Consolidated Freightways, Inc.
Consolidated Freightways, Inc.
Sale: $4.21 billion
Stock Exchanges: New York Pacific London
Consolidated Freightways, Inc. has operated the largest long-haul trucking company in the United States since the late 1950s. Long-haul, less-than-truckload (LTL) freight accounts for more than half of Consolidated’s overall revenue, but the company has also moved heavily into the overnight trucking and air freight businesses, with mixed results. Consolidated built a solid, truck-based overnight system in the 1980s, creating four regional subsidiaries to take advantage of this latest trend in the freight industry.
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 predictable 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 materiel 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 war’s end had extended its service as far east as Chicago, the nation’s transport hub.
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—as 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.
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 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.
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 truck-load 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% 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% 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% 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 Air-Freight 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 roller-coaster 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% 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.
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% 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.
Perhaps unnerved by such prosperity, in April of 1989 Consolidated made an acquisition that has performed poorly. New chief executive Lary Scott decided to catapult his company to the top of the air freight ranks by buying Emery Air Freight Corporation, an industry leader doing about $1.2 billion in revenue, much of it overseas where CF AirFreight was weak. Consolidated paid $458 million for Emery and was confident that it could reverse Emery’s recent slide after its own big takeover of Purolator Courier Corporation. When losses at Emery hit $100 million in the first six months of 1990, pulling Consolidated as a whole into the red, Scott was asked to leave and Ray O’Brien hustled back to his former position. O’Brien also brought back Donald E. Moffitt, a former Consolidated executive, as chief financial officer. He eventually succeeded O’Brien as president and chief executive. Between them, they managed to slow Emery’s losses to a steady trickle, but Consolidated lost $41 million for the year, suspended its common stock dividend payments, and had to secure new banking arrangements. Emery’s losses continued to hamper the profitability of an otherwise sound corporation. In the early 1990s it was not yet clear whether Consolidated would be able to return its air freight business to regular profits, but in the ground freight arena it remained unexcelled among national and regional carriers of LTL freight.
CF Motor Freight; Canadian Freight-ways; Milne & Craighead Customs Brokers; Emery Worldwide; Emery Worldwide Airlines; Emery Worldwide Custom Brokers; Con-Way Transportation Services; Con-Way Western Express; Con-Way Central Express; Con-Way Southern Express; Con-Way Southwest Express; Con-Way Intermodal; Road Systems; Willamette Sales; Menlo Logistics.
“Transportation,” Business Week, June 11, 1960.