WASHINGTON—Shippers beware: The new five-year labor contracts with the Teamsters union at ABF Freight System and YRC Worldwide 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 major national LTL carriers are hinting that pricing and demand volumes this year could be much different than last year’s numbers, which helped produce one of the most dismal financial years for the unionized carriers.

“I think we’d all like to forget 2007,” YRC President and CEO William Zollars said in an analysts conference call after the $9.6 billion company posted a record $736 million loss in the final quarter of 2007.

It wasn’t all due to sour freight levels and weak pricing. The major component of YRC’s loss was due to a $782 million impairment charge for a write-off on the value of the former USF group of regional carriers and other extraordinary items.

Both YRC and ABF are hoping 2008 brings a reversal of a serious double whammy that hit them in 2007—declines in tonnage coupled with deterioration in pricing and yields.

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.

The new labor agreement is expected to raise YRC’s overall costs by about 3.9 percent annually, according to John Larkin, managing director at Stifel Nicolaus Transportation and Logistics Group. That’s slightly higher than YRC’s costs under the old agreement.

Yet Zollars calls the five-year deal a win-win. “We got the contract done early, which is a good thing, and we minimized leakage from a customer standpoint and created the kind of flexibility that’s going to allow us to be very competitive in the marketplace,” he said.

Specifically, the agreement calls for a new type of Teamster: utility drivers. A utility driver is a new class of worker 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. The unionized carriers say this will be possible through greater operational flexibility and improved work rules contained in the new National Master Freight Agreement. While the national LTL market has remained flat for much of this decade, carriers say there is still plenty of healthy growth in the regional LTL markets, and it is in these areas where YRC and ABF say they plan on competing head-to-head with the non-union regionals.

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 and 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.