175 Linfield Drive
Our "back to basics" business plan is effective and will continue. The CF employee team is more committed than ever to providing excellent service to our customers and increasing value to our shareholders. And shippers are responding positively to CF's basic LTL services and to our value-added services.
Consolidated Freightways Corporation ranks third among North America's leading long-haul, less-than-truckload (LTL) freight companies, which carry shipments for several customers in one vehicle. The company's fleet of 40,800 vehicles conveyed over 15 billion pounds of goods in 1996. In addition to its continental services, the company offers international delivery to over 70 nations around the world. Consolidated Freightways Corporation was formed through the November 1996 spinoff of CF MotorFreight and four related companies from Consolidated Freightways, Inc. The old parent was renamed CNF Transportation, and the "new" firm carried on the Consolidated Freightways name and heritage. After three consecutive annual losses, Consolidated Freightways appeared to be regaining its footing under the direction of president and CEO W. Roger Curry. In June 1997, the company recorded its first quarterly profit in more than a year.
Depression-Era Foundations
Little has been recorded of Consolidated Freightways' beginnings in Portland, Oregon. The company was created in 1929 by Leland James, a 36-year-old entrepreneur, who merged four Portland short-haul trucking companies into a single firm and began expanding the range of its operations. The trucking industry at that time was far from the dominating force it has since become; particularly in the West, a shortage of well-paved roads had retarded its growth until after World War I. The long-haul trucking business would require the eventual construction of a national system of interstate highways. Leland James's new trucking firm, therefore, concentrated on establishing its presence in Portland and the immediate surroundings, but meeting with considerable success it lengthened its routes and was soon carrying freight between many of the widely scattered cities of Oregon and Washington.
The onset of the Great Depression sparked a series of ferocious rate wars among truckers across the country. With a drop-off in tonnage and sharp downward pressure on rates, competition stiffened among the scores of trucking companies in the Pacific Northwest, many of which consisted of little more than a single vehicle and its hard-pressed owner. It was on these marginal competitors that the downturn weighed most heavily, while more substantial firms such as Consolidated were able to wait out the lean times and in some cases pick up additional business from customers in need of more reliable and efficient delivery than was offered by the railroads. Indeed the real struggle shaping up in transportation was between the older railroads, whose strength lay in the long distance shipment of bulk goods to a limited number of destinations, and the nascent trucking companies, which could provide pinpoint delivery of smaller items wherever permitted by paved roads. As the latter were rapidly filling in to accommodate the United States's growing love of the automobile, truckers such as Consolidated had time on their side in the protracted battle with the railroads.
In 1935 the federal government stepped into the rather chaotic competition among truckers, placing interstate carriers under the general jurisdiction of the Interstate Commerce Commission (ICC), which for years had regulated the railroads. The Motor Carrier Act was indicative of the trucking industry's rapid growth, as the major firms now regularly transported goods across state lines and soon would be taking them across the entire country. Consolidated had already established itself as one of the leading truckers in the Northwest, with routes crisscrossing Washington, Oregon, and reaching down to the prosperous cities of California as well. It was not until the advent of World War II, however, that Consolidated enjoyed the remarkable growth that would characterize its history for the coming decades. With the major railroads overburdened by the demand for war material and personnel, truckers became a more vital part of the country's freight systems. Consolidated added dozens of new terminals throughout much of the western United States and by the war's end had extended its service as far east as Chicago, the nation's transport hub.
Post-World War II Era Brings Rapid Growth
On the eve of the greatest expansion in the history of U.S. trucking, Consolidated's 1950 revenue stood at $24 million, its net income at $700,000, and the company operated 1,600 pieces of freight equipment. Leland James remained chairman of the company he had created, then one of the largest trucking firms in the western United States. True to its name, Consolidated had achieved much of its growth by means of acquisitions and mergers, a trend that would greatly accelerate as the trucking industry matured during the 1950s. In one respect, at least, the business was already mature&mdash the figures for Consolidated's 1950 income indicate; trucking is a highly competitive, service-oriented industry, where despite the general rate regulation of the ICC, margins tend to remain very thin, and net income stays low. The resulting premium on efficiency tended to encourage the kind of horizontal combination that Consolidated pursued during the 1950s, by the end of which time the company had annexed 53 of its former competitors.
