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CNF Inc. (ticker: CNF) Transportation / Trucking -
Category Directory
(650)
494-2900
3240
Hillview Ave.
Palo
Alto, CA 94304
www.cnf.com
Sales
$5
billion
Business Description
CNF Inc. and its subsidiaries provide supply chain management services for
commercial and industrial shipments by land, air and sea throughout North
America and the world. CNF Inc. was incorporated in Delaware in 1958, and in
2001, changed its name from CNF Transportation Inc. to CNF Inc.
Con-Way Transportation Services
Con-Way Regional Carriers
Con-Way’s primary business units are regional LTL motor carriers that
operate regional trucking networks that serve core geographic territories
with time-definite service, primarily next-day and second-day, to
manufacturing, industrial, commercial and retail business-to-business
customers. The regional carriers in 2002 accounted for 96.2% of Con-Way’s
revenue and include Con-Way Western Express (CWX), which serves 13 Western
states, including Hawaii and Alaska, with service into Mexico; Con-Way
Central Express (CCX), which serves 25 central and eastern states; Con-Way
Southern Express (CSE), which serves 12 southeastern states, the District of
Columbia and Puerto Rico; and Con-Way Canada Express, which serves 9
Canadian provinces.
Con-Way offers service in all 50 states and to some major cities in Canada
and Mexico by fully linking its regional carriers. This linked service,
which Con-Way refers to as joint service, allows the regional carriers to
provide freight delivery between their separate core territories utilizing
existing infrastructure, as well as facilitating service into regions on
routes that would not otherwise be served.
Typically, LTL carriers transport freight along scheduled routes from
multiple shippers to multiple consignees utilizing a network of service
centers together with fleets of line-haul and pickup and delivery tractors
and trailers. Freight is picked up from customers by local drivers and
consolidated for shipment at a service center. The freight is then loaded
into trailers and transferred by line-haul drivers to the service center
providing service to the delivery area. At the local service center, the
freight is transferred to local trailers and delivered to its destination by
local drivers.
In July 2002, Con-Way announced an expansion of its next-day and second-day
LTL service with Extended Service Lanes (ESL), which utilizes special
sleeper-team operations to replace two-day service with next-day service in
a large number of markets as well as expand the coverage of second-day
service. Also in 2002, Con-Way announced new services under the “Value Zone”
brand, including Con-Way Deferred, a shipping option to move
transcontinental shipments for price-sensitive customers, and Con-Way Full
Load, a full truckload brokerage operation. Truckload carriers generally
transport freight along irregular routes from single shippers to single
consignees, without the necessity of a network of terminals, using fleets of
line-haul sleeper tractors and trailers.
Con-Way NOW, Con-Way Logistics and Con-Way Air Express
Con-Way NOW specializes in time-definite shipments, such as replacement
parts, medical equipment and other urgent shipments, where expedited
delivery is critical. Con-Way NOW has delivery service in 48 states and
parts of Canada.
In 1998, Con-Way created Con-Way Logistics to provide logistics solutions to
customers. Con-Way Logistics offers integrated supply chain services for
shippers, using its own warehouses, transportation provided by other ground
and air carriers as well as Con-Way’s regional carriers, and alliances with
leading supply chain software firms to offer solutions to fit its customers’
needs.
In May 2001, Con-Way opened Con-Way Air Express (CAX), an air freight
forwarder that arranges freight shipments using transportation provided by
other operators, including commercial airlines, dedicated air operators and
drayage companies. Through an agency network and connections with other
Con-Way components, CAX provides full coverage in the United States and
Puerto Rico.
Prior to the sale of most of its assets in August 2000, Con-Way Truckload
Services was a full-service, multi-modal truckload company that provided
door-to-door delivery of truckload shipments.
Con-Way—Competitive Conditions
The trucking, logistics, and air freight forwarding industries are intensely
competitive. Principal competitors of Con-Way include regional and national
LTL companies. Competition in the trucking industry is based on freight
rates, service, reliability, transit times and scope of operations.
