Con-way’s (CNW) operations involve the storage, handling, and use of diesel fuel and other hazardous substances. With increasing regulations on emissions from transportation and other industries, railroads continue to grow and dent the trucking companies’ market.
Cyclicality and seasonality
Trucking companies’ revenues are impacted by conditions in the cyclical markets of its customers in and outside of the United States. Seasonal fluctuations that change demand for transportation services also impact Con-way’s operations.
The company’s freight segment generates its highest revenues in the second and third quarters, whereas demand for its services falls in the fourth quarter. In the truckload segment, the company experiences lower business in the month of December.
Fuel availability and pricing
Con-way is subject to the risk of fuel availability and fuel price. The company incurred a total of $499 million in fuel and related taxes in 2014, forming 9% of the company’s total costs. If were to be a sudden increase in fuel prices and the company failed to transfer the increase to its customers, it would see its margins severely impacted.
Currently, Conway’s business units have fuel-surcharge revenue programs or cost-recovery mechanisms in place with a majority of the company’s customers. In the absence of such programs, the company could see losses in the event of a sudden fuel price increase.
Con-way’s competitors in the less-than-truckload and truckload markets also impose fuel surcharges. Fuel surcharges are generally based on a published national index. There is no industry-wide standard fuel surcharge formula.