• ITVI.USA
    16,030.520
    117.340
    0.7%
  • OTLT.USA
    2.809
    0.016
    0.6%
  • OTRI.USA
    22.220
    -0.080
    -0.4%
  • OTVI.USA
    16,016.550
    115.560
    0.7%
  • TSTOPVRPM.ATLPHL
    2.950
    -0.570
    -16.2%
  • TSTOPVRPM.CHIATL
    3.610
    0.650
    22%
  • TSTOPVRPM.DALLAX
    1.370
    -0.240
    -14.9%
  • TSTOPVRPM.LAXDAL
    3.550
    0.210
    6.3%
  • TSTOPVRPM.PHLCHI
    2.320
    0.220
    10.5%
  • TSTOPVRPM.LAXSEA
    4.110
    0.250
    6.5%
  • WAIT.USA
    126.000
    0.000
    0%
  • ITVI.USA
    16,030.520
    117.340
    0.7%
  • OTLT.USA
    2.809
    0.016
    0.6%
  • OTRI.USA
    22.220
    -0.080
    -0.4%
  • OTVI.USA
    16,016.550
    115.560
    0.7%
  • TSTOPVRPM.ATLPHL
    2.950
    -0.570
    -16.2%
  • TSTOPVRPM.CHIATL
    3.610
    0.650
    22%
  • TSTOPVRPM.DALLAX
    1.370
    -0.240
    -14.9%
  • TSTOPVRPM.LAXDAL
    3.550
    0.210
    6.3%
  • TSTOPVRPM.PHLCHI
    2.320
    0.220
    10.5%
  • TSTOPVRPM.LAXSEA
    4.110
    0.250
    6.5%
  • WAIT.USA
    126.000
    0.000
    0%
American ShipperIntermodal

Menlo expected to ride out GM’s buyout of Vector

Menlo expected to ride out GMÆs buyout of Vector

   Con-way Inc. announced Thursday that General Motors Corp. is exercising its option to buy out Vector SCM, the joint venture formed with Con-way’s contract logistics subsidiary Menlo Worldwide in late 2000 to act as the automaker’s global lead logistics provider.

   Vector manages inbound logistics for thousands of shipments each day to GM plants and delivery of millions of finished vehicles to local dealerships and other customers each year. In 2005, Vector had operating income of $20.3 million. First quarter 2006 operating income for Vector was $5.3 million, up from $4 million in the same period last year.

   Menlo Logistics had revenue of $1.34 billion, which includes purchased transportation, and $26.7 million of operating income. The joint venture has about 300 employees, 200 of which serve the North American market. Con-way and GM do not report revenues for Vector because it is an equity partnership.

   Negotiations have commenced to determine an agreeable cash price and terms for Con-way’s share of the company, which Baird senior research analyst Jon Langenfeld valued at $50 million. Bear Stearns analyst Edward Wolfe estimated the purchase price at about $80 million to $100 million.

   Vector will continue to provide services to GM during the negotiation period and a subsequent transition period. The entire process is expected to take about nine months, said GM spokeswoman Deborah Silverman.

   “GM notified Con-way that consistent with its turnaround plan and the goal of further integrating global activities in this area, it had made a strategic decision to resume more direct control over its logistics functions,” Con-way said in a statement.

   The move probably has more to do with GM’s restructuring than with Menlo, said consultant Richard Armstrong of Stoughton, Wis.-based Armstrong & Associates. GM is closing plants, laying off workers, and underfunding its pension plans in response to billions of dollars in losses and diminished demand for its vehicles.

   “I don’t think financially it’s that big a deal. In terms of initial market reaction it’s a negative. But I think it should also be something that Menlo can rebound from,” Armstrong said. Vector essentially served as the traffic management department within GM, he said.

   The move is consistent with other initiatives within GM to reduce costs, improve efficiency and make the North American operation profitable, Silverman said. “We wanted to bring back this core competency and have more direct control of our logistics function,” she said.

   GM will still do some logistics business with Menlo, but without using Vector’s services, Silverman added.

   Vector SCM also provides fourth-party logistics services for five other customers, including Diebold Systems, which will be served by Menlo Worldwide once the Vector takeover is complete. Vector signed a three-year contract in May to redesign Diebold’s supply chain network and manage its logistics partners. Diebold produces automated banking, voting and security systems.

   Chief Executive Douglas Stotlar said Con-way will continue to pursue other opportunities as a logistics integrator, or lead logistics provider managing transportation and logistics subcontractors.

   “If anything, (GM’s decision) demonstrates the 4PL market is a viable one and where we can offer some pretty good differentiation,” said Con-way spokesman Gary Frantz. “What better way to demonstrate the value of a model than to have your customer buy it?”

   Menlo has started a number of 4PL-type engagements of its own, Frantz added.

   GM’s decision to pull the logistics function back in is not unexpected, because it learned lessons after six years that allowed it to achieve a certain level of proficiency and wants to adopt those best practices on its own, said Jim Commiskey, vice president of business development for the automotive and industrial manufacturing sector at UPS Supply Chain Solutions.

   “They are buying it for the value that they see in that enterprise. They saw gaps in their own capabilities and saw a way to fill those gaps and then internalize their logistics again,” said Commiskey, who helped put together the Vector SCM deal when he worked at Menlo and then served as vice president of global services for Vector.

   “I think it actually proves the value of the 4PL model. It brought such gains to GM, so that’s the next logical thing. It might actually knock down the barriers to commercializing that 4PL product. I see it as a big win-win” for Menlo and GM, he said.

   Armstrong agreed that GM’s move does not diminish the idea of shippers hiring lead logistics providers, but said it does raise questions about Menlo’s direction. Menlo has found it harder to find good customers since it separated its heavy freight forwarding unit from Menlo and then sold it to UPS in December 2004 because the forwarding unit was a source of good international business leads. Menlo is increasingly being viewed by shippers as a purely North American operator, even though it has contract logistics activities in Asia and Europe. It also lost some of its top talent when Menlo Worldwide Logistics head Jim Williford was passed over in favor of Stotlar to run CNF.

   Con-way operated until recently as CNF Inc., but took on the name of its most visible operating unit Con-Way Transportation, which focuses on domestic regional, less-than-truckload and other trucking and logistics services. Con-way Transportation has been reorganized as Con-way Freight (less-than-truckload) and Con-way Transportation (truckload and intermodal). Con-way Freight and Transportation accounted for two-thirds of the corporation’s $4.2 billion in sales last year.

   “What move does Menlo now make to maintain and increase itself as a global player?” Armstrong said.

We are glad you’re enjoying the content

Sign up for a free FreightWaves account today for unlimited access to all of our latest content

By signing in for the first time, I give consent for FreightWaves to send me event updates and news. I can unsubscribe from these emails at any time. For more information please see our Privacy Policy.