- Can CFMF develop a long term sustainable competitive advantage as a nationwide unionized LTL carrier?
The answer to this question lies in an examination of the state of the business of CFMF and the factors that affect its financial and non-financial viability. CFMF used to be a very profitable company and is regarded as one of the biggest in the trucking-transport industry. The company’s profitability was proven since the company’s inception in 1929 but as of 1989, the company started performing poorly.
In that year, CFMF acquired a rival company and then acquired an airfreight company for almost half a billion US dollars. This was a justification of the weakness of CFMF that time, which was air freight capacity. However, the acquisition proved to be a fatal mistake for CFMF because the company acquired was heavily indebted which pulled the company down. In 1990, the losses incurred by CFMF amounted to about US$ 41 million in net losses with long-term debt piling up to US$ 684 million. This could have been a factor alarming the company’s debtors, with Chemical Bank asking for an immediate payment of US$ 85 million for a recently arranged US$ 900 million loan. This promoted a shakeup in the company’s management and the company’s policies as well. In 1991, the company tried to reduce overheads and increase the volumes of cargo they ship. The company also started focusing on a segment of the market that is not touched by competitors, specifically the 70 pounds and more overnight cargo. As part of the company’s move, they removed 2,000 employees to save about US$ 200 million. To solve moral and union issues with its labor force, the company launched profit-sharing with non-union workers, making it more attractive to work with the company as a non-union worker. This is the first step for the company to pursue its long-term strategy for improving its viability. Although this is not the complete strategy this is a step in the right direction.
The company’s long term strategy to ensure viability should include the following general actions:
- Focus on a segment of the market where the company can dominate in. Currently the company is already doing so by pursuing the 70 pounds or more cargo segment which is proving to be a viable undertaking. Specializing on a particular market segment and becoming a cost leader is one way of achieving long-term viability.
- Establishing long-term viable contracts. The company should pursue long-term lucractive contracts, preferably with government agencies, to ensure that there is long-term work available for the company. Having majority of a company’s revenues coming in from a stable source will ensure that all other efforts to win smaller contracts or a wider market base is icing on the proverbial cake.
- Develop efficiencies throughout the entire infrastructure of the organization. This could be done by finding ways to save to avoid shaving profit margins. One way of doing so is to rely less on unionized workers and more on private contractors. This would reduce the overhead costs significantly, because labor costs account for about 60% of the total cost. Another is to ensure that the equipment cost is kept as low as possible, and this could be done through long-term contracts with equipment suppliers as well.
- Diversify to related industries. There is a question on the long-term viability of the business based on what analysts feel is the position of the business on the business cycle. Because of moderate growth, it is believed that this particular business is already at the mature stage due to a paltry 2 to 3 % annual growth rate. There is also evidence of a very detrimental price war happening and industry deregulations that have ceased to provide the same levelled playing ground experienced by the company before. Simply put, the prospects for the company are decreasing simply because these companies will be having a lesser degree of importance soon. Thus diversifying when one is ahead is a strategy that should be taken to ensure long-term viability. Diversifying transfers some resources into new businesses that may or may not be related to the company’s original business. In some degrees CFMF is trying to diversify already but have failed to find the perfect match for its diversification strategies.
- Strategic profile and case analysis purpose.
Consolidated Freightways Inc. became a victim of the trucking industry deregulation in the United States under the administration of then president Jimmy Carter. Previously, the industry for trucking was regulated but a law that affected the trucking industry enabled trucking companies to price their own services. This resulted in prices setting lower than costs, prompting large trucking companies to radically change the way they are doing business.
This strategic analysis is being conducted as compliance with management course (name your management course here) on the topic of strategic management. In this case analysis, the details of an industry and the micro-details that are specific to a particular company are presented and analysed, with the purpose of determining which of these factors have the most profound effect on the company’s viability both on the financial level and on the operating level. The high degree of human requirement for a trucking company such as CFMF prompts it to use more labor resources that have an effect on the operating viability and on the financial sustainability of the company. The case analysis herein examines the effect of these factors, labor in particular, as a benchmark to which the viability of the company is measured. Because of the highly unionized nature of the company’s labor force, it is of great interest to understand the effects of a more non-unionized labor pool and if the cost savings that it would generate is sufficient to ensure the company’s viability, without the company doing any other different step.
Answers.Com. (2013). Consolidated Freightways. Retrieved June 23, 2013, from Answers.Com: http://www.answers.com/topic/consolidated-freightways