ABFS takes legal aim at YRCW’s Teamsters agreement

Coming on the heels of the ratified labor agreement by Teamsters employees at less-than-truckload (LTL) transportation services provider YRC Worldwide (YRCW), LTL player ABF Freight Systems announced it is taking legal action against the International Brotherhood of Teamsters and various YRCW subsidiaries, as well as other entities.

The reason for legal action is that ABFS says these organizations are violating the National Master Freight Agreement, which serves as the collective bargaining agreement for the majority of U.S.-based trucking employees.

YRCW’s agreement, which is the third one its Teamster members have ratified going back to 2008, extends its previous agreement with the Teamsters that was slated to expire in 2013 to March 31, 2015. The agreement is being viewed by several industry experts as core to its survival. Some of the key components of the deal include: resuming pension contributions on June 1, 2011 at a 25 percent contribution rate; revised union work rules, which is comprised of reduced vacation time, a flexible work week, and four-hour work classification; and a renewal of its expiring ABS facility, among others. YRCW expects this deal to save the company $350 million annually during the duration of the agreement.

While YRCW may be on the path back to solid footing with this agreement, ABFS President and Chief Executive Officer Wesley Kemp blasted it, noting that the three rounds of concessions granted to YRCW are in violation of the NMFA that has been in effect since April 2008.

And the average annual savings of $350 million YRCW expects to receive through the expanded NMFA—assuming projected levels of business, employment, and costs during that period—included savings from pension contributions at a reduced 25 percent contribution rate compared to the full obligation rate that would resume in 2011 without this agreement, according to the late September 8-K.

“The NMFA applies equally to every company that signed it and quite simply, with these three amendments, it does not do that,” Kemp said in a statement. “We need a long-term, industry-wide solution that is fair to all NMFA parties. We have the obligation to our employees, to our customers and to Arkansas Best shareholders to enforce our rights under the NMFA and compete on the same playing field with our industry peers.”

In late May, ABFS’s roughly 8,000 Teamsters employees rejected an agreement with the Teamsters. This proposed agreement was comprised of 15 percent wage concessions and an “Earnings Plus” plan that pays union and non-union ABFS employees when the company’s operating ratio reaches certain levels for the duration of its NMFA, which expires on March 31, 2013. It also called for 15 percent reduction in mileage rates, with negotiated wage increases and cost of living adjustments, if any, would have remained in effect until the agreement expired.

Prior to this being rejected, ABF officials said it would provide the company to opportunity to adjust its cost structure to be more comparable with the LTL marketplace.

And when the tentative agreement was struck, Kemp told LM that the purpose of the deal was to sustain ABFS through a down cycle.

“This [tough LTL market] is going to end at some point,” said Kemp. “The thrust of what we are asking for will not restore us as we recapitalize the company. The intent is to stop the cash burn. This cycle will not go on for years. It is more a matter of months or a year or two.”

In the first quarter of this year, ABF took an operating loss of $35.7 million compared to a $26.8 million loss in the first quarter of 2009, although tonnage was up 3.3 percent year-over-year and revenue per day was up 2.2 percent.  And in the second quarter ABF took and operating loss of $12.6 million compared to operating loss of $26.8 million in second quarter 2009. Tonnage per day for ABF in the second quarter increased of 11.9 percent versus second quarter of 2009 and a sequential increase of 14.0 percent versus first quarter 2010.  

In regards to its pending legal action, ABF said that YRCW’s concessionary agreements were “unlawful, unfair and inconsistent with the plain language, intent and purpose of the NMFA, and that they resulted in a substantial competitive disadvantage for ABF.” The company also said it seeks roughly $750 million in financial damages by the time the NMFA is slated to expire on March 31, 2013.

“There is no doubt that ABF should have been able to get concessions from the Teamsters,” said Satish Jindel, president of SJ Consulting. “They should not have to be in ‘critical care’ before somebody sends doctors to help them, as they are not in a healthy state of affairs. “While their balance sheet is not at bad at YRCW’s, it does not mean they don’t need relief. If a Teamsters worker is willing to work for YRCW at the current rates they have, then they should be able to do the same for ABF at the same wages also, as well as the same concessions and pension agreements. The Teamsters should do what is right and put both the companies at par so that both survive. Otherwise they will put ABFS in a condition similar to that of YRCW and it will get worse.”

Stephens Inc. analysts wrote in a research note that while ABFS is a solidly run company with a conservative balance sheet, that has worked against them in over the years in terms of getting similar concessions to those YRCW has received.

“[W]e think the suit does have merit, at least as we understand it, but think the timing and potential outcome is largely out of ABFS’ control,” said Stephens. “Specifically, we see the concessions granted to YRCW to significantly alter the playing field for other unionized carriers, and think ABFS’ actions serve as a last resort to bring this injustice to light on behalf of the Company and its union brethren.”