The majority of those acquisitions were made after 1955, when Leland James named Jack Snead president of Consolidated. Snead oversaw the rise of Consolidated from regional power to national leadership, not only extending the company's reach to the Atlantic Ocean but intensively building local service networks in each of the cities along Consolidated's routes. In addition Consolidated adopted the trucking industry's more cooperative attitude toward the railroads, as the two modes of transport each specialized in those areas of the freight business for which they were best suited. Increasingly during the 1950s, truckers and railroads joined forces by means of the piggyback system, in which a standard-sized container was moved from truck to rail and back to truck for final delivery. Jack Snead led Consolidated into the piggyback business, and less successfully, into fishyback, or truck-ship combinations. A sizable investment in Hawaiian Marine Freightways was abandoned within 24 months, but Consolidated nevertheless succeeded in establishing the beginnings of a sea link to complement its growing truck and truck-rail service.
Diversification into Manufacturing in the 1950s
Consolidated also enjoyed the security of operating as its own builder of trucks and related equipment. Immediately after World War II, Leland James started Freightliner Corporation in Portland to supply Consolidated with the larger, lighter, and more sophisticated trucks and trailers increasingly needed to complete in the maturing freight industry. Freightliner originally built only for its parent company, but in 1951 it signed an agreement with White Motor Corporation (Ohio) under which White would retail Freightliner trucks through its chain of dealerships across the country. The partnership proved successful for the next 25 years, sales made at White dealerships returning a profit to Freightliner while allowing it to operate at a volume large enough to provide the economies of scale. Consolidated still had ready access to new trucks at the lowest possible cost.
To the established business at Freightliner, Jack Snead added other manufacturing concerns: Transicold Corporation, railway components; and Techni-Glas Corporation, glass-fiber products. Between its expanded truck lines and the newly acquired manufacturing subsidiaries, Consolidated's sales more than doubled during Snead's five-year tenure, hitting $146 million in 1959 and making Consolidated easily the largest common carrier in the United States. In order to oversee this suddenly complex organization, Snead in 1956 had moved corporate headquarters from Portland to Menlo Park, California, a San Francisco suburb, where company executives were close to Consolidated's bankers and underwriters. The company then employed nearly 11,000 people, operated 13,800 pieces of equipment in 34 states and Canada, and had made a name for itself as one of the most aggressive young firms in the transportation industry. It was also, as later developments revealed, in serious trouble.
Emphasis on LTL Emerges in 1960s
In 1960 a combination of recession and the inadequate integration of Consolidated's many businesses led to a $2.7 million year-end loss and the suspension of dividend payments. Jack Snead was asked to resign and in his place William G. White was named president and also chairman of Consolidated. White found that Consolidated's many acquisitions had been only rudimentarily integrated, with as many as five different terminals serving a single city, and that several of the nontrucking businesses were performing poorly. The new chief executive began a drastic program aimed at correcting both problems, beginning with a new emphasis on coordinated control from the Menlo Park headquarters--no small feat for a nationwide company in the precomputer age. Traffic routes were better defined, terminals consolidated, and new financial controls elaborated for the far-flung enterprise. Most decisive of all, White committed his company to becoming a specialist in LTL shipment. LTL is generally more difficult than truckload shipping, requiring a higher level of coordination and efficiency from both staff and equipment, but Consolidated had already established a reputation in the field, and White decided to make LTL the company's own niche. In the early 1990s, Consolidated remained an LTL specialist, with 90 percent of its trucking revenue generated by LTL orders.
