<PAGE>
                  SECURITIES AND EXCHANGE COMMISSION
                          Washington, D. C. 20549

                                  Form 10-K

(Mark One)

     (X) ANNUAL  REPORT  PURSUANT  TO  SECTION  13 OR  15(d)  OF THE  SECURITIES
         EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998

         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________________
         TO ______________.



         Commission file number             0-19791

                           USFREIGHTWAYS CORPORATION

             (Exact name of registrant as specified in its charter)

      Delaware                            36-3790696

(State or other jurisdiction of         (I.R.S. Employer
incorporation or organization)          Identification No.)

9700 Higgins Rd., Ste. 570, Rosemont, Il.         60018
(Address of principal executive offices)       (Zip Code)


(Registrant's telephone number, including area code)      (847) 696-0200


Securities registered pursuant to Section 12(b) of the Act:
    Title of each class      Name of each exchange of which registered
Common Stock $.01 Par Value                    NASDAQ
Preferred Stock Purchase Rights

   Securities registered pursuant to Section 12(g) of the Act:
                   6 5/8 % Notes Due May 1, 2000
                          (Title of Class)


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. __X____ Yes________No

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of  Regulation  S-K is not contained  herein and will not be  contained,  to the
registrant's   knowledge,   in  definitive   proxy  or  information   statements
incorporated  by reference in Part III of this Form 10-K or any amendment to the
Form 10-K ___.

The  number  of  shares  of  common  stock  outstanding  at March  19,  1999 was
26,334,513.  The aggregate market value of the voting stock of the registrant as
of March 19, 1999 was approximately $885,871,672.

                           DOCUMENTS INCORPORATED BY REFERENCE

1)   1998 Annual Report to  Shareholders  for the Fiscal Year Ended December 31,
     1998 (Only those portions  referenced  herein are incorporated in this Form
     10-K).
2)   Proxy Statement dated March 22, 1999 (Only those portions referenced herein
     are incorporated in this Form 10-K).
<PAGE>

                                      Page 2
                        
                              USFreightays Corporation
                                    Form 10-K
                          Fiscal Year Ended December 31, 1998


                                     PART I


Item 1.           Business

Background

     USFreightways  Corporation,  (hereafter  referred  to  as  the  "Company"),
operates five regional less than truckload  ("LTL")  general  commodities  motor
carriers.  The main focus of the Company's regional trucking  subsidiaries is on
overnight and second day delivery of general  commodities  throughout the United
States and into Canada.  The  Company's  Truckload  ("TL")  subsidiary  provides
premium  regional  and  national  truckload  service.  The  Company's  logistics
subsidiaries   provide  solutions  to  customers'   logistics  and  distribution
requirements. The Company's freight forwarding subsidiaries provide domestic and
international   air  and  ocean  freight  service  through  both  exclusive  and
non-exclusive agents.

     The Company traces its origins to 1984 when TNT Limited, through its wholly
owned subsidiary TNT Transport Group ("Transport Group"), embarked on a strategy
to establish,  through acquisition, a nationwide network of quality regional LTL
carriers.  During the same period,  the group of businesses  that now constitute
the  Company  also  grew  as  a  result  of  internal  expansion  and  increased
penetration of existing markets. In April 1991 the Company was incorporated as a
holding company for regional trucking companies of Transport Group.

     During February 1992 the shareholders of the Company sold 19,593,750 shares
of common stock through an initial  public  offering for which the proceeds were
paid to Transport Group. In a subsequent transaction, the Company purchased from
Transport Group all its remaining shares in the Company.

     On May 6, 1993 the Company issued,  through a public offering, 6 5/8% Notes
in the principal  amount of $100,000,000 due May 1, 2000. The proceeds from this
issuance were, in part, used to repay borrowings under existing  revolving lines
of credit which were  partially  used to acquire the common stock from Transport
Group.

     In February  1997,  the Company  sold  3,105,000  of its shares in a public
offering. The net proceeds from the sale, amounting to approximately $69,431,000
were  initially  used to repay  outstanding  debt under the Company's  revolving
credit facility.

     During 1997, under the purchase method of accounting,  the Company acquired
all of the  outstanding  shares  of  USF  Seko  Worldwide  Inc.,  an  airfreight
forwarding company and the general commodities  business of Mercury Distribution
Carriers, Inc. for an aggregate amount of $26,779,000 of cash and debt incurred.

     During 1998, under the purchase method of accounting,  the Company acquired
all of the  outstanding  shares of Golden Eagle Group,  Inc.,  an  international
freight  forwarding  company;  Glen Moore Transport,  Inc., a truckload  freight
carrier; Moore & Son Co., a transportation logistics services company; and the
general commodities business of Vallerie's  Transportation  Service,  Inc. for a
total of $66,379,000 of cash and debt incurred.

     Following  is a table  depicting  revenue  by LTL  trucking,  TL  trucking,
Logistics,  Freight forwarding and Corporate other segments for each of the most
recent three fiscal years:
Revenue ($ in millions)

Fiscal Year               1996      %    1997      %    1998      %
                         ------    ---  ------    ---  ------    ---
 LTL trucking            $1,231   92.5  $1,409    90.0 $1,540    83.9
 TL trucking                                               13     0.7
 Logistics                   86    6.5     106     6.8    130     7.1
 Freight forwarding           8    0.6      44     2.8    152     8.3
 Corporate and other          6    0.4       6     0.4      0     0.0
                         ------   ----  ------    ---- ------    ----
Total                    $1,331   100.0 $1,565   100.0 $1,835   100.0
                         ------   ----- ------   ----- ------   -----

<PAGE>
                                   PAGE 3
Regional LTL Trucking

     LTL  shipments  are  defined  as  shipments  of less  than  10,000  pounds.
Typically,  LTL carriers  transport freight along scheduled routes from multiple
shippers to multiple  consignees  utilizing a network of terminals together with
fleets of line-haul and pickup and delivery  tractors and  trailers.  Freight is
picked up from  customers by local drivers and  consolidated  for shipment.  The
freight is then loaded into  intercity  trailers  and  transferred  by line-haul
drivers to the terminal  servicing  the  delivery  area.  There,  the freight is
transferred to local trailers and delivered to its destination by local drivers.

     LTL operators are generally  categorized as either regional,  interregional
or long-haul carriers,  depending on the distance freight travels from pickup to
final delivery.  Regional  carriers  usually have average lengths of haul of 500
miles or less and tend to  provide  either  overnight  or  second  day  service.
Regional LTL carriers usually are able to load freight for direct transport to a
destination  terminal,  thereby  avoiding the costly and  time-consuming  use of
breakbulk  terminals  (where  freight is rehandled  and reloaded to its ultimate
destination).  In contrast,  long-haul LTL carriers  (average lengths of haul in
excess of 1,000 miles)  operate  networks of breakbulk and  satellite  terminals
(hub-spoke   systems)  and  rely   heavily  on  interim   handling  of  freight.
Interregional  carriers  (500 to 1,000  miles  per  average  haul)  also rely on
breakbulk terminals but to a lesser degree than long-haul carriers.

     Regional LTL  carriers,  including  the  Company's  trucking  subsidiaries,
principally  compete  against other  regional LTL carriers.  To a lesser extent,
they compete against interregional and long-haul LTL carriers. To an even lesser
degree, regional LTL transporters compete against truckload carriers,  overnight
package companies,  railroads and airlines.  Significant  barriers to entry into
the  regional  LTL  market  exist  as  a  result  of  the  substantial   capital
requirements  for  terminals  and  revenue  equipment  and the need for a large,
well-coordinated and skilled work force.

     In  the  competitive   environment  of  each  of  the  Company's   trucking
subsidiaries,  most LTL carriers have adopted discounting programs that severely
reduce  prices paid by some  shippers.  Additionally,  when new LTL  competitors
enter  a  geographic  region,  they  often  utilize  discounted  prices  to lure
customers away from the Company's trucking  subsidiaries.  Such attempts to gain
market share through price  reduction  programs exert  downward  pressure on the
industry's  price structure and profit margins and have caused many LTL carriers
to cease operations.

The LTL Trucking Subsidiaries

     The following is a brief description of the Company's LTL regional trucking
subsidiaries. Statistical information for subsidiary's operations is reported in
the Company's 1998 Annual Report to the  Shareholders,  and is  incorporated  by
reference in this Form 10-K as page F21 of Exhibit 13.

     USF  Holland  is the  largest  of  the  Company's  operating  subsidiaries,
transporting LTL shipments  interstate  throughout the central United States and
into the Southeast.  USF Holland uses predominantly single 48 foot trailers. The
average   length  of  line-haul  in  the  year  ended   December  31,  1998  was
approximately 390 miles.

