LTL/transportation news: Con-way rolls out steps to reduce expenses during a down market
Jeff Berman, Group News Editor -- Logistics Management, 3/10/2009
ANN ARBOR, Mich.—Taking steps to combat light volumes, excess capacity and dismal market conditions, freight transportation services provider Con-way Inc. said in an 8-K filing it has introduced several expense-cutting initiatives to enhance its position in what it called a “challenging operating market.”
These initiatives, which the company expects to save it between $100 million to $130 million in 2009, come at a time when tonnage at Con-way Freight, its less-than-truckload (LTL) subsidiary was down roughly 12.5 percent year-over-year through February.
The cost reduction initiatives as outlined by Con-way include:
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suspension of certain 401(k) contributions including the company match;
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reduction of 10 percent in the salaries of Con-way Inc. President and CEO Douglas W. Stotlar and certain other members of the senior leadership team;
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base wage and salary reductions of 5 percent for all other executives and employees at Con-way Freight and Con-way Inc., including administrative services and trailer-manufacturing entities;
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a change in Con-way’s primary defined-benefit pension plan, which eliminates a provision for retirement benefit increases based on future increases in employee compensation rates;
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a change in vacation/paid time off policies (PTO) at Con-way Freight and Menlo Worldwide with respect to when PTO hours are earned and recorded as expense; and
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a reduction of 10 percent in the annual retainer paid to non-employee members of Con-way’s Board of Directors.
“With these market conditions, which we don’t expect to change in the near term, there is too much capacity chasing too little freight, so we have to manage accordingly,” said Stotlar in a statement. “We’re taking prudent steps to control expense, protect our market share, and conserve capital.”
Con-way officials said these cost-cutting measures will be implemented and completed early in the second quarter. The company added that these changes are on top of other steps it took to reduce costs during the fourth quarter of 2008, including the workforce reduction of 2,500 positions—with roughly 1,450 of those occurring at Con-way Freight in December. Other changes included suspending merit-based pay increases, reducing capital expenditures, and other spending cuts, according to Con-way.
The LTL industry in general has fallen on especially hard times in recent months due to an ongoing decline in consumer spending and various other factors. Stifel Nicolaus analyst David Ross wrote in a recent research note that conditions are not expected to be “snapping back anytime soon,” adding that most shippers are drawing down inventories to conserve cash, with the subsequent result being a lack of freight movement.
While the LTL sector in particular is having a tough time at the moment, Con-way is not the only one feeling the pain. Media reports recently indicated that FedEx Freight made 900 job cuts, and YRC Worldwide has been focused on a network integration between its Yellow Transportation and Roadway subsidiaries, as well as YRCW taking steps to augment its financial condition by finalizing an amendment with its lenders of its credit facilities and renewed its asset-backed securitization in order to remedy its credit situation.
Also, other leading LTL outfits like ABF Freight System and Old Dominion Freight Line, among others, have been dealing with low volumes and market condition-related challenges, too.
Even with the issues currently at hand, the steps Con-way are taking are necessary at this time, said an industry source whom declined to be named.
"It's vital to the shipping community to have financially stable, solidly performing LTL carriers that can be counted on to be there,” said the source. “With the number of carriers struggling financially, that's more important today than ever. Con-way is making some tough but smart decisions. These moves give them staying power and the ability to adjust while maintaining their network and providing consistent, reliable service. It's the reality of the economy."
But a leading industry analyst told LM that there are several problems impacting the LTL sector that are not being addressed or remedied whatsoever.
The LTL industry, which is made up of eight-to-ten large players, have all said at one point that the market suffers from overcapacity and low tonnage volumes, but they are all still doing things like expanding and moving to larger terminals and introducing new services, said Satish Jindel, president of Pittsburgh-based SJ Consulting.
“This cannot be helped, because these carriers cannot control demand and without controlling demand, they will continue to lose out in terms of pricing and have these challenges,” said Jindel. “They cannot blame the economy…they can blame themselves…and look at themselves in the mirror and ask ‘how am I causing these problems?’ They are causing these problems and nobody else.
Jindel added that many of these players continue to point fingers at others, when they need to point it at themselves and determine what they are doing to take capacity out of the marketplace, rather than—as an example—waiting for YRCW, the industry’s largest player—to exit the market and solve their problems.
“They cannot expect consumer spending to bail them out,” said Jindel. “Executives at these companies get paid to make decisions like taking capacity out and totally eliminate capital expenditures.”
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