Pulling All Stops

YRC’s Worldwide’s latest move to avoid exiting the highway for good raises new questions not only about the trucking company’s financial status but also the future of thousands of retired union employees.

The nation’s third-largest trucking company said it would seek $1 billion from the Treasury Department’s Troubled Asset Relief Program to help fund an estimated $2 billion in annual Teamsters union retirement payments over the next four years. William D. Zollars, YRC’s chairman, president and CEO, said the company planned to apply for the federal money this month.

The request came just days after the struggling carrier warned there was “substantial risk” that recent cost cuts and shipment increases were not enough to help YRC meet its $45 million second-quarter earnings requirement under agreements with lenders. For the second straight quarter, YRC negotiated new terms with bank lenders to stave off violating its credit agreements.

TARP funds do not guarantee financial viability. Chrysler and General Motors have received some $25 billion in government aid, yet Chrysler last month filed for Chapter 11 bankruptcy protection and GM came close to doing so.

YRC, which lost $357.4 million in the first quarter following a $974.4 million loss last year and a $634.8 million loss in 2007, is battling high labor costs as well. With roughly half its multi-employer union pension fund contributions covering retirees of carriers no longer in business, Zollars has called the system “a penalty for success” for surviving. By applying for TARP funds, Zollars told The Wall Street Journal he hopes to “get the conversation started” with the government about reducing its pension obligations.

It has already stirred conversation in the transportation community.

“I don’t see how YRC qualifies under TARP,” said David G. Ross of investment firm Stifel Nicolaus. “TARP was meant to stabilize the financial markets and restore lending capability and liquidity to the financial markets. It has nothing to do with trucking. This is just another indication of them trying anything they can to get help, to raise money, to get cash.”

UPS, the nation’s largest trucking company, paid $6.1 billion in 2007 to reduce its pension liability in the Central States multi-employer pension fund covering some 40,000 of its 240,000 employees. UPS now pays into a new plan set up jointly by the company and the Teamsters and into 20 other Teamsters pension plans.

UPS wouldn’t comment on YRC’s bailout request. On whether the TARP should be extended to the trucking industry, UPS spokesman Norman Black said, “We’re still looking at that.”

A leading shipper said giving federal aid to YRC, which represents 20 to 25 percent of the less-than-truckload market, could act as a check on rising freight rates, especially if it staves off a carrier shutdown.

“You get a carrier that size going out of business and there’s eventually going to be an impact on the pricing side,” said Wayne Johnson, director of logistics at American Gypsum, a wallboard manufacturer and chairman of the National Industrial Transportation League’s highway committee. “Most shippers have their contracts in place for 2009 and even into next year, so I don’t think there would be an immediate effect on rates, but I think there will be when the economy comes back.”

But asking for bailout money may be an attempt to gain sympathy for an alternative to YRC’s legacy pension requirements — namely shifting those costs to the Pension Benefit Guaranty Corp., an arm of the federal government that has already assumed the pension benefits of steel companies and airlines. But PBGC funds are limited, and retirees whose pensions fall to the PBGC often see their benefits cut.

Jay Thompson, president of Denver-based consultants Transportation Business Associates, said he doesn’t think Zollars expects to get the TARP money. “From a business perspective, the real issue at YRC is unionized labor, and it raises a good question: We’re sitting on this pension liability of having to pay for all these Teamsters who aren’t working for YRC. Is that fair?”

The TARP request “sends a signal out here, that (YRC) is in more trouble than we think,” he said.

Zollars says the company is in better shape than is being portrayed. At an investor conference hosted by Wolfe Research in New York last week, he challenged analyst suggestions YRC could run out of cash by the third quarter, saying the company will be “cash flow positive” and even profitable by then.

Meanwhile, YRC Logistics CEO Jim Ritchie became the latest senior executive to leave the company, announcing he will become president of CHEP USA, the Orlando, Fla.-based division of Australia’s Brambles, which provides transport support services.
Chief Operating Officer John Carr will assume Ritchie’s duties.

Contact John Gallagher at jgallagher@joc.com.