Opinion: The Buzz About Consolidated Freightways

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B>Bill Hidde

I>Consultant

img src="/sites/default/files/images/articles/printeditiontag_new.gif" width=120 align=right>Being in the trucking industry for more than 35 years, I found the closing of Consolidated Freightways especially sad and disturbing. It was sad because of the human toll, and disturbing because during its 73 years, CF had become an undisputed leader in the industry — the largest, most profitable national carrier and an innovator. There was a presence and a culture about CF; and make no mistake, a company's culture is a direct reflection of top management and leadership. CF set industry standards.

The leadership of founder Leland James, and in later years Raymond O'Brien and Lary Scott, was visionary. During the late 1960s and 1970s, while regulation was still in effect, all the majors were focused on growth through acquisition. CF was on the leading edge, not only in acquiring other carriers but also in developing CF Air Freight, which became a $400 million company. After deregulation in 1980, as carrier managers tried to figure out how to operate, and with many never making the transition, Mr. O'Brien and Mr. Scott learned how to cope and thrive. They started CF Land Services, which took CF into truckload, specialized, intermodal and, with Con-Way Express, regional LTL trucking.

Additionally, they predicted the impact of globalization and knew that they must grow CF Air Freight to position the company in the evolving international market. That required massive investment. CF Air operated 26 planes, had landing rights in 12 countries and had 22 foreign offices. An attempt was made to buy Flying Tiger, a company that shared global designs. Flying Tiger accepted an offer from Federal Express.

At that critical time, CF had few options for developing worldwide service. Mr. O'Brien became chairman and Mr. Scott took the reins as president and chief executive officer. Earlier, CF had looked at Emery Air Freight and walked away because of the company's weakness. But with Flying Tiger no longer available, CF reconsidered Emery. Even on the verge of bankruptcy, Emery had some compelling attractions: $1.2 billion in revenue, a state-of-the-art hub in Dayton, Ohio, 76 planes, international landing rights in 90 countries and 250 foreign offices. It would have taken CF years to duplicate those assets.

Mr. Scott and the CF board decided to do the deal. Emery was acquired for $500 million in cash and assumed debt. The new parent then spent $143 million to improve systems and replace vehicles and equipment. CF could handle it. It had an enviable balance sheet, revenue of $3.8 billion and stock that was trading in the high 30s. Fixing Emery would make CF a global powerhouse.

It is important to put all this into perspective. In 1994, a Wall Street Journal article put the cost of United Parcel Service's overseas expansion, primarily into Europe, at more than $1 billion. In the same period, FedEx lost millions in attempting to build — and then shrinking — its European operations. Roadway took on debt for the first time since the 1970s trying to go global with Roadway Global Air, and then had to pull the plug because it was too costly. Becoming a global provider was not for the faint of heart. There was a payoff, however. Look at the size of UPS and Fedex today in comparison with 15 years ago.

The investment in Emery caused many analysts to turn negative on CF, and when Emery lost $100 million in the first 11 months, stock-shorting began. The company's stock price dropped from $37 to $9, and everyone was buzzing about CF sinking into bankruptcy. After 18 months of that kind of speculation, Lary Scott resigned. Donald Moffitt, who retired when Mr. Scott became CEO, was brought back to run the company.

As Mr. Moffitt said in an interview, CF had unencumbered assets of $1.7 billion and the amount of debt coming due was just $18 million. He quipped that the board of directors could have taken up a collection to cover the debt. I guess all the doom-and-gloom prognosticators missed those facts. The situation was nowhere as bleak as many analysts and industry insiders portrayed it. Ultimately, Con-Way, Emergy and Menlo logistics did so well that the company was split up, with those three entities becoming CNF Transportation and CF going off as separate company.

Where would CF, as a whole, be today if Mr. Scott had been allowed to carry his strategy through to completion? Given his solid background in operations, his foresight of where the industry was going and his strategy for making the company a worldwide, integrated service provider, CF lost the man who could have positioned the company to be a dominant global player today.

The writer, who never worked for Consolidated Freightways, is a former truck driver who rose through the ranks to the managerial level and became a top executive in two motor carriers. Currently he operates Marcorp Inc., a consulting business in Northville, Mich.

For this article appeared in the Sept. 23 print edition of Transport Topics. Subscribe today.