Lane Balance Systems

September 2002
500 workers in Memphis lost their jobs when Consolidated Freightways Corp. suddenly shuttered its operations Sept. 2, but many local transportation executives say contraction may be just what the less-than-truckload industry needs. Other national LTL carriers like Roadway Express, Arkansas Best Corp. and Yellow Transportation should benefit from the demise of CF, which controlled about 15% of the long-haul LTL market. Regional LTL companies, which generally ship in a certain geographic region as opposed to the national coverage of CF and its contemporaries, also should see some increases in freight levels as shippers search for alternatives.

That might result in a much-needed change in the industry. "I think for the first time in about 10 years truckers are going to be able to make a rate increase," says Jerry Kattawar, vice president of Memphis-based freight broker ProTrans, Inc., who spent the better part of two decades with CF. "It should be a good time to be a trucker." The American Trucking Association says freight tonnage grew 3.5% during the second quarter. But the primary beneficiaries have been larger companies as attrition has taken out many smaller firms. ATA estimates that more than 7,000 trucking companies with at least five trucks shut down in the past two years.

The demise of so many trucking firms, of which CF is the largest, can be traced back to 2000 when the economy began to lag and manufacturers shipped fewer and fewer orders. But that trend is starting to reverse slightly. Other industry executives agree that the contraction of CF, a notorious price cutter, could lead to better margins for the remaining LTL carriers. "If not pricing increases, then definitely they'll be holding their prices for sure," says John Strange, branch manager of C.F. Robinson Worldwide's Memphis office. "In Memphis, its been real competitive with some of the LTL pricing being so low it was almost ridiculous."

Vancouver, Wash.-based CF filed for bankruptcy protection Sept. 3 and plans to liquidate the assets of its LTL business. The company, one of the world's largest long-haul LTL providers, had 350 terminals and more than 30,000 trucks in United States, Canada and Mexico. CF officials have said they want to keep the firm's CF AirFreight, Canadian Freightways Ltd. and Grupo Consolidated Freightways S.A. de RL subsidiaries operating.

Local manufacturer Lifetime Industries once shipped with CF, but president Chip Cayce says his firm stopped using CF about four months ago due to poor service that may have been related to the truck line's financial woes. His firm shifted its shipping to regional LTL carriers like FedEx Freight, he says. Cayce is aware that the closure of CF may have an effect on freight pricing in Memphis, where there is an enormous amount of goods shipped from local manufacturers and distribution operations. But, from a shipper's perspective, he is hopeful that competition will at least keep rates down in Memphis. "So many of the LTLs have such a major presence in Memphis, or course, that I think the market is going to remain pretty competitive," Cayce says. "I hope."

The LTL industry has long been the scene of extreme price wars that resulted from overcapacity brought to the market by too many carriers competing for too little freight. The ability to shop multiple carriers gave shippers the upper hand and forced carriers to make discounts. Since deregulation in 1980, an increasingly growing number of small, nonunion companies have entered the market to scrap for a piece of the LTL pie.

Although CF may be dead, four nonunion regional LTL carriers that make up Con-Way Transportation could pick some of the company's business, says Jeff Owen, president of Memphis-based Lane Balance Systems and a former executive with a regional LTL company. CF's former parent company CNF, Inc., formed Con-Way in 1983 and spun off CF in 1996. The four companies had been competing with CF for regional and some long-haul LTL business. Owen says Con-Way will aggressively pursue CF's former customers. "You can bet that the regionalized Con-Way companies will be picking up the long-haul business," Owen says.

Still, it is too early to tell if CF's freight will trickle down to the truckload carriers. Even if it did, it's not clear if they would be able to handle it at this time, Strange says. The truckload carriers, which include major carriers like M.S. Carriers and Schneider National Carriers, won't have a great deal of extra capacity to absorb CF's business as they approach their busy season shipping freight for retailers gearing up for the holidays, Strange says.

Although the remaining players will see some short-term gains as shippers scramble away from CF, the long-term problems of the industry may not go away, Kattawar says.  "I am going to tell you something that no one else will say," he says. "(The LTL industry) is going to make a mistake. They are going to go out after 10 or 12 months and hire more drivers and buy more trucks to cover the freight and rates will drop again because of the overcapacity."

See article in Memphis Business Journal