     USF Red Star operates in the eastern United States,  as well as to and from
eastern Canada.  USF Red Star uses a combination of single and double  trailers.
The  average  length  of  line-haul  in the year  ended  December  31,  1998 was
approximately  292 miles. USF Red Star operates in an environment  characterized
by intense price competition.

     USF Bestway  operates  throughout the southwest region of the United States
from Texas to California.  USF Bestway uses double  trailers in its  operations.
For the year ended  December 31, 1998 the average  length of  line-haul  for USF
Bestway was approximately 420 miles.

     USF Reddaway  provides LTL carriage along the I-5 corridor from  California
to Washington,  throughout  the northwest  United States and into western Canada
and Alaska. The average length of line-haul for the year ended December 31, 1998
was  approximately  607 miles. USF Reddaway  operates double trailers and, where
possible, triple trailer combinations.

     USF Dugan  provides  service  to the Plains  states  and into the  southern
states  from  Texas to  Florida.  USF Dugan  operates  with  double  and  triple
trailers,  and the average  length of line-haul for the year ended  December 31,
1998 was approximately 539 miles. 
<PAGE>
                                   PAGE 4

Truckload (TL) Trucking

     TL shipments are defined as shipments of 10,000 or more pounds.  Typically,
TL carriers  transport  freight along  irregular  routes from single shippers to
single  consignees,  without the necessity of a network of  terminals,  together
with fleets of  line-haul  sleeper  tractors  and  trailers.  Consolidated  full
truckload  freight is picked up from the  customer  and  delivered  to its final
destination  by  either a company  long-haul  driver  or an  independent  owner-
operator that has a leasing agreement with the carrier.

     TL operators  are  generally  categorized  as  long-haul  carriers and to a
lesser  degree  interregional  depending  on the distance  freight  travels from
pickup to final  delivery.  The  average  length of haul for a TL operator is in
excess of 1,000 miles.

     TL carriers,  including  the  Company's  trucking  subsidiary,  principally
compete against other TL carriers and to some extent the railroads.  TL carriers
generally  do not compete  against LTL  carriers.  Barriers to entry into the TL
market  exist  as a result  of  substantial  capital  requirements  for  revenue
equipment and the need for a  well-coordinated  and skilled work force. The work
force and revenue equipment requirements,  to some degree, can be offset through
the leasing of independent contractors that own their equipment. This work force
is not as controllable as the company employee work force.

     In the  competitive  environment  of the Company's TL trucking  subsidiary,
most TL carriers have adopted  discounting  programs that severely reduce prices
paid by some shippers. Additionally, when new TL competitors enter the business,
they often utilize  discounted  prices to lure customers away from the Company's
TL  trucking  subsidiary.  Such  attempts  to gain market  share  through  price
reduction programs exert downward pressure on the industry's price structure and
profit margins and have caused TL carriers to cease operations.
The TL Trucking Subsidiary

     The  following  is  a  brief  description  of  the  Company's  TL  trucking
subsidiary.  Statistical  information for subsidiary's operations is reported in
the Company's 1998 Annual Report to the  Shareholders,  and is  incorporated  by
reference in this Form 10-K as page F21 of Exhibit 13.

     Glen Moore is the Company's only TL subsidiary,  transporting  TL shipments
interstate  throughout  the United States  generally from the  Mid-Atlantic  and
Southeast  states to the West  coast and into the  Midwest  states.  Glen  Moore
primarily utilizes sleeper line-haul tractors and 53 foot trailers. Glen Moore's
average lenght of haul is approximately 1,000 miles.

The Logistics Subsidiaries

     The Company is engaged in business of  providing  logistics,  interregional
and distribution services. These activities are conducted through USF Logistics,
which  provides  complete  supply chain  management  services from supplying raw
materials  to  delivering  products  to  customers,  USF  Logistics  (IMC) which
provides  contract  warehousing  services and USF  Distribution  Services  which
collects and ships  components to  manufacturers  and receives,  sorts and moves
merchandise from suppliers to retail stores.

Freight Forwarding
     The Company is engaged, through its subsidiaries USF Seko Worldwide and the
Golden  Eagle  Group,  in providing  domestic  and  international  air and ocean
freight service through both exclusive and non-exclusive agents.

     The  Company  is  also  engaged,   through  its   subsidiaries   USF  Coast
Consolidators   and  USF  Caribbean   Services,   in  providing  direct  freight
transportation  service  from the  mainland  to all points in  Hawaii/  Guam and
Puerto Rico, respectively.


Terminals for Regional LTL Trucking

     The  Company's  226  terminals  are a key element in the  operation  of its
regional  trucklines.  The terminals vary significantly in size according to the
markets served.  Sales personnel at each terminal are responsible for soliciting
new business. Each terminal maintains a team of dispatchers who communicate with
customers  and  coordinate  local pickup and delivery  drivers.  Terminals  also
maintain teams of dock workers,  line-haul drivers and administrative personnel.
The larger  terminals  also have  maintenance  facilities  and  mechanics.  Each
terminal  is  directed  by  a  terminal  manager  who  has  general  supervisory
responsibilities  and also  plays an  important  role in  monitoring  costs  and
service quality.
<PAGE>
                                   PAGE 5

Revenue Equipment

     At  December  31,  1998 the  Company  operated  8,121  tractors  and 18,690
trailers. Each trucking subsidiary selects its own revenue equipment to suit the
conditions  prevailing  in its  region,  such as terrain,  climate,  and average
length of line-haul.  Tractors and trailers are built to standard specifications
and generally are not modified to fit special customer situations.

     Each trucking subsidiary has a comprehensive preventive maintenance program
for its  tractors  and  trailers  to  minimize  equipment  downtime  and prolong
equipment  life.  Repairs  and  maintenance  are  performed   regularly  at  the
subsidiaries' facilities and at independent contract maintenance facilities.

     The Company replaces tractors and trailers based on factors such as age and
condition,  the market for equipment  and  improvements  in technology  and fuel
efficiency.  At December  31, 1998 the  average age of the  Company's  line-haul
tractors  was 2.6 years and the average age of its  line-haul  trailers  was 5.9
years.  Older  line-haul  tractors  are often  assigned  to pickup and  delivery
operations,  which are  generally  operated  at lower  speeds  and over  shorter
distances,  allowing  the Company to extend the life of  line-haul  tractors and
improve asset utilization.  The average age of the Company's pickup and delivery
tractors at December 31, 1998 was 7.4 years.
                                 
Sales and Marketing

     Sales  personnel  as well as  senior  management  at  each  subsidiary  are
responsible for soliciting new business and maintaining good customer relations.
In  addition,   the  Company  maintains  a  national  account  sales  department
consisting of 20 professionals  who are assigned major accounts within specified
geographic  regions of the  continental  United States.  These national  account
managers  solicit  business for the regional  trucklines from  distribution  and
logistics  executives of large shippers.  In many cases,  targeted  corporations
maintain centralized control of multiple shipping and receiving locations.


Seasonality

     The  Company's  results,  consistent  with  the  trucking  and air  freight
industry in general,  show seasonal  patterns with tonnage and revenue declining
during the winter months and, to a lesser degree, during vacation periods in the
summer.  Furthermore,  inclement  weather  in  the  winter  months  can  further
negatively affect the Company's results.


Customers

     The Company is not  dependent  upon any  particular  industry  and provides
services to a wide  variety of customers  including  many large,  publicly  held
companies.  During the year ended December 31, 1998 no single customer accounted
for more than two percent of the Company's  operating  revenue and the Company's
ten largest  customers as a group  accounted for  approximately  nine percent of
total operating  revenue.  Many of the national account  customers use more than
one of the Company's regional trucklines for their transportation requirements.


Cooperation Among Trucklines

     The Company's  subsidiaries cooperate with each other to market and provide
services  along  certain  routes   running   between  their  regions.   In  such
circumstances,  the  trucklines  jointly  price  their  service  and then divide
revenue in  proportion  to the amount of carriage  provided  by each  company or
based on predetermined formulae.


Information Technology

     Each of the Company's operating  subsidiaries  maintains its own management
information systems and freight tracking and data processing capabilities. These
systems vary in sophistication in accordance with the size of each operation and
the demands of its  customers.  Software  systems are shared  among the regional
trucklines where sharing is efficient and appropriate.
<PAGE>
                              PAGE 6

Year 2000

     The  Company has been and  continues  to address  the  universal  situation
commonly  referred  to as the "Year 2000  Problem".  The "Year 2000  Problem" is
related to the  inability  of certain  computer  systems,  software and embedded
technologies  to  properly  recognize  and  process   date-related   information
surrounding the Year 2000.

