The 2009 recession changed the trucking industry "fundamentally," forcing deep changes in less-than-truckload and truckload operations, Con-way CEO and president Douglas W. Stotlar said Thursday at the SMC3 Connections 2012 conference.
"It took the downturn of late 2008-2009 to take the excess capacity that built up before the recession" out of the LTL industry, Stotlar told reporters after speaking to the logistics and transportation group. "The LTL industry is right at capacity right now."
Surviving LTL carriers are "more sophisticated," running leaner and more efficient networks and "we're much better companies as a result," he told reporters.
Stotlar expects LTL pricing to rise as carriers strive to get "the price we need" to cover rising costs and generate profits that allow them to reinvest in their business. "Everyone is more cognizant of return on investment and everything is more expensive."
Con-way last week said it would raise its general rates 6.9 percent July 9, joining a growing list of LTL trucking companies planning price increases this summer.
"Shippers fear the capacity crunch," Stotlar said. "Customers that don't allow us to be efficient, we can't afford to haul their freight," he said. Con-way not only has more pricing power, it has better control over how it determines what a rate should be.
"We have better information on costing than we've ever had," the CEO said, thanks to more sophisticated technology. "Our ability to lane price has increased dramatically," which helps Con-way Freight provide capacity while getting the right ROI, he said.
That means shippers that work with the carrier to improve efficiency and reduce costs can still achieve savings even when rates rise, he said. "We can potentially offer a lower aggregate cost," which would be a win for the shipper and for the trucker, Stotlar said.
The recession, which began in 2007 and ran through 2009, "whacked" the LTL industry, including Con-way Freight, Stotlar said, and several of the steps the company took to recover from the economic collapse in the short-term made its problems worse.
In particular, Con-way participated in a bitter pricing battle in 2009. "Some decisions were made around pricing to attract business into our network," Stotlar said in his presentation to the conference, held in Chicago June 26 through June 29.
"All of a sudden we flooded our network with low-priced national account freight."
That hurt the company when the economy began to recover, and Con-way hired back about 2,000 employees who had been laid off during the recession. "We had high costs and low efficiencies, so we pretty much shot ourselves in the other foot," Stotlar said.
Con-way Freight didn't report an annual operating loss during the recession, but its operating profit plummeted 69 percent in 2009 and 50 percent in 2010, bottoming at $28.9 milli before rebounding 314 percent in 2011 to $119.8 million.
That's still 27.5 percent below Con-way Freight's 2008 operating profit of $165.2 million. "We're still in recovery mode," Stotlar said at the SMC3 press conference.
Con-way as a whole suffered a $110.9 million loss in 2009 but returned to profitability, albeit barely, in 2010. Last year, however, its net profit skyrocketed 22-fold from $4 million in 2010 to $88.4 million. Revenue rose 6.8 percent to $5.29 billion.
The rebound came after a management change at Con-way Freight that saw CEO Stotlar step in to run the $3.3 billion LTL unit as interim president. He launched initiatives to streamline operations, improve safety and empower employees.
In September 2011, Stotlar stepped aside to name W. Gregory Lehmkuhl president of Con-way Freight. Lehmkuhl had been executive vice president of operations, responsible for strategic planning and the company's operating network.
One of Stotlar's goals was to restore an esprit de corps among employees he experienced in the early days of Con-way, which he joined in 1985. At that time, he said, Con-way employees had a team spirit that ebbed as the carrier grew larger.
"Now we're doing things with each other rather than to each other," Stotlar said. "LTL is a team sport. You can't do things just through master planning or corporate edicts."