James Welch has his work cut out for him. Over the next month, the CEO of YRC Worldwide and president of YRC Freight must convince 26,000 Teamsters to extend wage and benefits cuts they agreed to in 2010 another four years. Welch also needs to get them on board with new concessions, including greater use of subcontractors and utility workers.
YRC Teamsters will have the chance to vote on the company’s amended contract proposal starting Dec. 10. The Teamsters union — which isn’t saying vote “yes” or “no” — will count YRC member ballots on Jan. 8.
Once again, YRC Worldwide’s fate is in the hands of its union employees, who in 2009 and 2010 accepted wage and pension concessions that helped YRC avoid bankruptcy. The $4.9 billion enterprise lost more than $3 billion between 2006 and 2013, though it has narrowed annual and quarterly losses since 2011.
If YRC’s Teamster employees accept the latest plan, Welch must next convince the trucking operator’s lenders to refinance $1.36 billion in long-term debt, including $394.9 million in debt maturing next year. He also must convince a third key group —customers — to stick with long-haul less-than-truckload carrier YRC Freight, which is still recovering from a reorganization that left the carrier shorthanded at many locations and slowed the flow of shipments through its 266 terminals.
Those YRC terminals are important to shippers, who still rely on the company to provide a substantial amount of LTL capacity. YRC Worldwide is the second-largest LTL operator in the U.S., following FedEx Freight. YRC Freight, its largest subsidiary, is the third-largest stand-alone LTL company, based on revenue.
YRC Freight handled 2.9 million shipments in the third quarter, while the three YRC regional LTL carriers — Holland, New Penn and Reddaway — moved 2.7 million. Combined, the four companies handled 88,570 shipments daily, not much less than FedEx Freight, which handled 88,700 shipments daily in the quarter. That’s after YRC Freight closed 29 terminals in its reorganization this spring.
In the long term, YRC Worldwide’s survival has helped keep LTL price increases modest since the end of the recession, as carriers focus more on regaining or building profitability than increasing market share. LTL capacity and demand, according to a recent Wolfe Research shipper survey, remain balanced.
“It’s still evident by the amount of business we handle that the four companies that make up YRC Worldwide are valued in the marketplace,” Welch said in an interview Dec. 9, the day before ballots are mailed to YRC Teamsters. “Our goal is to get our labor agreement ratified, get refinanced and focus on North American LTL.”
But YRC’s lenders are demanding a new long-term labor contract before refinancing. “Lenders want certainty if they’re going to loan money,” Welch said. “It makes no sense for them to refinance the company and a year later not know what’s going to happen with a labor contract” that would expire in 2015. “The lenders have been supportive, but they want workforce stability.”
That means extended concessions — including a 15 percent wage cut and reduced pension contributions — through 2019. Extending the concessions for a full 10 years, and granting YRC more operating flexibility in certain areas, will help save the company an additional $100 million a year, on top of $350 million in annual savings the company has gained since the concessions took effect, according to YRC’s estimate.
For many YRC Teamsters, the latest request from their employer is a bitter pill — especially the extension of limits on company pension contributions. YRC Worldwide currently contributes to multiemployer pensions at 25 percent of the 2009 contribution rate. The company also wants the ability to use “utility workers” as well as purchased third-party transportation in areas where it has labor shortages, and interline subcontractors in areas that it serves where it has weak business levels and low freight density.
“There are some areas we have to serve today that don’t make sense from a density standpoint,” Welch said. “There’s not enough freight volume to justify (the cost of local) pedal runs.” Using a subcontractor in those service areas “would help us out from a cost standpoint.”
But the biggest savings for the company will come from the extension of the concessions and reduced interest payments. YRC’s interest expenses increased 11.3 percent in the first nine months of 2013, and 28 percent in the third quarter, when they totaled $43.1 million. The company reported a $44.4 million net loss for that quarter, partly due to that spike in interest.
YRC is offering a spoonful of sugar with its medicine, including a $750 ratification bonus and another $750 bonus in 2015, in place of a 40 cent per hour wage increase. The proposal includes provisions designed to protect employees whose jobs might be threatened by outsourcing some transportation, and includes a profit-sharing plan based on company operating ratios that would kick in after 2016 and 40 cent per hour pay increases in 2016, 2017 and 2018.
YRC Worldwide shifted its campaign to win the contract extension into high gear with televised town hall meetings for YRC Freight and Holland Dec. 8 that reached more than 4,000 employees. On Dec. 9, the company began field leadership meetings at terminals to explain the proposed contract to managers and employees.
“I have been responding to a lot of e-mails, and a lot of phone calls,” Welch said. “We have a very detailed communications plan and timeline for visiting terminals. I love to be out in front of employees. If I could do that every day I’d be happy.”
If Welch can at least satisfy a majority of YRC Teamsters their sacrifices are necessary — even if they can’t be called happy — he’ll have a chance to steer his company on the road back to profitability. “The goal is to get more profitable, reinvest in the company and start paying down some of this debt.”