     In 1996, the Company  initiated a comprehensive  review of its computerized
Information  Technology (IT)and  non-information  technology systems to identify
systems that could be affected by the Year 2000  problems and has  implemented a
plan to resolve the  identified  issues.  The Year 2000 issues were  analyzed by
identifying and assessing all  systems,software  and embedded  technologies  and
business  partners  with  internal  business  critical  systems  given a  higher
priority.  The Company defines a system as business  critical if a failure would
cause a significant  service disruption or could cause a material adverse effect
on the Company's  operations or financial results.  As of December 31, 1998, the
Company has  modified or replaced  91% of its  business  critical  systems.  All
business  critical  systems  have been unit tested by IT staff  members and many
have  been  through  a  detailed  Year  2000  test  plan.  Further  testing  and
verification  on all systems  will  continue  throughout  1999.  The Company has
expended  approximately  $1 million as of December  31, 1998 to ensure Year 2000
compliance.  The total cost to ensure Year 2000  compliance  is  estimated to be
less than $2 million.  The cost estimate is based on the Company's structure and
those  subsidiaries  it  owns  at  the  present  time.  The  acquisition  of any
additional  operating entity may  significantly  impact the total cost as it has
been estimated.

     The  Company  expects to have  contingency  plans  developed  for  business
critical  systems by July 31, 1999.  The  contingency  plans have been tested or
will  be  tested  for  plan  completeness  and  accuracy.  Should  there  be any
disruptions of business  critical  systems or critical  business  partners,  the
Company  expects to be able to continue its  operations  through  telephonic and
facsimile   communications.   Therefore,  some  contingency  plans  may  require
additional labor that may impact the Company's operating costs.

     The  Company has been  contacting  business  partners  whose Year 2000 non-
compliance  could  adversely  affect the  Company's  operations,  employees,  or
customers. As a provider of transportation and logistics services, the Company's
operations are dependent on  telecommunication,  financial and utility  services
provided by several entities. The Company is unaware of any of these entities or
of any significant  supplier to not be Year 2000 compliant.The  Company believes
the most likely worst case scenario would be the failure of a material  business
partner to be Year 2000 compliant.  Therefore, the Company will continue to work
with and monitor the progress of its partners and formulate a  contingency  plan
when the Company does not believe the business partner will be compliant.

     The Company's assessment of its Year 2000 issues involves some assumptions.
These assumptions  revolved primarily around the Year 2000  representation  from
third parties with which the Company has business  relationships,  and where the
Company has not been able to independently verify these representations.

Fuel

     The motor carrier  industry is dependent  upon the  availability  of diesel
fuel.  Shortages of fuel, increases in fuel costs or fuel taxes, or rationing of
petroleum  products could have a material adverse effect on the profitability of
the Company.  The Company  maintained a fuel  surcharge,  which was  implemented
during  Fiscal  1996,  throughout  most of Fiscal  1997 to  partially  offset an
increase  in fuel  price.  The Company has not  experienced  any  difficulty  in
maintaining fuel supplies sufficient to support its operations.  Fuel prices,
during 1998, were generally lower than they have been in the past two years.
                              
Regulation

     In August  1994,  two pieces of  legislation  passed the  Congress and were
signed into law that  greatly  affected  the  trucking  industry.  The  Trucking
Industry  Regulatory Reform Act ("TIRRA") reduced the ICC's authority over motor
carriers by eliminating the tariff-filing  requirement for motor common carriers
using individually determined rates, classifications,  rules or practices. Under
TIRRA, motor carriers are still required to provide shippers, if requested, with
a copy of the rate,  classification,  rules or practices  of the carrier.  Also,
Title VI of the Federal Aviation Administration  Authorization Act of 1994 ("the
1994 Act")  effectively  prohibited  state  economic  regulation of all trucking
operations  for motor  carriers.  The 1994 Act does allow the states to continue
regulation of safety and insurance programs,  including carrier inspections.  On
December 29, 1995,  President Clinton signed the Interstate  Commerce Commission
Termination  Act of 1995 ("ICCTA") which abolished the ICC as of January 1, 1996
and transferred its residual functions to the Federal Highway Administration and
a newly  created  Surface  Transportation  Board within the U. S.  Department of
Transportation.  Congress  has  prescribed  a  transition  period  during  which
regulations implementing the ICCTA including insurance and safety issues must be
promulgated by the Secretary of Transportation.
<PAGE>
                         PAGE 7
                                  
     The trucking  industry remains subject to the possibility of regulatory and
legislative  changes that can influence  operating practices and the demands for
and the costs of providing services to shippers.  

     Interstate  motor  carrier  operations  are subject to safety  requirements
prescribed by the U.S. Department of Transportation  ("DOT"), while such matters
as the weight and  dimensions of equipment are also subject to Federal and state
regulations.  Effective  April  1,  1992,  truck  drivers  were  required  to be
commercial vehicle licensed in compliance with the DOT, and legislation subjects
them to strict drug testing standards.  These  requirements  increase the safety
standards  for  conducting  operations,  but add  administrative  costs and have
affected the availability of qualified,  safety conscious drivers throughout the
trucking industry.                                  

     The Company's freight forwarding subsidiaries' domestic and international 
air services are not subject to regulation by the Department of Transporation,
and the subsidiaries' ocean freight service is subject to the jurisdiction of 
the Federal Maritime Commission.
 
     The Company uses underground  storage tanks at certain terminal  facilities
and  maintains  a  comprehensive  policy of  testing,  upgrading,  replacing  or
eliminating  these tanks to protect  the  environment  and comply  with  various
Federal and state laws.  Whenever any  contamination  is  detected,  the Company
takes prompt remedial action to remove the contaminants.

Insurance and Safety

     One of the risk areas in the Company's businesses is cargo loss and damage,
bodily  injury,  property  damage  and  workers'  compensation.  The  Company is
effectively  self-insured  on its  significant  operations  up to $2 million per
occurrence  for cargo loss and damage,  bodily injury and property  damage.  The
Company is also predominantly self-insured for workers' compensation for amounts
to $1  million  per  occurrence.  Additionally,  the  Company  insures  workers'
compensation  for amounts in excess of $1 million per  occurrence  and all other
losses in excess of $2 million.

     Each operating  subsidiary  employs safety specialists and maintains safety
programs  designed to meet its specific needs. In addition,  the Company employs
specialists to perform compliance checks and conduct safety tests throughout the
Company's operations. The Company's safety record to date has been good.


Employees

     At December 31, 1998 the Company  employed 19,179  persons,  of whom 11,668
were  drivers,  1,582 were dock  workers,  and the  balance  support  personnel,
including office workers, managers and administrators.  Approximately 49 percent
of all employees were members of unions. Approximately 88 percent of these union
workers  were  employed  by USF  Holland  or USF Red  Star and  belonged  to the
International Brotherhood of Teamsters, Chauffeurs,  Warehousemen and Helpers of
America  (the  "IBT").  Members of the IBT at USF  Holland  and USF Red Star are
presently working under the terms of a five-year,  industry-wide labor agreement
that expires in March 2003.

<PAGE>
                                   PAGE 8
Item 2.           Properties

     The Company's  executive  offices are located at 9700 Higgins  Road,  Suite
570,  Rosemont,  IL 60018. The Company's 19,500 square foot facility is occupied
under a lease terminating in November 2002.

     Each of the Company's  operating  subsidiaries also maintains a head office
as well as numerous  operating  facilities.  Of the 225  regional  LTL  trucking
terminal facilities used by the Company as of December,  1998, 96 were owned and
129 were leased. These facilities range in size according to the markets served.
The Company has not experienced and does not anticipate difficulties in renewing
existing  leases on favorable  terms or  obtaining  new  facilities  as and when
required.




Item 3.           Legal Proceedings

The  Company  is  a  party  to  a  number  of  proceedings   brought  under  the
Comprehensive Environmental Response,  Compensation and Liability Act, (CERCLA).
The Company has been made a party to these  proceedings as an alleged  generator
of waste  disposed of at  hazardous  waste  disposal  sites.  In each case,  the
Government  alleges  that the parties are jointly and  severally  liable for the
cleanup  costs.   Although  joint  and  several  liability  is  alleged,   these
proceedings  are  frequently  resolved  on the  basis of the  quantity  of waste
disposed of at the site by the  generator.  The  Company's  potential  liability
varies greatly from site to site.  For some sites the potential  liability is de
minimis and for others the costs of cleanup have not yet been determined.  While
it is not feasible to predict or determine the outcome of these  proceedings  or
similar  proceedings  brought by state  agencies  or private  litigants,  in the
opinion of management,  the ultimate  recovery or liability,  if any,  resulting
from such  litigation,  individually  or in the  aggregate,  will not materially
adversely affect the Company's financial condition or results of operations and,
to the Company's best  knowledge,  such  liability,  if any, will represent less
than 1% of its revenues.

