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Con-way Says Used ‘Aggressive’ Pricing
Discounting seen as diluting benefits of additional tonnage gains
Less-than-truckload carrier Con-way says it moved toward "more aggressive" price discounting in the third quarter than it normally uses and started hiring back workers to cope with tonnage gains.
The declining yields and rising costs cut in the benefits of a 5.1 percent gain in tonnage in the third quarter over the same period a year ago.
Con-way Freight reported a sequential 11.9 percent increase in daily tonnage from the second quarter, along with the improvement over last year.
The nation’s third-largest LTL carrier — which went through layoffs and salary and wage cuts early this year — said it brought back an unspecified number of workers to keep up with the sudden surge in demand. It also plans to restore about $25 million in wage and salary cuts by January.
Shippers came on board “at a pace even greater than we could have expected” in the quarter, Con-way President and CEO Douglas W. Stotlar said in a conference call with investment analysts.
“We were overwhelmed,” said John Labrie, Con-way Freight president.
Much of the growth probably came at the expense of competitors, including troubled LTL giant YRC Worldwide. But it came at a high price.
Revenue at Con-way Freight dropped 14.1 percent from a year ago, operating income decreased 62.7 percent and yield was down 10.5 percent, excluding fuel surcharges. Including fuel surcharges, revenue per hundredweight was down 19.4 percent, a steeper decline than was seen at ABF Freight System, FedEx Freight or YRC.
“Profitability was diminished from lower pricing driven by overcapacity in the LTL market, and higher variable operating costs due to increased tonnage levels,” the company said in its Security and Exchange Commission filing.
Pricing levels “were more aggressive than we would normally take,” Stotlar told analysts, and the situation was complicated when the carrier had to rapidly ramp up its workforce.
Labrie said Con-way can correct the situation rapidly, noting the carrier has 30-day clauses built into its rate contract that allow it to adjust rates to market changes.
But analysts say Con-way and its competitors will gain little wiggle room on rates until demand improves or capacity tightens.
Contact William B. Cassidy at wcassidy@joc.com.
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Fedex is not taking the "high road" and moving "profitable freight" they are sweeping into all accounts and attempting to take "market share" therefore moving freight that's operating as high as 150%.
YRC is not going as fast as everyone expected....in fact YRC may very well be around much longer than people figure....resulting in extreme pressure on the rest of the industry and forcing the competition to raise their rates first....making YRC the better option for pricing.
Conway was banking on the fact that this would push YRC under and it backfired making their own margins suffer. Fedex freight took the high road here and doesnt carry freight at below cost or where it cant make money. YRC is going to be pushed either way and it will be pushed by free market competition and customer confiedence issues into the inevitable bankruptct that competitors are hoping for. A market correction is imminenet once YRC files for bankruptcy. Then you will see sensible pricing, for now its a free for all until firmer pricing is seen in the next 4-5 months.
Ah yes, agressive pricing. Isn't that what help put Consolidated Freightways under? As my history teacher once stated, those who don't study history are doomed to repeat it.