Teamsters at ABF Freight System rejected a 15 percent wage cut in May, convinced the company could improve its bottom line without labor concessions.
They were right -- ABF trimmed its operating loss to $2.6 million in the third quarter, after losing $35.7 million and $12.6 million in the first and second quarters.
But the cost of rejecting those concessions is clearer now, too. The less-than-truckload carrier would have made significant gains on its competitors in the third quarter if its Teamster employees had approved the contract proposal.
ABF estimates the concessions it sought from the union would have saved it about $74 million a year, $18.5 million a quarter. An analysis by SJ Consulting Group puts the actual third-quarter savings ABF would have enjoyed at $18 million.
That would have been enough to bring ABF back to profitability in the third quarter, with an operating profit of about $15.4 million and an operating ratio of 96.2. Under the original ABF proposal, some of the wage cuts would have been returned to employees at that level of profitability, giving ABF an OR of 96.8, SJ Consulting said.
To put that in perspective, only ODFL, Roadrunner and UPS Freight would have had lower operating ratios among the top publicly owned LTL carriers, while Saia, Con-way Freight, Vitran, YRC Worldwide and FedEx Freight had higher ORs.
Instead, ABF had an OR of 100.6 -- the closest it's come to profit lately but no cigar.
What does that mean to the company and its Teamsters? While ABF struggles to get back in the black, companies such as ODFL are using their profits to widen the competitive gap, expanding their capacity and preparing for further growth in 2011.
ABF is stuck between those companies and YRC Worldwide, with its 15 percent cost advantage. Its yield -- revenue per hundredweight, an indicator of pricing -- dropped 2.5 percent from a year ago in the quarter, while YRC's rose 2.8 percent.
That's not a very advantageous position for ABF, or its employees, as the peak holiday shipping season heads into its last weeks and the first quarter of the new year -- traditionally the weakest quarter for trucking -- approaches.
That unrealized $15.4 million profit helps explain why ABF is suing the Teamsters union and YRC Worldwide for successfully doing what it tried and failed to do in the spring -- renegotiating and amending the National Master Freight Agreement.
Should ABF Teamsters have approved the proposal in May? That's something only they can answer. The company may eventually return to profitability without wage concessions. Stronger freight demand may bring laid off employees back to work and even support higher wages by the time ABF's current contract expires in 2013.
But the company will have to compete with stronger carriers with several quarters of profit behind them. That's something to think about before the next contract vote.
-- Contact William B. Cassidy at email@example.com.