Along with these changes in the trucking business, White sold off a number of Consolidated's manufacturing and peripheral companies. Transicold and Youngstown Steel Car were both eventually sold, along with a household moving service, a piggyback leasing company, and a fledgling package division unable to sustain direct competition from United Parcel Service. The combined effect of these steps was outstanding: Consolidated's revenue increased about 15 percent per year during the 1960s, and operating profits remained consistently above industry norm. Sales for 1969 reached $451 million, Freightliner maintained its tradition of manufacturing excellence, and White added two new wrinkles to the company's generally solid core in trucking. In 1969 Consolidated again ventured into the sea-borne container business, this time paying $25 million for 51 percent of Pacific Far East Line Inc., one of the pioneers in Pacific container shipping; and in the following year it entered the new field of air freight, forming CF AirFreight with initial service between three cities. Consolidated thus became one of the first companies to offer the beginnings of a true intermodal system, able to transport containers by truck, rail, air, or sea.
The Pacific Far East Line investment was short-lived, however. A scant five years after buying into the company, Consolidated wrote off its investment, taking a $14 million charge at the bottom line for 1973. By that time the trucking industry was plunged into the turmoil created by the Middle East oil embargo, when soaring gas and diesel prices threatened to ruin the large trucking firms. Fortunately the ICC responded with quick rate relief and the only net effect was to swell Consolidated's revenues to $800 million in 1974 and inaugurate a trend toward lighter, more fuel-efficient tractors and trucks at Freightliner. The latter was about to enter a tumultuous period in its own history. Not only did it have to contend with the new emphasis on fuel efficiency, the truck manufacturer also endured a rollercoaster sales cycle in 1974 and 1975, when a new federal law mandating an expensive brake system set off a rush of orders in 1974 and a near drought the following year. Freightliner became increasingly dissatisfied with the sales effort it was receiving from the White Motor dealerships, and in 1977 it severed the 25-year-old relationship and began to build a network of its own dealers and agents. With about 10 percent of the U.S. market, Freightliner was known as a builder of relatively expensive, premium trucks, and apparently could not handle competition from the likes of International Harvester and Mack. In 1981 Consolidated announced the sale of Freightliner and its few other remaining manufacturing subsidiaries to Daimler-Benz for about $300 million. Daimler-Benz was already the number-one truck maker in the world and viewed the purchase of Freightliner as the easiest means of entry into the big U.S. market.
Trucking Deregulation in 1980s
There may well have been other considerations behind Consolidated's decision to sell its manufacturing assets. In 1980 the trucking industry was largely deregulated by U.S. president Jimmy Carter's administration; for the first time since 1935, truckers were free to set rates as they pleased, and most analysts predicted another round of frantic mergers and takeovers as the price competition took its toll. Ray O'Brien, new chief executive at Consolidated, took seriously the prospect of renewed rate wars and made a decision to strengthen his hand in trucking while abandoning the manufacturing business, in which Consolidated would never become a leader. The air freight business had grown; CF AirFreight by 1980 had developed from a small forwarder into the number-three heavy air freight carrier in North America, with $100 million in annual revenues and an expanding service network.
Consolidated was able to create four regional trucking companies to specialize in overnight delivery. These Con-Way companies were in the early 1990s doing $600 million in sales and appeared to be well-positioned in regional markets, as did CF Motor Freight in its long-haul trucking business. Deregulation did indeed usher in an era of bitter competition in trucking, with some 54 percent of the players out of business within eight years, but Consolidated prospered mightily, due in part to its size and in part to the decision to concentrate most of its energies on trucking. Although freight rates were lower at decade's end than at the time of deregulation in 1980, Consolidated had doubled its long-haul business and firmed its hold on the trucking industry's top position.
Losses Plague Early 1990s
This prosperity was not long-lived. In April 1989 Consolidated made an acquisition that has performed poorly. Lary Scott, who had been promoted to president and CEO in 1988, decided to catapult his company to the top of the air freight ranks via the $458 million acquisition of Emery Air Freight Corporation. An industry leader doing about $1.2 billion in revenue, Emery's strengths in overseas transport were expected to compensate for CF AirFreight's weaknesses.
