The Teamsters union is considering whether what was good for YRC Worldwide would be good for one of that trucking company’s largest competitors, ABF Freight System.
After resisting formal negotiations over months of informal “dialogue” with ABF, the union is clearing the table for negotiations that could result in wage and benefit concessions like those that helped YRC survive last year.
ABF’s nearly $100 million loss last year, combined with intense competition from nonunion less-than-truckload carriers, apparently is breaking down the Teamsters’ resistance. “We now believe it is in our best long-term interest to fully engage ABF through formal discussions to determine if and what type of contractual relief may be necessary,” the union said in a March 12 notice to ABF’s Teamsters employees.
The international union said it first needed to discuss the possible talks with local union leaders and with unionized employees at the Fort Smith, Ark.-based company.
Pensions are likely to figure as much as wages in any ABF-Teamsters talks. ABF for years has sought relief from its mounting pension liabilities, at one point saying it was willing to pay withdrawal penalties and establish its own plan, as UPS did in carving away the largest employer in the trucking industry multi-employer pension plan. Legislation backed by the Teamsters and trucking companies that would reform the industry’s pension system awaits action on Capitol Hill.
The Teamsters said their talks with YRC would be a model for any ABF negotiations. “If discussions proceed, we will apply similar standards of equality of sacrifice, access to information, ‘snap back’ provisions and other corporate and financial protections negotiated under the relief memorandums with YRCW,” the Teamsters said.
Those agreements gave YRC a cost advantage that ABF has struggled with since August. In two rounds of negotiations last year, the Teamsters agreed to a cumulative 15 percent wage cut and an 18-month suspension of pension contributions at YRC and its subsidiaries. In return, the Teamsters received an unprecedented say in the company’s operations.
Until August, YRC and ABF operated under the same National Master Freight Agreement approved by the Teamsters in 2008. The concessions at YRC, saving it more than $1 billion over the remaining life of the contract, created a schism.
With YRC — the largest Teamsters employer in the LTL industry and the second-largest transportation-related Teamsters employer after UPS — teetering on the edge of bankruptcy for much of last year, ABF’s calls for contract concessions gained little traction at Teamsters headquarters.
Now that YRC’s future is more secure, the Teamsters are in a better position to aid ABF, which employs about 7,360 Teamsters, 75 percent of its total work force.
“We’re pleased the Teamsters have realized the need to call for discussions,” said an ABF spokesman who declined further comment. Earlier this year, Arkansas Best President and CEO Judy R. McReynolds said the Teamsters understand “our cost structure is higher than both the nonunion and union competitors we have out there.”
The talks could bring up questions about executive incentives. Shareholders in ABF parent Arkansas Best will vote at the company’s annual meeting in April on whether to raise the amount of incentive pay the company can deduct from its federal taxes from $1 million to $3 million a year. The goal, the company said in its proxy, is to make its incentive payments fully deductible.
|The board approved the proposal on Feb. 18, according to Arkansas Best’s annual proxy statement filed with the Securities and Exchange Commission. None of the executives covered by the plan received incentive pay last year or in 2008, however, and ABF’s executive compensation overall was 33.3 percent lower last year than in 2008.
ABF’s challenges for 2010 are clear from its 2009 results. The carrier’s revenue dropped 21 percent to $1.4 billion, and it reported an operating loss of $99.9 million after a $49 million operating profit in 2008. ABF’s cargo traffic declined 11.4 percent per day from 2008, while billed revenue per hundredweight dropped 10.8 percent, driven down by deep industry discounting and the loss of fuel surcharge revenue.
One item that did rise was the percentage that salaries, wages and benefits command of its total revenue, which hit 70.1 percent.
The company burned through 61 percent of its cash and cash equivalent reserves in 2009, ending the year with $39.3 million. “The $93.5 million decline in cash provided by operations during 2009 compared to 2008 primarily reflects the impact of the continued weak freight tonnage environment,” the company said in its report.
The company said it is in no danger of not being able to meet its obligations. ABF executed several letters of commitment and credit last year to preserve its remaining liquidity, ending the year with
$184.1 million in cash and short-term investments. It entered a two-year, $75 million lending agreement with SunTrust Bank on Dec. 31. The company also expects $30 million in tax refunds in 2010.
The Teamsters noted, however, “Most companies, ABF included, cannot sustain losses for the foreseeable future.”
Contact William B. Cassidy at email@example.com.