approve expense accounts.
I wanted to encourage the staff to think and act like responsible owners.”
As the development of the new data system moved forward,
Uremovich was able to reduce operating costs and make staff reductions. In addition, Uremovich changed the company’s employee
bonus program to support his cost-control and customer-focused initiatives. Instead of earning a bonus only on the company’s performance, employees can now earn half of their bonus based upon the performance of their business unit, while the other half is based upon full
company results. And under this new bonus plan, employee turnover
has been reduced by 50 percent.
Focus on service
“Taking over as a CEO who needs to make significant investments,
does have a higher risk for failure, especially for a while,” Uremovich
says. “So it’s not for people who are risk averse, but it’s also an opportunity to achieve something. In my opinion, you can never go wrong
under those circumstances by focusing on the customer, because somebody out there better pay attention to those people.”
Uremovich’s final growth strategy was to drive Pacer toward
becoming a world-class intermodal and logistics service. He says that
customers are more interested in reliability than price, so demonstrating service consistency is vital as is providing a one-stop shop that
offers customers the flexibility to select the most effective mode of
For example, customers often need to contract with multiple firms,
transporting freight from ships to railroad containers to trucks, which
increases costs and decreases reliability. Under Uremovich’s unified
service model, customers can switch between rail and trucks, while
still keeping their entire shipment of goods in the care of one provider.
Uremovich also renegotiated many of the company’s rail contracts,
using his years of industry experience and relationships, to create
more favorable terms that will benefit customers and improve margins.
“A number of things changed in the industry around the 2004 to
2005 time frame, and now there are really only two rail providers,”
he says. “So the terms and conditions in those contracts are vital
in determining a firm’s competitiveness in the transportation
Uremovich also insists that the firm’s senior executives visit customers, and he personally conducts new business pipeline reviews
with the company’s sales staff, so he can keep tabs on what’s important to customers and be involved in landing the top four or five
prospects on the list. Now that division leaders operate under a unified vision, sales staff cross-sell services to clients, which has
increased growth and revenue.
So far, his solutions seem to be on target. While 2007 operating
income was below 2006 levels, it was above all other years since the
IPO and revenue increased over 2006 by 4.3 percent to $1.9 billion.
“We really were a creature of private equity,” Uremovich says. “Our results were never bad, but I couldn’t see a way that we could sustain
long-term growth, given our structure. When funding is used to make
acquisitions and create exit strategies for investors, it works in the
short term, but play that out 25 or 30 years and it stops working. As
companies become more mature, you really have to address the long-term strategic issues to sustain growth.”
HOW TO REACH: Pacer International Inc., www.pacer.com