Steven  Mark  Whitworth  v. TNT  Bestway  Transportation,  Inc.  n/k/a TNT
Bestway Inc. and William Orr, Case No.  96-3935-A,  14th Judicial  District
Court, Dallas County, Texas.

     On or about November 1, 1996, a judgment was entered  against the Company's
subsidiary,  USF Bestway Inc. for $3,500,000 in actual damages and $1,750,000 in
attorneys  fees  together  with court costs and  interest.  USF Bestway Inc. has
appealed  the  judgment  to the  Dallas  Court of  Appeals.  The appeal has been
scheduled for March 10, 1999

Management  of the Company  believes  that it has good  grounds for  obtaining a
reversal of the  judgment on appeal  because it believes,  among other  reasons,
that the  judgment  entered  on the  basis  of the  procedural  technicality  of
counsel's  failure to comply with the  requirements  of Texas law concerning the
signature of  pleadings  by counsel will not be sustained by a reviewing  court.
The  Company  further  believes  the  judgment  will be  vacated  and the matter
remanded  for a trial on the merits and that,  in any event,  the  judgment,  if
sustained,  will not have a material  adverse effect on the Company's  financial
condition.  In the event the judgment is sustained on appeal,  management of the
Company's  subsidiary,  USF Bestway Inc.  intends to pursue  potential causes of
action against all appropriate parties.

Also, the Company is involved in other litigation arising in the ordinary course
of  business,  primarily  involving  claims for  bodily  injuries  and  property
damages.  The Company maintains insurance coverage to insure against these types
of claims.  Accordingly,  in the opinion of management, the ultimate recovery or
liability,  if any,  resulting  from  such  litigation,  individually  or in the
aggregate,   will  not  materially  adversely  affect  the  Company's  financial
condition or results of operations.


<PAGE>

                                     PAGE 9
                                     PART II

Item 5.   Market for the Company's Common Stock and related Stockholder Matters

     The  Company's  common  stock  trades on The NASDAQ  Stock Market under the
symbol:  USFC.  On March 9, 1999  there  were  approximately  12,000  beneficial
holders of the Company's common stock. For the high and low sales prices for the
common stock for each full  calendar  quarterly  period for fiscal year 1997 and
1998,  see  page  F19 of the  Company's  Annual  Report  to the  Shareholders  -
Financial Statements (incorporated by reference under Item 14 herein).

     Since July 2, 1992,  the Company has paid a quarterly  dividend of $.093333
per share.  Although  it is the  present  intention  of the  Company to continue
paying quarterly dividends, the timing, amount and form of future dividends will
be determined by the board of directors and will depend,  among other things, on
the Company's results of operations,  financial  condition,  cash  requirements,
certain legal  requirements  and other factors  deemed  relevant by the board of
directors.  See "Management's Discussion and Analysis of Financial Condition and
Results of  Operations  - Liquidity  and  Capital  Resources"  (incorporated  by
reference under Item 14 herein).

Item 6.           Selected Financial Data

     The  information  set  forth  under  the  caption  "Selected   Consolidated
Financial Data" on page F20 of the Company's  Annual Report to the  Shareholders
Financial  Statements for the year ended December 31, 1998, is  incorporated  by
reference under Item 14 herein.

Item 7.      Management's Discussion and Analysis of Financial 
             Condition and Results of Operations

     "Management's Discussion and Analysis of Financial Condition and Results of
Operations"  appearing on pages F2 through F5 of the Company's  Annual Report to
the Shareholders - Financial Statements for the year ended December 31, 1998, is
incorporated by reference under Item 14 herein.

Item 8.           Financial Statements and Supplementary Data

     The  Financial  Statements  and  Supplementary  Data  Appearing on pages F7
through  F19 of the  Company's  Annual  Report to the  Shareholders  - Financial
Statements for the year ended December 31, 1998, are  incorporated  by reference
under Item 14 herein.

Item 9.    Changes in and Disagreements with Accountants on 
           Accounting and Financial Disclosure

     KPMG LLP was  previously  engaged as the principal  accountant to audit the
Company's financial  statements for the Company's 1996 fiscal year. On September
18, 1997, their appointment as principal accountants was terminated.

     In the year ended  December 28,  1996,  and during the  subsequent  interim
period  through  September  18,  1997,  KPMG  LLP's  reports  on  the  financial
statements  of the Company did not contain an adverse  opinion or  disclaimer of
opinion, nor were they qualified or modified as to uncertainty,  audit scope, or
accounting  principles.  The decision to  terminate  the  relationship  with the
accountants was approved by the Company's Audit Committee on September 18, 1997.
There were no disagreements with KPMG LLP on any matter of accounting principles
or practices,  financial  statement  disclosure,  or auditing scope or procedure
during the Company's last two fiscal years.

     The  Company  requested  KPMG  LLP to  furnish  a letter  addressed  to the
Commission  stating  whether it agrees with the statements  made by the Company,
and, if not, stating the respects in which it does not agree. A letter from KPMG
LLP stating its agreement with the  statements  made by the Company was included
as Exhibit 16 in a current Report on Form 8-K dated September 18, 1997.

         On September 18, 1997, the Company  engaged Arthur  Andersen LLP as its
principal  accountant to audit the Company's financial statements for the fiscal
year ending January 3, 1998.

         The Company  requested  Arthur  Andersen  LLP to review the  disclosure
required  in a Report on Form 8-K dated  September  18, 1997 before it was filed
with the Commission  and provided  Arthur  Andersen LLP with the  opportunity to
furnish the Company with a letter addressed to the Commission containing any new
information,  clarification  of the Company's  expressions of its views,  or the
respects  to which it did not agree  with the  statements  made in the Report on
Form 8-K dated  September 18, 1997.  Before the Company filed the current Report
on Form 8-K dated  September 18, 1997,  Arthur Andersen LLP informed the Company
that it had reviewed the  disclosures and did not intend and was not required to
furnish the Company with such letter.


<PAGE>


                                     PAGE 10

                                    PART III

Item 10. Directors and Executive Officers of the Company

     The information for directors is reported in the Company's definitive proxy
statement  filed pursuant to Regulation  14A, and is  incorporated by reference.
The  following  table sets forth  certain  information  as of December  31, 1998
concerning the registrant's executive officers:

         Name               Age           Position

John Campbell Carruth        68           Chairman and Chief Executive
                                              Officer and Director

Robert V. Fasso              45           President-RegionalCarrier Group

Christopher L. Ellis         53           Senior Vice President, Finance & CFO


         John  Campbell  Carruth,  68,  was  appointed  as the  Company's  Chief
Executive Officer and President in June of 1991 and Chairman in January of 1998,
and has been a director of the Company since December of 1991.

         Robert V. Fasso, 45, was appointed as the Company's  President-Regional
Carrier Group in September  1997.  Since July 1993, Mr. Fasso has been President
and CEO of the Company's  subsidiary USF Bestway Inc. Prior to that date, he was
with Yellow Freight System.

         Christopher L. Ellis,  53, has been Senior Vice President,  Finance and
Chief Financial Officer of the Company since June 1991.

Item 11. Executive Compensation

     This  information is reported in the Company's  definitive  proxy statement
entitled  "Management  Compensation" and "Compensation  Committee Interlocks and
Insider Participation" respectively which will be filed pursuant to Regulation
14A, and is incorporated by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management

     This  information is reported in the Company's  definitive  proxy statement
entitled "Security  Ownership of Principal Holders and Management" which will be
filed pursuant to Regulation 14A, and is incorporated by reference.

Item 13. Certain Relationships and Related Party Transactions

     This  information is reported in the Company's  definitive  proxy statement
entitled "Certain  Relationships and Related  Transactions"  which will be filed
pursuant to Regulation 14A, and is incorporated by reference.





                                     PART IV

Item 14. Exhibits, Financial Statements Schedules, and Reports on Form 8-K

(a)               (1) Financial Statements

                  The following  consolidated  financial statements appearing in
                  the 1998 Annual Report to the  Shareholders is incorporated by
                  reference in this Annual Report on Form 10-K as Exhibit 13:

Page Numbers of Exhibit 13

F 20              Selected Consolidated Financial Data

F 2-5             Management's Discussion and Analysis of
                   Financial Condition and Results of Operations

F 6               Independent Auditors' Report

F 7-10            Consolidated Financial Statements

F 11-19           Notes to Consolidated Financial Statements

  <PAGE>
                                     PAGE 11

                  (2) Financial Statement Schedule:

                     Independent Auditors' Report

The  Board  of  Directors  and   Stockholders,
USFreightways Corporation: 

We have audited the  accompanying  consolidated  balance sheets of USFreightways
Corporation and subsidiaries as of December 31, 1998 and January 3, 1998 and the
related consolidated  statements of operations,  stockholders'  equity, and cash
flows for the two years ended December 31, 1998.  These  consolidated  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  financial  position of  USFreightways
Corporation and subsidiaries as of December 31, 1998 and January 3, 1998 and the
results  of their  operations  and their  cash  flows  for the two  years  ended
December 31, 1998, in conformity with generally accepted accounting principles.

