Con-way Freight to boost driver wages early next year; first big nonunion LTL trucker to act

Con-way Freight, the regional less-than-truckload (LTL) unit of trucking and logistics giant Con-way Inc., said today that it will raise wages of its approximately 14,500 drivers effective Jan. 4, becoming the first big, mostly nonunion LTL trucker to raise driver pay.

In a statement issued earlier today, Con-way Freight declined to quantify the extent of the increases but said they would be aligned with the pay rates deemed competitive in a driver's home region. Con-way Freight will also establish a schedule under which all of its drivers will reach the top wage scale three years from the date of hire. Before, the tenure required to achieve top pay varied.

Analysts said the wage and accompanying benefit increases will cost the parent company about $60 million, expenses that would be booked in 2015. The amount is about double the increases taken in recent years, analysts said. The changes should not affect the company's second-half operating results, according to analysts. Through the first half of 2014, Con-way Freight accounted for about 60 percent of the parent's $2.86 billion revenue and for a much higher proportion of its $135.7 million in operating income.

Traders and investors have been in selling mode all day, taking Con-way shares down more than 4.6 percent near the close of trading on the New York Stock Exchange.

In the statement, Con-way Inc. President and CEO Douglas W. Stotlar said both Con-way Freight and the parent's truckload unit, Con-way Truckload, are "facing the most pronounced driver shortage we've ever seen." This is one of the first public acknowledgments from a top trucking executive that the dearth of qualified drivers, which had long been thought of as confined to the truckload sector, has bled into the smaller LTL category, where wages generally are higher and drivers are home more frequently due to their relatively shorter routes.

Con-way has already raised the pay of drivers working at its truckload unit. That package, which included a boost in per-mile pay and layover pay as well as loyalty and productivity incentives, increased compensation for experienced new hires from 37 cents to 42.5 cents per mile. The increase in mileage pay also applied to Con-way Truckload's independent contractors. Con-way Truckload employs about 2,300 drivers. The adjustments took effect Sept. 7.

Today's announcement comes two weeks after a little more than 100 employees at Con-way Freight's service center in Laredo, Texas, voted for union representation by the Teamsters, the first union shop in the company's 31-year history. In addition, the Teamsters will hold representation elections on Oct. 23 at Con-way Freight terminals in Los Angeles, Santa Fe Springs, and Pacoima, Calif., which comprise the unit's footprint in greater Los Angeles. The National Labor Relations Act (NLRA), the federal law governing labor relations in the trucking industry, requires that organizing be done on a terminal-by-terminal basis. Con-way Freight has 273 terminals across the United States.

It is illegal to offer wage increases as a way of influencing a union vote. However, with one terminal in the union fold and three more, including stations in the country's second-largest population center, considering similar moves, it may not be surprising that the company would take steps to keep its work force happy. "Laredo got their attention," said Benjamin J. Hartford, analyst at the investment firm Robert W. Baird & Co.

Con-way makes no secret of its anti-union position. It expressed disappointment with the vote in Laredo, and today issued a statement on the upcoming votes in California that said, "We continue to believe that our employees do not need union representation and that we can best meet their needs and the needs of our customers through a direct working relationship with our employees, without the interference of a union."

HIGHER RATES ON TAP FOR 2015

The Con-way Freight increases come amid one of the best LTL operating environments in nearly a decade. A moderately rebounding industrial economy along with improved pricing discipline that has been sustained for three or four years have helped companies fatten their top and bottom lines. LTL carriers are also benefitting from ongoing service issues with rail intermodal service, which is forcing traditional intermodal users to seek alternatives.

LTL rate increases are, for the most part, sticking. As perhaps a show of confidence in the sector's ability to push through rate hikes, FedEx Freight, the LTL unit of FedEx Corp., said it would impose a 4.9 percent general rate increase on Jan. 5, about three months earlier than normal.

Ross said that higher rates in 2015 should offset cost increases for all LTL carriers, as long as the industrial economy remains strong and carriers stay disciplined in regard to capacity additions. Carriers should continue to benefit from improved shipment density—a byproduct of relatively tight supply—and higher haulage rates, Ross said.

Charles W. Clowdis Jr., managing director, global trade and transportation for the consultancy IHS Economics, said carrier wages will continue to rise as competition for drivers intensifies, particularly for local city drivers and dockworkers. A dramatic improvement in the economy—which has yet to transpire—would make local drivers especially hot commodities, Clowdis added.