Menlo Worldwide
Effective January 1, 2002, CNF combined its Emery Forwarding, Menlo
Worldwide Logistics and Vector SCM units to form Menlo Worldwide, a new
business that provides a full range of logistics services from a single
source. The formation of Menlo Worldwide was intended to address a trend
among companies to outsource the management of increasingly complex supply
chain and logistics services in order to lower costs, reduce inventories,
and increase speed, flexibility and efficiency. The Menlo Worldwide
companies were aligned to meet this demand by combining their air and ocean
freight forwarding competencies, extensive proprietary information systems
and full range of value added supply chain management services including
transportation, warehouse, inventory management and customs clearance on a
global scale. In order to deliver customer-specific solutions using bundled
forwarding and logistics services, Menlo Worldwide formed a sales team in
which the Menlo Worldwide sales staff market all global services provided by
any of the Menlo Worldwide companies.
Menlo Worldwide—Emery Forwarding
Emery Forwarding provides expedited and deferred domestic and international
air freight services, ocean container services, and customs brokerage. As
described below under “Emery Forwarding—International,” and “Emery
Forwarding—North America,” Emery utilizes primarily commercial airlines for
the transportation of its customers’ freight in international markets and,
for the transportation of freight within North America, Emery relies
primarily upon third-party air freight carriers and its own dedicated ground
transportation network.
Restructuring Plan
Prior to the restructuring described in the following paragraph, Emery
provided air freight services in North America using owned and leased
aircraft operated by EWA and, to a lesser extent, owned and leased aircraft
operated by third parties. EWA, a separate subsidiary of CNF, is included in
the Emery Forwarding reporting segment except for EWA’s previous operations
under the now-terminated Priority Mail contract with the U.S. Postal Service
(USPS), which are reported separately as discontinued operations.
In June 2001, Emery began an operational restructuring to align it with
management’s estimates of future business prospects for domestic heavy air
freight and address changes in market conditions, which deteriorated due
primarily to a slowing domestic economy and loss of EWA’s contracts with the
USPS to transport Express Mail and Priority Mail. The $340.5 million
second-quarter restructuring charge in 2001 consisted primarily of non-cash
impairment charges and estimated future cash expenditures related primarily
to the return to lessors of certain aircraft leased to EWA. Based on issues
identified during inspections conducted by the Federal Aviation
Administration (FAA), on August 13, 2001, EWA was required to suspend its
air carrier operations as part of an interim settlement agreement with the
FAA. As a result, EWA furloughed approximately 400 pilots and crewmembers
and Emery made arrangements to continue its service to customers by
utilizing aircraft operated by several other air carriers. Primarily in
response to the FAA action and a worsening global economic downturn, Emery
re-evaluated its restructuring plan. On December 5, 2001, CNF announced that
Emery in 2002 would become part of CNF’s new Menlo Worldwide group of supply
chain services providers and in North America would utilize aircraft
operated by other air carriers instead of EWA operating its own fleet of
aircraft, and that EWA would permanently cease air carrier operations. In
connection with the revised restructuring plan, in the fourth quarter of
2001 Emery recognized additional restructuring charges of $311.7 million for
the planned disposal of leased aircraft, cessation of EWA’s remaining
operations, employee separation costs for 157 of Emery’s non-pilot
employees, and other costs.
For further discussion of FAA actions and other regulatory matters,
including the suspension of EWA’s air carrier operations on August 13, 2001
and the surrender of EWA’s air carrier certificate on December 4, 2002,
refer to “—Regulation—Air Transportation.”
For further discussion of Emery’s 2001 restructuring plan, refer to “Results
of Operations—Menlo Worldwide—Emery Forwarding—Restructuring Charges” under
Item 7, “Management’s Discussion and Analysis.” For cumulative activity
related to Emery’s 2001 restructuring plan, refer to Note 3, “Restructuring
Charges,” under Item 8, “Financial Statements and Supplementary Data.”
For further discussion of Emery’s terminated Express Mail contract with the
USPS, refer to “Results of Operations—Menlo Worldwide—Emery
Forwarding—Express Mail Contract,” under Item 7, “Management’s Discussion
and Analysis.” For a discussion of Emery’s terminated Priority Mail contract
with the USPS, refer to “Results of Operations—Discontinued
Operations—Priority Mail Contract,” under Item 7, “Management’s Discussion
and Analysis.”
Emery Forwarding—International
Internationally, Emery provides air and ocean freight transportation
services using primarily commercial airlines and ocean carriers.