Arthur Andersen LLP, Chicago, Illinois, January 19, 1999

The Board of Directors  and  Stockholders,  USFreightways  Corporation:  We have
audited the accompanying  consolidated  statements of operations,  stockholders'
equity,  and cash flows for the year ended  December  28, 1996 of  USFreightways
Corporation and subsidiaries.  These consolidated  financial  statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards  require that we plan and perform the audit to obtain reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.

An audit includes  examining,  on a test basis,  evidence supporting the amounts
and disclosures in the financial  statements.  An audit also includes  assessing
the accounting principles used and significant estimates made by management,  as
well as evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  financial  position of  USFreightways
Corporation  and  subsidiaries  as of  December  28,  1996  and the  results  of
operations  and cash flows for the year ended  December 28, 1996,  in conformity
with generally accepted accounting principles.

KPMG LLP, Chicago, Illinois, January 22, 1997


                  Schedule II - Valuation and Qualifying Accounts

                         USFreightways Corporation
                    Three Years ended December 31, 1998
                         (dollars in thousands)
<TABLE>
<CAPTION>
                                                                        Additions
                                                                 -------------------------       

Description                                        Balance at     Charges to     Charged to     Deductions(1)  Balance at
                                                   Beginning      Costs and      Other                         End of
                                                   of Period      Expenses       Accounts                      Period
-----------                                        ---------      ----------     -----------    ----------     ---------

     <S>                                               <C>            <C>            <C>            <C>            <C>
Fiscal year ended December 28,1996
  Accounts receivable allowances                     $5,606         $4,868         $0             $3,288         $7,186
  for revenue adjusmtents and doubtful accounts

Fiscal year ended January 3, 1998
   Accounts receivable allowances                    $7,186         $6,717         $0             $3,836        $10,067          
   for revenue adjusmtents and doubtful accounts

Fiscal year ended December 31, 1998
    Accounts receivable allowances                  $10,067         $6,367         $0             $5,275        $11,159
    for revenue adjusmtents and doubtful accounts

(1)  Primarily uncollectible accounts written off net of recoveries.
</TABLE>

<PAGE>
                                             PAGE 12





                  (3)  Exhibits

                  Exhibit           Document
                  Number            Description

                  3(a)         Amended and Restated Certificate of Incorporation
                               of  USFreightways  Corporation  (incorporated  by
                               reference  from  Exhibit  3.1  to   USFreightways
                               Corporation  Transition Report on Form 10-K, from
                               June 29, 1991 to December 28, 1991);  Certificate
                               of Designation for Series A Junior  Participating
                               Cumulative   Preferred  Stock   (incorporated  by
                               reference  from  Exhibit  3(a)  to  USFreightways
                               Corporation  Annual  Report  on Form 10-K for the
                               year  ended  January  1,  1994);  Certificate  of
                               Amendment    of    Restated     Certificate    of
                               Incorporation   of   USFreightways    Corporation
                               (incorporated by reference  from  Exhibit  3(i) 
                               to  USFreightways Corporation  Report on Form
                               10-Q for the  quarter ended June 29, 1996).


                  3(b)         Bylaws of USFreightways Corporation,  as restated
                               January 23, 1998  (incorporated by reference from
                               Exhibit 3(b) to USFreightways  Corporation Annual
                               Report on Form 10-K for the year ended January 3,
                               1998).

                  4(a)         Form of Rights Agreement, dated as of February 4,
                               1994,  between   USFreightways   Corporation  and
                               Harris  Trust and Savings  Bank,  as Rights Agent
                               (incorporated   by  reference  to   USFreightways
                               Corporation's  registration statement on Form 8-A
                               filed with the Securities and Exchange Commission
                               on March 18, 1994).

                  4(b)         Form  of  Indenture,  dated  as of  May  1,  1993
                               between  USFreightways   Corporation  and  Harris
                               Trust and Savings Bank, as Trustee  (incorporated
                               by  reference  from  USFreightways  Corporation's
                               Registration  Statement  on Form  S-1,  filed  on
                               April 16, 1993, Registration No. 33-61134).

                  10(d)        USFreightways  Stock Option Plan (incorporated by
                               reference  from  Exhibit  10.18 to  USFreightways
                               Corporation  Transition  Report on Form 10-K from
                               June 29, 1991 to December 28, 1991).

                  10(e)        Agreement dated March 5, 1993  Supplementing  the
                               Tax     Indemnification     Agreement     between
                               USFreightways Corporation and TNT Transport Group
                               (incorporated  by  reference  from  Exhibit 10 to
                               USFreightways  Corporation  Annual Report on Form
                               10-K for the year ended January 2, 1993).

                  10(f)        Stock  Option  Plan  for  Non-Employee  Directors
                               dated October 29, 1993 (incorporated by reference
                               from Exhibit 10(f) to  USFreightways  Corporation
                               Annual  Report  on Form  10-K for the year  ended
                               January 1, 1994).

                  10(g)        Employment Agreement of Christopher L. Ellis 
                               dated December 16, 1991 (incorporated by 
                               reference from Exhibit 10(g) to USFreightways 
                               Corporation Annual Report on Form 10-K for the 
                               year ended January 1, 1994).

                  10(i)        Form of  Election of  Deferral  (incorporated  by
                               reference  from  Exhibit  10(h) to  USFreightways
                               Corporation  Annual  Report  on Form 10-K for the
                               year ended December 31, 1994).

                  10(j)        USFreightways  Long-Term  Incentive  Plan 
                               (incorporated  by reference  from  Exhibit 10.1 
                               to USFreightways Corporation Report on Form 10-Q
                               for the quarter ended March 29, 1997).

                  10(k)        Stock  Option  Plan  for  Non-Employee  Directors
                               amended  and  restated  as  of  January  1,  1997
                               (incorporated  by reference from Exhibit 3(ii) to
                               USFreightways Corporation Report on Form 10-Q for
                               the quarter ended March 29, 1997).


<PAGE>

                                             PAGE 13


                  Exhibit           Document
                  Number            Description

                  10(l)        Employment  Agreement  of Robert V.  Fasso  dated
                               December 12, 1997 (incorporated be reference from
                               Exhibit 10(l) to USFreightways Corporation Annual
                               Report on Form 10-K for the year ended January 3,
                               1998).

                  10(m)        $200,000,000   Credit   Agreement   dated  as  of
                               November    26,    1997    among    USFreightways
                               Corporation,  the  banks  named  therein  and NBD
                               Bank, N. A. as agent  (incorporated  by reference
                               from Exhibit 10(l) to  USFreightways  Corporation
                               Annual  Report  on Form  10-K for the year  ended
                               January 3, 1998).

                  10(n)        Form  of   Irrevocable   Guaranty  and  Indemnity
                               relating  to the Credit  Agreement  described  in
                               Exhibit  10(m)  (incorporated  by reference  from
                               Exhibit 10(l) to USFreightways Corporation Annual
                               Report on Form 10-K for the year ended January 3,
                               1998).

                  10(p)        Restricted  Stock  Agreement  with John  Campbell
                               Carruth  dated  April 27, 1998  (incorporated  by
                               reference  from  Exhibit  10.1  to  USFreightways
                               Corporation  Report on Form 10-Q for the  quarter
                               ended July 4, 1998).

                  10(q)        USFreightways  Corporation Non-Qualified Deferred
                               Compensation  Plan (filed with this Annual Report
                               on Form 10-K).

                  13       1998 USFreightways Corporation Annual Report to 
                           Shareholders.

                  21       Subsidiaries of  USFreightways  Corporation 
                           (incorporated by reference from the 1998  
                           USFreightways  Annual Report to Shareholders).

                  23       Consent of Arthur Anderson LLP.

                  24       Powers of Attorney

                  27       Financial Data Schedule

         Exhibits  2, 9, 11, 12, 16,  18, 22 and 28 are not  applicable  to this
filing.

(b)      Reports on Form 8-K

                  1.       On October 6, 1998 and November 3, 1998, the Company
                           filed a Current Report on Form 8-K.


