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Well-Managed Con-way Is on the Right Road

Rate growth will slow, but should remain a tailwind.


We expect pricing to be the principal growth driver for freight transportation and logistics firm Con-way (CNW), as moderate U.S. economic growth and limited fleet expansion temper volume over the next year. We think tightening trucking industry capacity will support mid-single-digit rate gains in 2012--more modest than those realized in 2011, but sufficient to offset cost inflation.

The past few years have been interesting for the company's core less-than-truckload business, Con-way Freight, which contributes 60% of total revenue. Despite the macroeconomic recovery in 2010, an unplanned spike in tonnage from aggressive rate reductions and related market share gains drove the firm's variable costs up without the benefit of enhanced density in lanes where it was needed most. Throughout most of last year, however, Con-way benefited from vastly improved industry utilization and gains in pricing power. As a result, the firm was able to garner much-needed yield increases from customers while reducing freight to manageable levels through targeted, lane-specific pricing initiatives. In 2011, LTL base rates, excluding fuel surcharges, increased 6% on average, while the segment's operating ratio improved more than 250 basis points.

Matthew Young does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.