The clock is running out on the contract YRC Worldwide and its four trucking subsidiaries have with the Teamsters union. Company and union officials have until March 31, when the current five-year pact expires, to come up with a new agreement, and some shippers are nervous about potential disruptions at one of the largest less-than-truckload (LTL) operators in the United States if a deal is not reached.
“I’m getting calls [from shippers] every day,” said Satish Jindel, president of transportation research firm SJ Consulting Group in Warrendale, Pennsylvania. Without a contract proposal on paper soon, he said, those shippers may begin diverting freight away from YRC Worldwide’s carriers.
At least one large YRC Worldwide customer told JOC.com it has not diverted freight, but LTL shippers are certainly concerned about LTL capacity and pricing, particularly after the closure of 101-year-old New England Motor Freight (NEMF) in the Northeast last month.
“We are highly focused on reaching an agreement that is good for our employees, customers and shareholders,” Darren Hawkins, CEO of YRC Worldwide, said Jan. 31. “As we work toward a new collective bargaining agreement, we will continue to take care of our customers.”
In the last contract cycle, YRC and the union reached agreement on a second proposal in January 2014 after an initial proposal was rejected by YRC Teamsters in December 2013, but still well in advance of the March 31 deadline. The early agreement helped YRC secure a $1.15 billion refinancing agreement and a $300 million debt-for-equity swap.
Cause for concern?
Jindel said he doesn’t expect disruption at YRC Worldwide, but the sooner an agreement is reached in a jittery US LTL market, the better. Shippers at the 2019 TPM Conference still had lingering questions about the fallout from NEMF going belly up during the March 3-6 event.
Although that company’s collapse appears to be an anomaly, the shutdown of the 21st-largest US LTL carrier struck a chord at a moment when the direction of the US economy, and trucking capacity and pricing, remains unclear, leaving shippers and carriers in what one executive has dubbed “the muddy middle.”
“My concern is, how many other LTL carriers are in the same financial health as NEMF, yet unknown by the shipping public?” one shipper asked in an email to JOC.com last month. The answer may be few, but some LTL trucking companies are running on thin profit margins.
Those margins may be too thin for reinvestment in drivers, equipment and technology. Jindel argues LTL carriers need operating margins of 8-12 percent to adequately reinvest in their companies. YRC Worldwide’s corporate operating margin in 2018 was 2.8 percent.
YRC Worldwide is the fourth-largest LTL operator in the United States, and YRC Freight is the fourth-largest stand-alone LTL carrier, after market leader FedEx Freight, Old Dominion Freight Line, and XPO Logistics, according to the JOC.com Top 25 LTL Carrier rankings.
The Overland Park, Kansas-based firm is the largest Teamster employer in freight trucking (UPS is the largest Teamster employer overall), with 19,000 employees at YRC Freight and approximately 12,000 employees at its three regional companies, including Reddaway.
The company provides a large amount of capacity to large, high-volume LTL shippers. In 2018, YRC Freight had 14,300 terminal doors, handling 10.1 million shipments, while the regional carriers had 6,750 doors and handled 10.4 million shipments.
‘Critical and consequential’ discussions
YRC executives and Teamster union officials are still at the negotiating table, where they’ve exchanged “comprehensive economic proposals” on wages and benefits, resulting in a “vigorous review of the respective positions,” according to an update from the Teamsters.
“Obviously, these discussions are becoming more critical and consequential as we go into March and address the most difficult issues,” Teamsters National Freight Industry Negotiating Committee (TNFINC) co-chair Ernie Soehl said in a statement March 1. “Although we made some progress, the union is disappointed with the wage and benefit package the employer currently has on the table because it simply will not meet the level the [members] deserve or recognize the sacrifice of long-term employees over the past decade.”
Those sacrifices were substantial. A 15 percent cut in wages and 75 percent reduction in pension contributions helped YRC Worldwide avoid bankruptcy in 2009. Those concessions were set to expire in 2016, but the last contract extended them to 2019.
Now, some Teamsters at national LTL carrier YRC Freight and regional carriers Holland and New Penn would like payback for what they consider a 10-year giveback: reversal of the 15 percent wage cut and increases that close any wage gap with ABF Freight System.
The question now becomes whether YRC Worldwide and its subsidiaries could actually sustain such an increase on operating margins of 2.8 percent at YRF Freight and 3.7 percent at the regional carriers. Salaries and wages increased 2.3 percent at YRC Worldwide last year to $2.95 billion.
The company’s total revenue last year rose above $5 billion for the first time since 2014. At YRC Freight, total tonnage per day dropped 2.7 percent and shipments per day dropped 3.5 percent. Operating profit, however, jumped 47.2 percent for the full year to $89.3 million.
That only pushed YRC Freight’s operating ratio down by 80 basis points to 97.2 for the full year. In the fourth quarter, YRC Freight’s operating ratio improved by 370 basis points year over year, dropping to 94.4 percent. That still leaves its operating margin at only 5.6 percent.
Once completed, the YRC Worldwide agreement will be the third major LTL industry contract negotiated by the Teamsters in the past year. Last July, Teamster employees at ABF Freight System, an ArcBest subsidiary, ratified a new contract and supplements, winning back some concessions.
Last autumn, Teamsters employees at UPS Freight went head to head with the company, rejecting an initial contract proposal from the LTL subsidiary of UPS. The company suspended freight operations before a second vote in November, in which the contract was ratified.