<PAGE>


                                   PAGE 14

                                   SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
     Exchange  Act of 1934,  the  registrant  has duly  caused this report to be
     signed on its behalf by the undersigned,  thereunto duly authorized.  Dated
     March 29, 1999.



   USFREIGHTWAYS CORPORATION


   By: /s/Christopher L. Ellis
          --------------------        
          Christopher L. Ellis
          Senior Vice President, Finance and Chief Financial Officer


     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
registrant and in the capacities and on the dates indicated.

         Signatures                         Title             Date


/s/ John Campbell Carruth  *        Chairman of the Board     March 29, 1999
                                    Chief Executive Officer
                                    and Director

---------------------
John Campbell Carruth                

/s/ Morley Koffman *                Director                  March 29, 1999
--------------------    
Morley Koffman

/s/ William N. Weaver, Jr. *        Director                  March 29, 1999
----------------------------
William N. Weaver, Jr.

/s/ Robert P. Neuschel *            Director                  March 29, 1999
------------------------
Robert P. Neuschel

/s/ Neil A. Springer *              Director                  March 29, 1999
----------------------                                   
Neil A. Springer

/s/ Robert V. Delaney *             Director                  March 29, 1999
-----------------------
Robert V. Delaney

/s/ John W. Puth *                  Director                  March 29, 1999
------------------                               
John W. Puth

/s/ Anthony J. Paoni *              Director                  March 29, 1999
----------------------                               
Anthony J. Paoni

/s/ Christopher L. Ellis            Chief Financial Officer   March 29, 1999 
------------------------
Christopher L. Ellis

/s/ Robert S. Owen                  Controller and Principal  March 29, 1999
                                        Accounting Officer
------------------
Robert S. Owen                      


/s/ Christopher L. Ellis
*  By:   Christopher L. Ellis
         Attorney-in-Fact



<PAGE>

                                PAGE 15


EXHIBIT 10(q)

USFreightways Corporation



USFREIGHTWAYS CORPORATION

NON-QUALIFIED DEFERRED COMPENSATION PLAN

Effective as of December 1, 1998


ARTICLE 1.        ESTABLISHMENT AND PURPOSE 1
Section 1.1.      Establishment     1
Section 1.2.      Purpose  1
ARTICLE 2.        DEFINITIONS       1
Section 2.1.      Definitions       1
Section 2.2.      Gender and Number 3
ARTICLE 3.        ELIGIBILITY AND PARTICIPATION      3
Section 3.1.      Eligibility       3
Section 3.2.      Limitation on Participation        3
Section 3.3.      Removal from Participation3
ARTICLE 4.        DEFERRAL ELECTIONS        3
Section 4.1.      Participant Contributions 3
Section 4.2.      Submission of Deferral Election Forms       3
Section 4.3.      Deferral Period   4
Section 4.4.      Nullification of Deferral Elections4
ARTICLE 5.        COMPANY CONTRIBUTIONS     4
ARTICLE 6.        STATUS OF DEFERRED AMOUNTS4
Section 6.1.      Account  4
Section 6.2.      Investment        4
Section 6.3.      Report of Accrued Balance 5
Section 6.4.      Treatment under Other Employee Benefit Plans         5
ARTICLE 7.        DISTRIBUTIONS     5
Section 7.1.      Timing and Form of Distributions   5
Section 7.2.      Hardship Withdrawals      5
Section 7.3.      Designation of Beneficiary6
Section 7.4.      Claims Procedure  6
ARTICLE 8.        PROVISIONS RELATING TO PARTICIPATION        7
Section 8.1.      Extent of Rights Under Plan        7
Section 8.2.      Funding  7
Section 8.3.      Extent to Which Other Parties are Bound by Plan      7
Section 8.4.      Payment of Taxes  7
ARTICLE 9.        ADMINISTRATION AND FINANCES        7
Section 9.1.      Administration    7
Section 9.2.      Powers of Committee       7
Section 9.3.      Actions of the Committee  7
Section 9.4.      Delegation        8
Section 9.5.      Indemnification   8
Section 9.6.      Reports and Records       8
Section 9.7.      Information to be Furnished to Committee    8
ARTICLE 10.       AMENDMENTS AND TERMINATION8
Section 10.1.     Amendments        8
Section 10.2.     Termination       8
ARTICLE 11.       MISCELLANEOUS     9
Section 11.1.     No Guarantee of Employment9
Section 11.2.     Non-Alienation    9
Section 11.3.     Severability      9
Section 11.4.     Applicable Law    9
Section 11.5      Prior Deferral Plans      9






<PAGE>

                                   PAGE 16

USFREIGHTWAYS CORPORATION
NON-QUALIFIED DEFERRED COMPENSATION PLAN


ARTICLE 1.        ESTABLISHMENT AND PURPOSE
Section 1.1.  Establishment.  USFreightways  Corporation  desires to establish a
non-qualified  deferred  compensation  plan for the benefit of a select group of
the Company's management or highly compensated employees.  This plan is known as
the  USFreightways  Corporation  Non-Qualified  Deferred  Compensation Plan (the
"Plan").

Section 1.2.  Purpose.  The purpose of the Plan is to enhance the ability of the
Company to attract  and  retain  qualified  management  personnel  by  providing
Participants  with (a) the opportunity to defer a portion of their  Compensation
that cannot be deferred  under the terms of the USF Employees'  401K  Retirement
Plan  ("the  401K  Plan")  and (b) the  opportunity  to defer a portion of their
annual Bonus Compensation. The Plan is to be treated for all purposes of federal
income tax law as an unfunded and non-qualified deferred compensation plan.

ARTICLE 2.        DEFINITIONS
Section 2.1.      Definitions.  Whenever used in the Plan, the following words
and phrases shall have the meanings set forth below unless the context plainly 
requires a different meaning.  When the defined meaning is intended, the term
is capitalized.

(a)  "Account"  means the  deferred  compensation  account for each  Participant
established by the Administrator pursuant to Section 6.1.

(b)  "Accrued  Balance"  means  the  amount  of  each   Participant's   Deferred
Compensation  that is credited to his or her  Account,  after  adjustment  under
Article 6 for interest, earnings and losses.

(c) "Administrator"  means the individual or entity selected by the Committee to
carry out the  administration  of the Plan.  If no such  individual or entity is
selected, the Committee shall serve as the Administrator.

(d)  "Board  of  Directors"  means  the  Board  of  Directors  of  USFreightways
Corporation.

(e) "Code"  means the  Internal  Revenue  Code of 1986,  as amended from time to
time.

(f) "Committee" means that Committee designated by the Board of Directors of the
Company to administer the Plan. If no such Committee is appointed,  the Board of
Directors shall serve as the Committee.

(g) "Company" means USFreightways Corporation and its wholly owned subsidiaries,
including any successor or successors.

(h) "Company Contributions" means the contributions made by the Company, if any,
described in Article 5.

(i)      "Compensation" means the items of compensation subject to deferral
pursuant to the provisions of Article 4 herein.
          ------------

(j) "Deferred  Compensation" means the amount of Compensation not yet earned, as
designated  in the  Enrollment  Election  Form,  which the  Participant  and the
Company  mutually  agree shall be deferred in accordance  with the provisions of
the Plan,  and which may be provided  either by the  Participant  through salary
reduction or by the Company through Employer Contributions.

(k) "Distribution Election" means the election designated by the Participants as
to the timing and form of  distribution  of Deferred  Compensation in accordance
with Section 7.1. This election is  incorporated  into the  Enrollment  Election
Form.

(l)  "Effective  Date"  means  December 1, 1998,  the date as of which  eligible
employees may commence participation in the Plan.

(m)  "Enrollment  Election Form" means the form  designated by the Committee for
use by  Participants to make annual  deferrals of Compensation  under Article 4.
This form is included as Appendix A. This form may be changed at any time by the
Administrator with the approval of the Committee.

 (n) "Participant" means any officer or other key employee of the Company who is
eligible to participate in the Plan, pursuant to Section 3.1.

(o)      "Plan" means this USFreightways Corporation Non-Qualified Deferred 
Compensation Plan.
<PAGE>
                                PAGE 17

(p) "Plan  Year"  means the  initial  Plan Year  beginning  December 1, 1998 and
ending  December  31, 1998 and each  subsequent  twelve-month  period  beginning
January 1 and ending December 31.

(q) "Unforeseeable Emergency" means an unanticipated emergency that is caused by
an event beyond the control of the  Participant  and that would result in severe
financial hardship to the individual if early withdrawal were not permitted. The
Committee shall  determine,  in its sole  discretion,  whether an  Unforeseeable
Emergency exists.