International business, which comprises shipments that either originate or
terminate outside of the United States, is marketed and managed
internationally through Emery’s network of foreign subsidiaries, branches
and agents. As an international air freight forwarder, Emery procures
shipments from its customers, determines the routing, consolidates shipments
bound for a particular airport distribution point, and selects the airline
for transportation to the distribution point. At the distribution point,
Emery or its agent arranges for the consolidated lot to be broken down into
its component shipments and for the transportation of the individual
shipments to their final destinations.
Emery’s expansion plans have been focused on international operations due to
the expectation of greater opportunities in an expanding worldwide economy
and the generally lower capital requirements of its international
operations, which requires less infrastructure than the North American
operations. For 2002, international airfreight revenue, including fuel
surcharges, was $1.07 billion or 63.1% of Emery’s total airfreight revenue.
Emery Forwarding—North America
Emery in North America utilizes aircraft operated by third-party air
carriers. Emery’s air freight shipments are primarily transported on
aircraft owned or leased by third-party air carriers; however, a portion is
also transported by an independent air carrier operating aircraft that are
owned or leased by EWA, as described below in Item 2, “Properties” under
“Menlo Worldwide—Emery Forwarding.” The duration of Emery’s agreements with
the third-party air carriers, which range from one week to approximately two
years, is intended to provide Emery with the flexibility to adjust its fleet
size to meet changes in demand due to seasonality or market conditions.
Emery’s hub-and-spoke system is centered at the Dayton, Ohio International
Airport, where its leased air cargo facility (the Hub) and related support
facilities are located. The Hub handles a wide variety of shipments, ranging
from small packages to heavyweight cargo. While Emery’s freight system is
designed to handle parcels, packages and shipments of a variety of sizes and
weights, its air freight operations are focused primarily on heavy air
freight (defined as shipments of 70 pounds or more). In addition to the Hub,
Emery operates nine regional hubs, strategically located around the United
States, and a system of service centers and sales offices.
Other Business Units
Emery has established several variable-cost-based business units to enhance
the range of services it can offer to its customers. Menlo Worldwide
Expedite! is a rapid-response freight-handling subsidiary that provides
door-to-door delivery of shipments in North America and overseas. Menlo
Worldwide Trade Services (formerly Emery Customs Brokerage) provides
full-service customs clearance regardless of mode or carrier. Prior to 2002,
the operating results of Emery Global Logistics were included in the Emery
Forwarding reporting segment. In connection with the formation of Menlo
Worldwide effective January 1, 2002, the North American and International
logistics activities of Emery Global Logistics were integrated with Menlo
Worldwide Logistics; as a result, the related operating results in 2002 were
reported in the Menlo Worldwide Logistics reporting segment and prior-year
results were reported in the Emery Forwarding reporting segment.
Competition
The air freight industry is intensely competitive. Principal competitors of
Emery include integrated air freight carriers, air freight forwarders and
international airlines and, to a lesser extent, trucking companies and
passenger and cargo air carriers. Competition in the air freight industry is
based on, among other things, freight rates, quality of service,
reliability, transit times and scope of operations.
Menlo Worldwide—Menlo Worldwide Logistics
Menlo Worldwide Logistics specializes in developing and managing complex
national and global supply and distribution networks, including
transportation management, dedicated contract warehousing and dedicated
contract carriage. Transportation management refers to the management of
third-party transportation providers for customers’ inbound/outbound supply
chain needs through the use of state-of-the-art logistics management systems
(LMS) to consolidate, book and track shipments. Contract warehousing refers
to the optimization of warehouse operations for customers using technology
and warehouse management systems (WMS) to reduce inventory carrying costs
and supply chain cycle times. For several customers, contract-warehousing
operations include light assembly or kitting operations, where manuals,
cords or other parts are packed with the finished goods prior to
distribution. Menlo Worldwide Logistics’ ability to link these systems with
its customers’ internal enterprise resource planning (ERP) systems is
intended to provide customers with improved visibility to their supply
chains. Contract carriage, which in 2002 continued to represent a declining
proportion of revenue, refers to the management of a dedicated
transportation fleet for a single customer.
Menlo Worldwide Logistics believes that three industry trends have
contributed to its revenue growth. First, a number of businesses are
increasingly evaluating their overall logistics costs, including
transportation, warehousing and inventory carrying costs. Second,
outsourcing of non-core services, such as distribution, has become more
commonplace with many businesses. Finally, the ability to access information
through computer networks has increased the value of capturing real-time
logistics information to track inventories, shipments and deliveries. Menlo
Worldwide Logistics believes that its ability to provide solutions to
intricate distribution issues for large companies with complex supply chains
has helped Menlo Worldwide Logistics to secure new projects and expand
services for existing customers.