But Emery had deficiencies of its own; its $306 million takeover of Purolator Courier Corporation in 1987 left it heavily laden with debt. By 1990, Emery was losing nearly $1 million a day, leaving Consolidated with a $41 million net loss and $684 million in debt. At the same time, Chemical Bank was clamoring for an up-front payment of $85 million on a $900 million loan it had arranged. Scott was asked to leave and Chairman Ray O'Brien asked Donald E. Moffitt, a former Consolidated executive, to come out of early retirement and replace his former rival as president and CEO. As Moffitt would later recall, Consolidated's predicament was "god-awful." He suspended the corporation's common stock dividend payments, declined the Chemical Bank loan, and secured a scaled-back credit facility.
Together with Emery CEO Roger Curry, who was hired in 1991, they set out to reduce overhead and increase shipping volumes. Instead of duking it out with Federal Express, UPS, and others, Emery shifted its focus to overnight delivery of packages weighing more than 70 pounds. Layoffs reduced the operation's payroll by 2,000, slashing $200 million from overhead. Known as a morale-booster, Curry launched a profit-sharing program for management and nonunion workers that promised what Moffitt called "a piece of the action." There was $17 million in net income to share by 1993. In 1994, the shaped-up shipper won a 10-year, $880 million contract with the U.S. Postal Service. An air freight boom cemented the turnaround, allowing Emery to boost its rates by more than 7 percent that year. By 1995, Emery had captured nearly one-fourth of the over-70-pound segment and was the air freight industry's most profitable firm.
In the meantime, Consolidated Freightways had encountered major challenges as well. Price wars and other pressures had shaved profit margins at the long-haul-trucking operation from 6.5 percent in 1988 to 1.5 percent in 1993, and a 24-day Teamsters strike pushed it $46 million into the red in 1994. However, the new labor agreement that came out of the strike did have one major concession; the union increased Consolidated's rail-freight allowance from 8 percent to 28 percent, thereby permitting the shipper to cut some of its costs by sending some parcels by train.
Some analysts questioned the future viability of the LTL industry as a whole, noting its mature two to three percent annual growth rate, a suicidal price war, and increasing competition from nonunion, regional upstarts. Industry observer Paul Schlesinger told Financial World's Jennifer Reingold that "long-haul carriers are the mainframes of the 1980s," destined to remain in existence, but in a much smaller role than they once knew. Moffitt blamed many of the industry's problems on discounting, calling it "a cancer" that "spreads and feeds on itself."
The disease took a heavy toll on Consolidated's long-haul business, which lost more than $125 million from 1992 through 1996, achieving profitability only once during that period. Moffitt transferred Curry to the trucking division in July 1994, joking to Forbes's Kate Bohner Lewis that it was Curry's "reward for fixing up Emery." In November 1996, the parent company elected to spin off CF MotorFreight and four other long-haul subsidiaries as Consolidated Freightways Corporation. The "old" Consolidated Freightways Inc.--which retained its Con-Way Transportation Services, Emery Worldwide, and Menlo Logistics operations--was renamed CNF Transportation.
Bolstered by a cash infusion from the stock offering, the "new" Consolidated Freightways emerged with little debt and an improved capital structure. Applying the same basic regimen he had used on Emery&mdash′oductivity improvements and cost controls--Curry appeared to be effecting a cure in 1997. That June, the company announced its first quarterly profit in more than a year. Investors and analysts alike hailed the transformation. Randolph Heaster of the Kansas City Star called Consolidated Freightways' performance an "impressive turnaround." The company's stock more than doubled from an issue price of $7 to $16 by the time the positive results were published.
Principal Subsidiaries: Canadian Freightways, Ltd. (Canada); Milne & Craighead Customs Brokers (Canada) Ltd. (Canada); Canadian Freightways Eastern Ltd. (Canada); United Terminals Ltd. (Canada); Blackfoot Logistics (Canada); Redwood Systems, Inc.; Leland James Service Corp.
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