Section 2.2.      Gender and Number.  Except as otherwise indicated by context,
masculine terminology also includes the feminine, and terms used in the singular
may also include the plural.


ARTICLE 3.        ELIGIBILITY AND PARTICIPATION
Section 3.1. Eligibility. Participation in the Plan shall be limited to officers
and  other  key  employees  of the  Company  who  comprise  a  "select  group of
management  or highly  compensated  employees"  (as that  phrase  is used  under
Department of Labor Regulation Section 2520.104-23).

Section 3.2. Limitation on Participation. The Committee, in its sole discretion,
may change the definition of who generally qualifies as a Participant, including
any minimum or maximum  deferral  amounts that must be made by a Participant  in
any Plan Year.  Any such change shall be effective for the following  Plan Year,
as designated by the Committee.

Section 3.3.      Removal from Participation.  Upon the direction of the 
Committee, a Participant may be removed from participating in the Plan on a 
prospective basis for any reason.


ARTICLE 4.        DEFERRAL ELECTIONS
Section  4.1.  Participant  Contributions.  Prior to the  beginning of each Plan
Year, a  Participant  may elect to reduce the amount of his or her  Compensation
which would  otherwise be earned and payable in or with respect to the following
Plan Year by filing an Enrollment Election Form with the Administrator.  For the
purposes of this Plan,  "Compensation"  means base salary and bonus compensation
payable under the terms of the Company's  incentive  compensation  program.  The
Participant may elect to defer a specified percentage or specified dollar amount
of his or her  Compensation  and may direct the  deferral of base  salary  only,
bonus compensation only, or both base salary and bonus compensation.

A deferral  shall  apply only with  respect to bonus  compensation  relating  to
services  performed  during the Plan Year beginning  after the date on which the
Enrollment  Election Form is filed with the  Administrator;  provided,  however,
that any initial  Enrollment  Election  Form  completed  by a  Participant  with
respect  to his or her  first  Plan  Year of  participation  may  apply to Bonus
Compensation payable with respect to services performed during the calendar year
in which such initial Enrollment Election Form is completed.

Section 4.2.  Submission of Enrollment  Election  Forms.  Each  Participant  who
wishes  to  participate  in the Plan  must  submit  the  appropriate  Enrollment
Election Form to the  Administrator  no later than 15 days prior to the last day
of the Plan Year  preceding the Plan Year with respect to which the  Participant
wishes to defer amounts under this Plan.

Section 4.3.  Deferral Period.  The deferral period shall begin on the first day
of the Plan Year with respect to which the  Enrollment  Election  Form is filed.
The deferral  period for all deferrals  shall end on the date the  Participant's
employment  with the  Company is  terminated  for any reason,  including  death,
disability  or  retirement;  provided,  however,  that  if  the  termination  of
employment is for reason of retirement, the deferral period shall end no earlier
than the end of the Plan Year in which the Participant reaches age 55.

Section 4.4. Nullification of Deferral Elections. Notwithstanding the submission
of Deferral Elections  pursuant to this Article,  the Committee may nullify such
elections to alleviate demonstrated financial hardship, or because of changes in
tax laws. The Company or the Committee shall determine, in its discretion and on
a uniform and nondiscriminatory basis, whether a financial hardship exists.

<PAGE>
                                  PAGE 18

ARTICLE 5.        COMPANY CONTRIBUTIONS
The Company, at the discretion of its Board of Directors, may make contributions
to  the  Account  of  each  of  the  Participants  in  the  Plan.  Such  Company
Contributions,  when  combined  with  the  Company  Contributions  made  to  the
Participant's Account under the 401K Retirement Plan, shall total a maximum of 3
percent of a Participant's Compensation.  Employer Contributions, if made, shall
be treated as deferred  amounts under Articles 4 and 6 and shall be fully vested
and nonforfeitable at all times.


ARTICLE 6.        STATUS OF DEFERRED AMOUNTS
Section 6.1.  Account.  The  Administrator  shall  establish an Account for each
Participant's  Deferred  Compensation,  to reflect  accurately  the share of the
Participant  under the Plan.  Amounts  deferred  under Article 4 and any amounts
contributed  under Article 5 shall be credited to the Account of the Participant
no later than the 15th of the month  following  the month in which such  amounts
would  have  been  payable  to the  Participant  if he or she had not  made  the
Deferral Election.

Section 6.2.  Investment.  Amounts credited to  Participant's  Account under the
Plan  shall  be  adjusted  in  accordance  with the  performance  of one or more
investment  alternatives  to be  selected  from time to time by the  Company (in
which case  losses  may also  occur).  In making the choice of which  investment
alternative or alternatives will be used to determine the investment performance
of a Participant's  Account, the Company may in its discretion take into account
the investment recommendations, if any, made by the Participant. Such investment
recommendations  shall be made by the Participant on a Enrollment Election Form,
which is attached as Appendix A. Title to and beneficial ownership of any actual
investments  of the  Company  (whether  or not held in trust and  whether or not
invested in one or more of the above-described investment alternatives) shall at
all times  remain in the  Company  and shall  constitute  general  assets of the
Company,  subject only to claims of its general creditors.  A Participant or his
or her beneficiary shall not under any circumstances  acquire any proprietary or
beneficial  interest in any asset of the Company by virtue of such Participant's
participation in the Plan.

Interest,  gains  and/or  losses  shall be  credited to  Participants'  Accounts
quarterly.  Participants' investment recommendations (which, as noted above, may
but need not be followed by the  Company)  may be revised as often as  quarterly
both as to  existing  balances  and as to future  contributions.  Such  election
changes shall be made on the form made available by the  Administrator  for that
purpose and shall be delivered to the  Administrator no later than 10 days prior
to the first day of the quarter for which such change is to be effective.

Section 6.3.  Report of Accrued  Balance.  The  Administrator  shall advise each
Participant of his or her Accrued Balance at least annually following the end of
each Plan Year (on a date or dates to be determined by the Administrator).

Section 6.4.  Treatment under Other Employee  Benefit Plans. It is intended that
the amounts deferred by a Participant under Article 4 shall at the earliest time
permitted by  applicable  law be includable in  determining  benefits  under any
pay-related  employee  benefit  plans  of the  Company  as  well  as  under  any
tax-qualified  retirement plans (to the extent permitted in such plans),  except
to the extent that such inclusion in any such pay-related or tax-qualified  plan
would adversely  affect the tax-favored  status of that plan or the tax-deferred
status of Compensation deferred under the Plan.


ARTICLE 7.        DISTRIBUTIONS
Section  7.1.  Timing  and Form of  Distributions.  As soon as  administratively
practicable  after the  expiration of the deferral  period  described in Section
4.3, the Company shall commence payment to the Participant of his or her Accrued
Balance.  The  Participant's  Accrued  Balance shall be paid in a lump sum or in
equal annual  installments  as designated by the  Participant  on the Enrollment
Election Form.

As soon as  practicable  following  a  Participant's  death,  his or her  entire
Accrued  Balance  shall  be  paid  to  his  or  her  designated  beneficiary  or
beneficiaries in a lump sum or installments in accordance with the Participant's
existing election.  In the event a Participant dies while receiving  installment
distributions hereunder,  such Participant's  beneficiary or beneficiaries shall
receive the remainder of such installment payments;  provided, however, that the
Committee  in its  sole  discretion  may  determine  that  such  beneficiary  or
beneficiaries shall receive a lump sum payment equal to the present value of the
Participant's remaining installment payments as of the date of his or her death.
<PAGE>
                              PAGE 19

Section  7.2.  Hardship  Withdrawals.  A  Participant  may at any time  apply in
writing to the Committee for a single-sum  distribution  of that portion of such
Participant's  Accrued Balance necessary to relieve an immediate  financial need
resulting from an Unforeseeable Emergency. Whether, and the extent to which, the
Participant has incurred an  Unforeseeable  Emergency shall be determined by the
Committee  in its sole  discretion.  The minimum  hardship  withdrawal  shall be
$5,000,  and the maximum  hardship  withdrawal  shall be the amount necessary to
relieve the immediate financial need resulting from the Unforeseeable Emergency.
At the discretion of the Committee, the amount of the hardship withdrawal may be
increased  to  account  for any  income  taxes  that  will be  imposed  upon the
Participant as a result of the withdrawal.

Section 7.3.  Designation of Beneficiary.  Each Participant shall have the right
to designate one or more  individuals or entities as  beneficiaries in the event
of the  Participant's  death.  The  Participant  may also  designate one or more
contingent beneficiaries.  To become effective,  these designations must be made
by the Participant on the appropriate  Beneficiary Designation form (attached as
Appendix  B) and  must be  filed  with the  Administrator  in  order  to  become
effective.  If no  designated  beneficiary  survives the  Participant,  then the
beneficiary shall be the Participant's estate.

