Trucking news: Labor peace in hand, national LTLs eye pricing recovery

John D. Schulz, Contributing Editor -- Logistics Management, 2/12/2008

WASHINGTON—For shippers, new five-year labor contracts with the Teamsters union at ABF Freight System and the YRC Worldwide group (Yellow, Roadway and YRC Regional) could mean an end to the bargain-basement freight rates of the past two years as the carriers now are focused on improving profitability.

The Teamsters announced this week that Teamsters freight members ratified the 2008-2013 National Master Freight Agreement NMFA), which it said protects existing Teamster jobs, maintains a strong wage and benefit package and provides new language to allow the largest unionized carriers a chance to better compete, which will give Teamsters more job security. This contract, which replaces the current one that expires on March 31, covers approximately 50,000 YRCW employees and 20,000 ABFS employees

 “I think we’d all like to forget 2007,” YRC President and CEO William D. Zollars said in an analysts conference call after the $9.6 billion company posted a record $736 million loss in the final quarter of ’07. That’s because of a $782 million impairment charge for a write-off on the value of the former USF group of regional carriers and other extraordinary items, but results from operations weren’t great either.

Tonnage at the YRC national carriers plummeted 8.5 percent last year. That compared with just a 1.5 percent drop in tonnage at rival ABF. Sure, the freight market was soft but an 8.5 percent drop is downright squishy given YRC’s high fixed costs and fuel at $3.40 a gallon.

While this was occurring, pricing at Roadway and Yellow deteriorated through 2007. The new labor agreement is expected to raise YRC’s overall costs by about 3.9 percent annually, according to an analysis by Stifel Nicolaus analyst John G. Larkin. That’s slightly higher than YRC’s costs under the old agreement. But Zollars calls the five-year deal a win-win.

“We got the contract done early, which is a good thing, minimized leakage from a customer standpoint and created the kind of flexibility that’s going to allow us to be very competitive in the market place,” he said.

Specifically, the agreement calls for a new type of Teamster—"utility drivers," a new class of workers who would be allowed to perform both city and over-the-road driving. These drivers would be paid a 4 percent premium, or about $1 an hour, higher than traditional Teamsters pay.

The idea is that this flexibility will allow the YRC companies to be more nimble in competing with the likes of Con-way, NEMF, Estes Express, FedEx Freight and the scores of other top-flight, non-Teamster carriers.

YRC already is making moves to streamline its regional carriers, which have struggled since it acquired them from USF Corp. in 2005. The former USF Bestway unit in the Southwest has been folded into the former USF Dugan unit. USF Holland is closing six terminals in the Southeast. USF Reddaway is shedding 21 locations in the Southwest.

All of this is part of a $100 million “regional recovery plan” announced by YRC to help spur profitability. It’s a gamble, analysts say. In the short term, it should help profitability as 1,100 jobs are being shed. But in the longer term, it could present problems as shippers could bolt the YRC companies entirely if they see their service suffer due to interline problems.

The biggest thing that will help both YRC and ABF improve profitability would be a spike in freight demand. There are signs that already has begun. 

December truck tonnage rose 1.4 percent from December 2007 levels. That’s the first back-to-back improvement in freight volume since May-June of 2006, according to the American Trucking Associations’ freight tonnage index. While two months is hardly a trend, trucking executives have their fingers crossed.

Carrier executives look at two key metrics when tracking a recovery—weight per shipment and the number of shippers. Shippers should, too. Weight per shipment usually declines as the economy weakens and then the number of shipments falls. In a recovery cycle, the reverse occurs.

“In a couple of our companies now we’ve begun to see that weight per shipment shift from a negative to a positive,” Zollars said. “The overall underlying shipment volume looks to us that it’s pretty much bottomed and we should start to see that come back at some point.”

Zollars warned that no freight spike is imminent, however. “That does not mean tomorrow that we are going to see thing take off like a rocket because we’re not sure how long this bottom is going to last,” he said. “But at least it doesn’t look like things are deteriorating further.”

Unlike UPS, which recently paid $6.1 billion to withdraw from the Central States Teamster pension plan, YRC and ABF both will continue to participate in all multiemployer pension plans. That’s considered a short-term boost to the companies financially but still represents a significant financial “overhang” in case of any large bankruptcy to a member of the plan. ABF negotiated separately with the Teamsters but agreed to match the fine print of the National Master Freight Agreement negotiated by YRC.