LTL transportation news: YRCW, Teamsters reach tentative labor agreement
Details of pact expected to be released on December 3
Jeff Berman, Group News Editor -- Logistics Management, 12/1/2008
OVERLAND PARK, Kan. and WASHINGTON—Taking steps to shore up economic woes due in large part to an ongoing economic slowdown, freight transportation services provider YRC Worldwide Inc. (YRCW) and theInternational Brotherhood of Teamsters said they have reached a tentative agreement to modify the current labor agreement for YRCW employees covered by the National Master Freight Agreement.
Details of the agreement are expected to be released on December 3, according to the Teamsters. And it will cover Teamster members that are employees of YRCW subsidiaries Yellow Transportation, Roadway, USF Holland, and New Penn; there are about 40,000 Teamster drivers, dockworkers, and clerical workers, among others employed by YRCW. If leaders of the local Teamster unions that represent members of these YRCW companies approve the plan, the Teamsters said that its freight members will be asked to ratify the agreement in December.
“The industry decline in volumes and pricing is continuing in the current quarter, affecting our profits and cash flow and our ability to pay down debt from operating funds,” said Bill Zollars, YRCW Chairman, President, and CEO, in a statement. “The modification to the agreement…will establish a more competitive cost structure allowing us to accelerate our market share recovery and capitalize on opportunities for future growth, while at the same time, defending the long-term prospects and job security of our employees.”
Industry analyst Ed Wolfe, president of Wolfe Research, said in a client research note that each $0.50—or 2.3 percent—of hourly wage concession on a base of $22.11 for hourly wages equates to about $50 million of annual EBIT (earnings before interest and tax) for YRCW. Wolfe added that YRCW company statements indicate that the existing $12.39 per hour in benefits per Teamster will not change under this new reduction.
SJ Consulting President Satish Jindel observed that this tentative agreement is indicative of how the Teamsters under President James Hoffa have shown a little more of a business friendly approach to labor contracts, with the December 2007 contract the Teamsters inked with UPS on the parcel side being another indication of it understanding that YRCW competes fiercely with other carriers.
“The Teamsters made some concessions to allow UPS to maintain the union jobs that are very good jobs in the current economy, and it is the same thing with YRCW,” said Jindel. “They recognize that this is an industry where as of today the non union guys are a strong alternative to the union carriers, and as a result, the combined wages/pension and other benefits cost more than non-union jobs and that in order to be competitive in this market they have to be understanding of that. This shows they are trying to do their part to protect those jobs that exist at the union operating companies of YRCW.
With details of the agreement to be released on December 3, Jindel commented they will carry a lot of weight in terms of quantifying the exact amount of savings YRCW will see, coupled with the fact that that the Teamsters are cooperating with YRCW to help it at a difficult time.
This announcement follows recent news from YRCW in which the company said on November 25 it has kicked off a cash tender offer to purchase outstanding notes in an effort to reduce debt and interest costs, increase net income, and improve leverage. And on November 19, YRCW’s credit rating was downgraded by the S&P, forcing the company to collateralize its remaining unencumbered assets—mainly its real estate and revenue equipment, which have a market value of roughly $1.5 billion.
Along with these issues, low volumes due to limited consumer spending have made 2008 a challenging year for YRCW. Some of the subsequent issues the company has experienced include:
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ceasing operations at 27 service centers for YRCW regional LTL subsidiaries USF Holland and USF Reddaway, which resulted in 1,100 employee terminations;
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closing down a revenue management center in Topeka, Kan., due to declining volumes;
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400 non-union employee job cuts over August and September;
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drawing down $325 million on its senior revolving credit facility to be used to pay off a $225 million Roadway notes payment due December 1, according to a Stifel Nicolaus report, along with an outstanding $100 million 6.5 percent senior notes due on May 1, 2009, with the redemption of notes due December 1, 2008.
An October report from the Kansas City Star said YRCW may lay off roughly 3,750 employees as part of its September plan to integrate its Yellow Transportation and Roadway units.
As LM has previously reported, YRCW announced in September it plans to hasten the integration strategy of Yellow Transportation and Roadway by combining its sales teams and providing shippers with a comprehensive portfolio of services through one operating network entitled Yellow Roadway, with the Yellow Transportation and Roadway brands maintaining their own brands and presence in the LTL sector. YRCW contends this move will increase its network density, resulting in lower-fixed costs and service improvements. The integration effort is expected to last through 2009 and save YRCW more than $200 million in annual operating savings.
YRCW North American Transportation President and CEO Mike Smid told LM in September that these savings will come from various sources, including consolidating the number of facilities it operates out of from 650 to roughly 450 as it combines capacity in existing facilities. Smid said other savings will come from local pickup and delivery handling.
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