Section  7.4.  Claims  Procedure.  If a  Participant  or his or her  beneficiary
(hereinafter  referred  to as a  "Claimant")  is denied  all or a portion  of an
expected benefit under the Plan for any reason,  he or she may file a claim with
the  Administrator.  The Administrator  shall notify the Claimant within 90 days
after receipt of the claim (or within 180 days if special  circumstances  apply)
of  allowance or denial of the claim.  If the claim for  benefits is denied,  in
whole or in part, the Claimant will receive a written explanation of:

(a)      The specific reasons for the denial;

(b) The specific  references  to  provisions  of the Plan  document that support
those reasons;

(c) Any  additional  information  that must be provided to improve the claim and
the reasons why that information is necessary; and

(d) The procedures that are available for a further review of the claim.

A Claimant  is entitled to request a review of any denial of his or her claim by
the  Committee.  The  request  for review  must be  submitted  within 60 days of
receipt of the denial. Absent a request for review within the 60-day period, the
claim  shall be deemed to be  conclusively  denied.  The  Claimant or his or her
representatives  shall be  entitled  to review all  pertinent  documents  and to
submit  issues and  comments in writing as part of any  request for review.  The
Committee  will  conduct a full and fair review of the claim and will notify the
Claimant of the  decision  within 60 days (or 120 days if special  circumstances
apply).  The decision  must be in writing and will include the specific  reasons
and references to Plan provisions on which the decision is based.  The Committee
has the exclusive  right and discretion to interpret the provisions of the Plan,
and the  entitlement  to benefits,  and its decision is conclusive and final and
not subject to further review to the maximum extent permitted by law.


ARTICLE 8.        PROVISIONS RELATING TO PARTICIPATION
Section  8.1.  Extent of  Rights  Under  Plan.  Except  as to  amounts  actually
distributed  under the Plan,  no  Participant  and no person  claiming  under or
through a  Participant  shall  have any right or  interest  in the Plan,  in any
Account  (whether  with respect to assets set aside in trust or otherwise) or in
the continuance of the Plan.

Section 8.2. Funding.  No funds shall be segregated or earmarked for any current
or former  Participant,  beneficiary or other person.  However,  the Company may
establish one or more grantor  trusts of the type referred to as a "Rabbi Trust"
in respect of its obligations under the Plan. No current or former  Participant,
beneficiary or other person,  individually or as a member of a group, shall have
any right,  title or interest in any  Account,  any fund,  any  specific  sum of
money, any grantor trust or in any asset which may be acquired by the Company in
respect of its obligations  under the Plan (other than as a general  creditor of
the Company with an unsecured claim against the Company's general assets).

Section 8.3.  Extent to Which Other Parties are Bound by Plan. The Plan shall be
binding  upon and shall  inure to the  benefit  of the  Company,  including  its
successors and assigns, and the Participants and their heirs, administrators and
personal  representatives.  In the event the USFreightways  Corporation  becomes
party to any merger, consolidation, or reorganization, this Plan shall remain in
full force and effect as an obligation of the  USFreightways  Corporation or its
successors in interest.

Section 8.4.  Payment of Taxes.  The Company shall to the extent required by law
withhold  Federal,  state and local taxes  (including  but not limited to income
taxes and taxes under the Federal Insurance  Contributions  Act) with respect to
any distribution from the Plan to any Participant or beneficiary.  To the extent
permitted  by law,  a  Participant  may elect a  specified  federal  income  tax
withholding rate (i.e., above the minimum applicable withholding rate).
<PAGE>

                              PAGE 20

ARTICLE 9.        ADMINISTRATION AND FINANCES

Section  9.1.  Administration.  The  Plan  shall  be  administered  by  the
Committee  and  the  Administrator  (to the  extent  administrative  duties  are
assigned  by  the  Committee  to  the  Administrator)  and,  as  applicable,  by
representatives of the Company.

Section 9.2. Powers of Committee.  The Committee shall have all powers necessary
to administer the Plan,  including,  without limitation,  the power to interpret
the provisions of the Plan and decide all questions of  eligibility  (within its
complete discretion), to establish rules and forms for the administration of the
Plan and to appoint the Administrator and any other individuals to assist in the
administration of the Plan.

Section 9.3.  Actions of the  Committee.  All  determinations,  interpretations,
rules and  decisions of the Committee  shall be conclusive  and binding upon all
persons having or claiming to have any interest or right under the Plan.

Section 9.4. Delegation. The Committee shall have the power to delegate specific
duties and  responsibilities to officers or other employees of the Company or to
other individuals or entities,  including the Administrator.  Any delegation may
be rescinded by the Committee at any time. Except as otherwise  required by law,
each person or entity to whom a duty or responsibility  has been delegated shall
be responsible for the exercise of such duty or responsibility  and shall not be
responsible for any act or failure to act of any other person or entity.

Section 9.5.  Indemnification.  The Administrator (if an employee of the Company
or any other entity affiliated with the Company), the present and former members
of the Committee  and the present and former  members of the Boards of Directors
of the  Company  shall  be  indemnified  by the  Company  against  any  and  all
liabilities arising by reason of any act or failure to act made in good faith in
accordance  with the  provisions  of the  Plan.  For this  purpose,  liabilities
include expenses reasonably incurred in the defense of any claim relating to the
Plan.

Section 9.6. Reports and Records.  The Committee and those to whom the Committee
has delegated duties under the Plan shall keep records of all their  proceedings
and actions and shall maintain books of account, records and other data as shall
be necessary for the proper  administration  of the Plan and for compliance with
applicable law.

Section 9.7. Information to be Furnished to Committee. The Company shall furnish
the Committee such data and  information  as it may require.  The records of the
Company  shall be  determinative  of each  Participant's  period of  employment,
termination   of  employment  and  the  reason   therefor,   leave  of  absence,
reemployment,  years of service,  personal data and deferrals.  Participants and
their  beneficiaries  shall  furnish to the  Committee  such  evidence,  data or
information,  and shall  execute such  documents,  as the  Committee  reasonably
requests.
<PAGE>
                              PAGE 21


ARTICLE 10.       AMENDMENTS AND TERMINATION
Section 10.1.     Amendments.  The Board of Directors of the Company may amend
the Plan, in full or in part, at any time.

Section 10.2. Termination.  The Company expects the Plan to be permanent, but it
necessarily  must and does reserve the right to modify,  revise or terminate the
Plan at any time by action of the Board of Directors of the Company.  Subject to
the final  sentence of this Section 10.2,  in the event the Plan is  terminated,
benefits  will be paid at the same  time and in the same  manner  as would  have
occurred absent such termination,  and the Committee and the Administrator shall
continue to administer  the terminated  Plan for such purposes.  Notwithstanding
the preceding sentence, the Committee, in its sole discretion,  may commence the
payment of Plan benefits to Participants in a lump sum or annual installments as
previously  elected by the  Participants  any time after the Plan is  terminated
(even if the scheduled deferral periods of such individuals have not yet ended).


ARTICLE 11.       MISCELLANEOUS
Section 11.1. No Guarantee of  Employment.  The adoption and  maintenance of the
Plan shall not be deemed to be a contract of employment  between the Company and
any employee.  Nothing contained in the Plan shall give any Participant or other
employee  the right to be retained in the employ of the Company or to  interfere
with the right of the Company to discharge  any employee at any time,  nor shall
it give the Company the right to require any  Participant  or other  employee to
remain in its employ or to interfere with any  Participant's or other employee's
right to terminate his or her employment at any time.

Section 11.2.     Non-Alienation.  No benefit payable at any time under the Plan
shall be subject in any manner to alienation, sale, transfer, assignment, 
pledge, attachment or encumbrance of any kind.

Section 11.3.     Severability.  If any provision of the Plan shall be found to 
be invalid or unenforceable by a court of competent jurisdiction, the validity 
or enforceability of the remaining provisions of the Plan shall remain in full
force and effect.

Section 11.4.     Applicable Law.  The Plan and all rights under the Plan shall 
be governed by and construed according to the laws of the State of Illinois, 
except to the extent preempted by federal law.

Section 11.5.     Prior Deferral Plans.  The deferred compensation arrangement
in existence at the adoption of this Plan shall be incorporated into this Plan
from the Effective Date.


         IN WITNESS WHEREOF,  USFreightways  Corporation has caused this Plan to
         be executed by its duly authorized officer on this day of , 1998.


USFREIGHTWAYS CORPORATION


By:      /s/ Christopher L. Ellis           
         ------------------------
             Christopher L. Ellis 
Its:     Senior Vice President, Finance and CFO