With a strike authorization looming over the National Master Freight Agreement talks last month, the International Brotherhood of Teamsters and unionized national LTL carriers reached a tentative agreement on a new five-year master contract. The agreement, which covers 65,000 workers, includes a $2.25 raise in the average hourly wage over the next five years and health insurance coverage at no cost to workers. But those increases won't necessarily filter down to shippers in the form of higher rates.

The wage increase will bump up hourly pay by 50 cents the first year, 40 cents in the second and third years, 45 cents in the fourth, and 50 cents again in the fifth year of the contract. Besides a pay hike, the agreement also calls for the largest-ever health and pension increases, a total of $3.10 over five years. Other terms include: a cost-of-living adjustment (COLA) increase of one cent per hour for every 0.2 -percent increase in the Consumer Price Index (CPI) above 3 percent; a prohibition against employers subcontracting any U.S. work to Mexican motor carriers; an increase from 12 months to 18 months of the duration of health and welfare insurance during military leave; a reduction of the maximum allowable use of rail transportation for linehauls from 28 percent to 26 percent; and expanded employment opportunities for laid-off NMFA workers. Some concessions on working conditions also were added, including air conditioning for all city equipment purchased after April 1, 2003, and walk-in sleepers for all sleeper cabs purchased after that date.

From a monetary standpoint, this new agreement, weighing in at a cost of $1.7 billion, dwarfs the $700 million of the 1998 contract. But for Teamsters General President James P. Hoffa, the contract's true value lies in the stability it brings for union workers.

"This contract will provide a shot in the arm to American working families who have been faced with givebacks and concessions over the last year," he said in announcing the deal. "Once again, the Teamsters union has shown the power of member unity. Our negotiating team has made tremendous progress that will result in real improvements in workers' lives."

The contract clearly will raise carriers' costs, but analysts say that won't have a big impact on rates. Instead, they suggest, the new contract will be just one of several factors behind annual price hikes. "This will be one additional supporting factor," says Greg Burns, an analyst with JP Morgan in New York City. "What the shippers need to understand is that this industry in general is not earning competitive returns on capital. That is, if this industry doesn't get more profitable, it won't have the wherewithal to buy new equipment and invest in itself. That is the key to why rates are going up. The rates have been subsidized by excess capacity over the past four years," he says. Burns expects any rate hikes will be consistent with historical increases, and are likely to fall within the four- to five-percent range.

Transportation consultant Ray Bohman in Chatham, Mass., believes that although the new agreement will not result in a substantial increase in LTL rates, it may instead encourage carriers to roll out their rate increases earlier than they have in the past. "With the demise of CF (Consolidated Freightways), and other carriers doing well financially, this would be an opportunity for them to take their increases earlier," he says. "But it won't be so extreme as to warrant them saying they've got to go much higher than they had under the last contract. I imagine the increases will be in line with what we've been seeing over the last couple of years, between 5.5 and 6 percent."

The last time the Teamsters actually went on strike over the freight contract was in 1994, a standoff that lasted three weeks. The current NMFA expires on March 31.