Cheap Freight comes at a cost

H

honest

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Dec 11, 2009
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Con-Way announced on their conference call that Cost Increases were Larger than Expected; During 4Q09, ConWay increased its tonnage an impressive 20.6%, but it came at much cheaper yields, which were down roughly 11.7% excluding fuel surcharges. We believe CNW’s aggressive pricing strategy aimed at increasing network density backfired, as more customers diverted freight to the company than management had anticipated. The company quoted freight with a certain cost structure in mind, which ultimately proved too conservative an estimate as more freight moved through its network, The result was higher costs as the company had to run more schedules and trucks, as well as hire more people.

No Kidding!
 
Not surprising since the year before they had to restructure and "re-engineer", including laying off people. The problem, as I see it, is that shippers are commanding and receiving larger discounts from base tariffs. Con-Way, being one of those companies that uses per hundred weight rates and discounts their base tariff, are probably also getting the proverbial crap kicked out of them in the marketplace by other carriers like Old Dominion and the like. It is possible that Con-Way, like other regional LTL carriers of their ilk (example: Alvan, Old Dominion), is unable to provide or maintain a uniform cost structure throughout their system because their business model (i.e., sell LTL rates at different discount levels based on NMFC class, standard accessorial tariff rules, stops making sense usually after about 5000 lbs) and hub-based LTL network (which is a product of old systems from predecessor companies no doubt.) Alvan, for example, services most of the U.S., however, uses advance/beyond carriers for points outside of it's direct service area and can negotiate rates for areas that make sense to them and there can be reciprocal business for those other carriers. Con-Way, unlike Alvan and other companies, is global and does not appear to be a single brand as they also have Menlo Logistics. The global aspect of Con-Way plus the fact that they deal with Walmart as a carrier may even suggest that the ability to control cost on that scale may be a problem.

When I look at their 4Q09 earnings, on the surface, yeah, they look better than they did a year ago. Their long-term debt is lower and it looks like the revenue from their logistics division (I think that's Menlo Logistics) is roughly 50% of what their freight division does. Truckload revenue is barely even worth talking about. You'd think with numbers like those that Con-Way might want to refocus on what is making them money and jiggle their marketing department to be more creative.

http://www.con-way.com/resources/in...tats/2009/4Q09_earnings_release_operating.pdf


Here's an article about Con-Way's recent performance:

Con-way Reports $111 Million Loss for 2009 | Journal of Commerce
 
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