Exhibit 10.18

                                                      One Celadon Drive
                                                      Indianapolis, IN 46235
                                                      Telephone: (317) 972-7085
                                                      Facsimile: (317) 890-8099
[CELADON LOGO]
                                                      Jerry L Closser
                                                      Executive Vice President


July 9, 2001                                          PERSONAL & CONFIDENTIAL
                                      via intercompany e-mail on July 9, 2001

Mr. Sergio Hernandez Aranda
Director General
Celadon Mexicana, S.A. de C.V.
Kepler 53, Col. Anzures
Mexico, D.F. C.P. 11520


     Subject:  Letter of Understanding and Mutual Agreement
               Sergio Hernandez Aranda - Director General of Celadon Mexicana

Dear Sergio;

First,  let me share with you how pleased and excited I am to have the privilege
and honor to be  working  directly  with you now that we have made some  changes
recently in our organization. Furthermore, I think it is very proper that one of
the first of many things we will work on together is to present to you, for your
review,  the  following  details  of a four (4) year  employment  agreement  and
commitment that the company offers you:

     Term of Agreement:  This agreement is for a term of four (4) years starting
     June 25, 2001 and ending on June 25, 2005.

     Base  Pay:  Your  base pay,  effective  June 26,  2001 will be at a rate of
     $120,000 USD (one hundred and twenty thousand American  dollars)  annually.
     You can elect to be paid in United States dollars or in Mexican  Pesos,  or
     any part of thereof split between  United States dollars and Mexican Pesos.
     Any  payment  in Mexican  Pesos  will be  subject  to a mutually  agreeable
     published schedule of exchange rates.

     Annual  Increases:  Your salary will be  increased  in the  increment of 5%
     (five  percent)  annually  as from  June  25,  2001  over  the term of this
     agreement.

     Annual  Bonus:  You are  entitled  to earn an  annual  bonus  based  on the
     performance  and results of Celadon  Group,  Inc. which shall be determined
     and paid  during the first two (2) months  after the  closing of the fiscal
     year.  Bonus criteria is to be mutually  agreed upon by the Executive Group
     of Celadon.

     Incentive  Payment (sign on bonus):  In consideration of your acceptance of
     this agreement you will receive an incentive payment, or otherwise called a
     signing  bonus,  of $20,000 USD to be paid to you in three (3) amounts over
     the first year of this  agreement  ($10,000 will be paid upon  signature of
     the  agreement,  another  $5,000 paid no later than September 31, 2001, and
     the final payment of $5,000 paid no later than December 31, 2001. You agree
     to  return  75% of  what  has  been  paid  to you in  the  event  that  you
     voluntarily leave Celadon Mexicana, S.A. de C.V. before the end of the four
     (4) year agreement.

     Company Car: As part of our key management  group you will be provided with
     the  use of a  company  car.  The  company  will  also  provide  the  fuel,
     maintenance,  and  insurance  for this vehicle  pursuant to the policies of
     Celadon  Mexicana,  S.A.  de C.V..  The type of vehicle and the life of the
     vehicle is to be mutually  agreed upon by the Executive  Vice President and
     Director General.  You will not be responsible for any share of the vehicle
     acquisition cost.

     Stock Option Plan: As a key level management  employee you will be eligible
     to  participate  in the Celadon  Group,  Inc. 1994 Stock Option Plan.  Upon
     approval of the Compensation Committee at their next scheduled meeting, you
     will  receive a grant of 5,000  options.  The option  price is the  closing
     price of Celadon Group,  Inc. shares on NASDAQ on the day before the grant.
     Options  vest  over a  3-year  period  at one  third  of the  total on each
     anniversary  date. You will be eligible for additional  stock option awards
     as approved by the Board of Directors.

<PAGE>
Mr. Sergio Hernandez Aranda
July 2, 2001
Page -2-



     Health  Insurance & Life Insurance:  You will be provided with an insurance
     policy for medical expenses to cover yourself,  spouse and children,  and a
     life insurance policy,  pursuant to the policies of Celadon Mexican S.A. de
     C.V.

     Holidays and  Vacation:  You will be provided  with  holidays and vacations
     pursuant to the policies of Celadon  Mexicana S.A. de C.V. and as regulated
     by the Mexican Federal Law of Labor.

     Confidential Business  Information:  You agree not to disclose to any third
     person any Confidential Business Information not generally available in the
     public domain relating to the business or operations of Celadon Group, Inc.
     and/or  Celadon   Mexicana,   S.A.  de  C.V.  and/or  any  subsidiaries  or
     affiliates,  and shall not use any such information for your own benefit or
     for the  benefit  of any  third  person,  either  during  the  term of this
     agreement or thereafter, whether such information was obtained or conceived
     by you or others.

     Sole Engagement:  You agree during the term of this agreement that you will
     not engage or otherwise, directly or indirectly, be associated with, or act
     as  independent  contractor  or  consultant  for or to,  or be a  director,
     office,  employee, owner or partner of, any other business or organization,
     whether  or not such  business  or  organization  is now or  shall  then be
     competing with Celadon Group, Inc. and/or Celadon Mexicana, S.A. de C.V.

     No Compete Obligation:  You agree to abstain from the moment of termination
     from Celadon  Mexicana,  S.A. de C.V.,  for a period of twelve (12) months,
     from exercising any activity similar to the activity performed with Celadon
     Mexicana, S.A. de C.V. You also agree not to engage in any similar activity
     or  otherwise  directly  or  indirectly,  be  associated  with or act as an
     independent  contractor or consultant for or partner of, any other business
     or organization,  with a field of activity similar to the Celadon Mexicana,
     S.A. de C.V. activity. You agree that your no compete obligation will apply
     irrespective  of the modalities of termination  and  irrespective  at whose
     initiative the employment relationship will be terminated.

     Office  Relocation:  The company  warrants its interest and approval to the
     relocation  of Celadon  Mexicana,  S.A de C.V.  offices from Mexico City to
     Queretaro  subject  to a  complete  analysis  of the  cost,  impact  to the
     existing  employees,   transportation   expense,   and  other  impacts  and
     considerations of the move. The final approval must be mutually agreed upon
     by the Executive Vice President and the Director General. In the event, and
     for any reason, the relocation is not approved and does not occur, you will
     be allowed to exercise a right to terminate  your  employment  with Celadon
     Mexicana,  S.A.  de C.V.  at your  discretion  upon six (6) months  written
     notice to the Executive Vice President.

     Salary Continuation:  Because of your key management position,  the company
     will provide you with a salary  continuation  guarantee and will compensate
     you in the  amount  of six (6)  months of salary at the full rate of pay in
     the event that you are  involuntarily  terminated by Celadon (except in the
     event you are convicted of a felony charge). This payment will be made over
     the six (6) months following the involuntary termination of your employment
     with the  company  less any  applicable  taxes.  You agree  not to  compete
     against  the  company  during the  immediate  three (3)  months  after your
     involuntary termination.

I trust this outline is  conclusive  and in the spirit of an  agreement  that is
mutually  beneficial  to you and the Celadon  Group.  If this letter  accurately
summarizes our discussions, please acknowledge your acceptance and understanding
of our agreement. This letter will then be used to formalized our agreement into
an employment contract.

Sincerely,

CELADON GROUP, INC.                  Accepted by:



Jerry L. Closser                     /s/ Sergio Hernandez Aranda  July 9, 2001
Executive Vice President             Sergio Hernandez Aranda          Date