At December 31, 2002, Menlo Worldwide Logistics’ client base included 40
companies, many of which are Fortune 200 businesses. Three customers, each
of whose long-term unsecured debt securities have a Standard & Poor’s
investment-grade credit rating (BBB+ or better), collectively accounted for
41.6% of the revenue reported for the Menlo Worldwide Logistics reporting
segment in 2002. Although no single Menlo customer accounted for more than
3.8% of the 2002 consolidated revenue of CNF and its subsidiaries, the loss
of significant revenue from any of Menlo Worldwide Logistics’ major
customers by termination of the customer relationship for any reason,
including the business failure of the customer, could hurt Menlo Worldwide
Logistics’ results of operations. Menlo Worldwide Logistics generally seeks
to mitigate risks related to the termination of a customer relationship, for
reasons other than the business failure of a customer, by requiring that any
facility or major equipment lease that it enters into on behalf of a
customer must be assumed by the customer upon termination of the contract
with Menlo Worldwide Logistics.
Compensation from Menlo Worldwide Logistics’ customers takes different
forms, including cost-plus, gain-sharing, transaction, fixed-dollar and
consulting fees. In most cases, customers reimburse Menlo Worldwide
Logistics’ customer-specific start-up and development costs.
Competition
Menlo Worldwide Logistics operates in the intensely competitive third-party
logistics industry. Competition for larger projects is generally based on
the ability to rapidly implement technology-based transportation and
logistics solutions. Competitors in the logistics industry are numerous and
include domestic and foreign logistics companies and the logistics arms of
integrated transportation companies; however, Menlo Worldwide Logistics
primarily competes against a limited number of major competitors that have
resources sufficient to provide services under large logistics contracts.
Menlo Worldwide Other
In December 2000, General Motors (GM) and CNF formed a joint venture company
called Vector SCM (supply chain management). CNF’s portion of the operating
results of Vector SCM (Vector) is reported in the Menlo Worldwide Other
reporting segment. Vector was established to reduce GM’s supply chain costs
and improve GM’s supply chain management by bringing increased speed,
flexibility and reliability to GM’s global supply chain, including shipment
of parts to manufacturing plants and its vehicles to dealers. With more
dependable deliveries, GM’s goal is to build a vehicle to schedule when
necessary and deliver that vehicle as promised to the consumer within a
shortened cycle time.
Vector provides logistics services through the development and
implementation of technology and physical infrastructure to provide
end-to-end visibility and management of the progression of products and
materials through GM’s supply chain. Under the terms of the joint venture
agreement, the transition of GM’s logistics services and management to
Vector SCM is planned to substantially occur over the three-year period from
2001 through 2003. In the first full contract year, logistics services in
North America included a redesign of processes related to inbound production
materials, vehicle distribution and visibility, premium transportation,
international export/import and rail operations monitoring. In 2002, Vector
continued the transition of the logistics services and management of GM’s
North American logistics and created the framework to complete the
transition process. Also in 2002, Vector accelerated the transition of the
logistics management of global operations in GM’s three other regions.
Under the terms of the joint venture agreement, Vector shares in any savings
realized by GM as a result of reductions in its supply chain costs. CNF owns
a majority of the Vector joint venture; however, the operating results of
Vector are reported in the Menlo Worldwide Other segment as an equity-method
investment based on GM’s ability to control certain operating decisions. For
further discussion, refer to Item 7, “Management’s Discussion and Analysis,”
under “Results of Operations—Menlo Worldwide—Menlo Worldwide Other.”
CNF Other
In 2002 and 2001, the CNF Other reporting segment included the operating
results of Road Systems, Inc. and certain corporate activities. A majority
of the revenue from Road Systems was from sales to other CNF subsidiaries
and, prior to its bankruptcy in September 2002, Consolidated Freightways
Corporation. VantageParts, a distributor and remanufacturer of vehicle
component parts and accessories for the heavy-duty truck and trailer
industry, was also included in the CNF Other reporting segment until the
sale of VantageParts’ assets in May 1999.
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