NEW YORK (CNN/Money) -
Consolidated Freightways Corp., one of the nation's largest and oldest trucking companies, expected to file for bankruptcy court protection Tuesday, after telling employees and customers it would cease operations.
The company was the third largest in its sector of the trucking industry, known as less-than-truckload or LTL because it handled pallet-sized shipments of freight from multiple customers in the same truck. The 73-year-old, Vancouver, Wash.-based company has been struggling with losses even as other unionized competitors operating under the same labor deal made money throughout the recent economic downturn.
|Consolidated Freightways, the No. 3 company in its sector of the trucking industry, has halted operations due to financial problems.
It last reported a profit in the third quarter of 2000, and last month became one of a handful of companies to miss a Securities and Exchange Commission deadline for its CEO and chief financial officer to certify the validity of past results.
The company has yet to report second-quarter results, though it expects to do so at the time it files for bankruptcy court protection. It lost $36.5 million, or $1.64 a share, in the first quarter, and $104.3 million, or $4.74 a share, for all of 2001.
The final straw for the company was when one of the company's surety bondholders canceled coverage related to the company's self-insurance programs for worker's compensation and vehicular casualty, which resulted in a termination of discussions with lenders and possible investors. While the company's financial woes were well known in the industry, the speed of its demise over the weekend was somewhat of a surprise.
"Historically,it takes a long time for a trucking company to bleed itself out of business," said Mark Levin, analyst with Davenport & Co.
About 80 percent of the company's 15,500 employees were terminated immediately, after a phone message Monday told them not to bother to report to work Tuesday following the Labor Day holiday. The company said the remaining employees will be let go after handling an orderly liquidation of the business.
Shareholders will also be out of luck. The company issued a statement Tuesday afternoon saying that since it is unlikely that it will be able to fully satisfy the claims of creditors from the proceeds of any sale or liquidation, it does not believe there will be anything left over for current shareholders. Trading in CF (CFWYE: Research, Estimates) remained halted on its news Tuesday, after closing up 4 cents at 71 cents in trading Friday before the Labor Day holiday.
The company had been negotiating with the union on possible concessions to try to save the company, as well as having discussions with investors and lenders to provide the resources it needed to get back on its feet.
"We expected that recent discussions with our banks, other lenders and real estate investors would enable us to obtain significant additional financial resources and that, together with the combined efforts of employees, we would be successful in our restructuring efforts," said a statement from John Brincko, a turnaround expert brought in as CEO in early July. "Unfortunately, this has not been the case."
Brett Caldwell, spokesman for the Teamsters, called the closing a "devastating decision" for employees, but said that despite a series of bankruptcies by unionized carriers in the face of nonunion competition, it's wrong to blame the union for CF's demise.
"At the time its largest unionized competitors were turning profits, Con Freight was losing money," he said. "That says more of corporate mismanagement than anything about the unionized freight industry."
The company and other unionized long-haul LTL carriers have seen growing competition from regional, often non-union LTL carriers. The company formed its own nonunion operation, Con-Way Transportation, but that unit, along with Emery Worldwide, an air freight carrier, were spun off from CF six years ago as CNF Inc. (CNF: Research, Estimates)
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The closing of CF could help the other major long-haul LTL carriers, including No. 1 Yellow Corp. (YELL: up $2.76 to $25.05, Research, Estimates), No. 2 Roadway Corp. (ROAD: up $3.63 to $27.23, Research, Estimates), and Arkansas Best Corp. (ABFS: up $5.18 to $25.76, Research, Estimates), which operates what had been the No. 4 long-haul carrier. All those carriers saw their stocks rise more than 10 percent in Tuesday trading.
"CF was basically 14 to 15 percent of the overall long-haul LTL market," said Levin. "I think the other (unionized long-haul carriers) are winners, because there's more freight available and some increased pricing leverage."
Customers whom CF had announced deals with in recent months include Home Depot, General Electric and Siemens.
But CF's unionized competitors, as well as Teamster-represented United Parcel Service Inc. (UPS: down $1.36 to $62.55, Research, Estimates), could also be hurt by the closing because most Teamster-represented carriers are participants in multi-employer pension plans run by the union, in which the responsibility for covering the benefits due employees and retirees of a bankrupt carrier rests with the remaining companies. A spokesman for the Teamsters union said he couldn't estimate the cost that CF's bankruptcy will have on those plans and on the remaining employers.
UPS's desire to get out of those pension plans was the reason it was struck by the Teamsters for 15 days in 1997, until the company finally dropped its demand to have a separate UPS-only pension plan.
The pension plan's obligation basically ruled out a purchase of CF by any transportation company that was not already a member of the pension plans. In 1998 Yellow Corp. and CF held discussions on a possible acquisition, but those talks apparently fell apart due to a disagreement on price. CF stock reached a high of $17.75 in December before announcing that talks had broken off.
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The company is keeping its Canadian LTL operations open, as well as its air freight forwarding operation, which places freight on behalf of customers on airplanes owned by other companies.