With new labor deal in place, ABF ponders next moves

ABF Freight System, the nation’s sixth-largest LTL carrier, has a framework for a new five-year labor agreement with the Teamsters union. Neither side is discussing details of the deal, which still must be ratified by between 6,000 and 7,500 ABF workers.

It is believed the pact will contain wage reductions in the 5 percent range and perhaps a slight reduction in fringe benefits. ABF had sued the Teamsters in order to obtain concessions similar to those won by its chief unionized rival, YRC Worldwide, which is operating with a 15 percent wage concession through 2015.
  
Wall Street cheered the news of the pending labor peace for both companies. YRC stock zoomed from $7 to $15 per share. At press time, it was pushing $20 a share for a market capitalization of about $165 million.
 
Arkansas Best Corp., ABF’s parent, went from $10 to $15 in the days immediately following the bare-bones announcement,. At press time, it was at $17 a share, increasing its market capitalization to about $440 million.
 
ABF certainly could use a boost. Parent Arkansas Best lost $13.4 million on $520.7 million in the first quarter, narrowing its $18.2 million loss on $440 million revenue in the year-ago quarter.
 
The additional revenue was mainly because of an $80 million boost from recently acquired non-union Panther Expedited Services, which ABF bought for $180 million—$80 million cash and $100 million in loans.
 
Another cloud on the horizon is an apparent overture by YRC to eliminate its chief rival by buying ABF. This despite the fact that YRC has lost in excess of $2.6 billion over the past six years chiefly because of debt incurred by a pair of billion-dollar acquisitions of then-chief rival Roadway Express (for $1.1 billion in 2003) and USF Corp. (for $1.5 billion in 2005). That debt load in excess of $2 billion caused YRC to nearly go out of business and helped ease the way out for then-CEO Bill Zollars.
 
Newly installed YRC CEO James Welch has called those acquisitions in the early 2000s—just in time for the economic downturn—“ill-timed and ill-conceived.” But he claims YRC is “much stronger” financially now, and has indicated his offer to buy YRC is still on the table.
 
In a statement, Welch says “our board and management believed then and believes now that the combination of Arkansas Best and YRCW would be in the best interests of all employees, customers and shareholders of both companies.”
  
You can count Teamsters union president James P. “Jim” Hoffa among those who do not believe it’s in the best interest to combine YRC and Arkansas Best. Large trucking mergers are complicated and often lead to financial instability, as well as fewer unionized jobs and choices for shippers. And they rarely work as planned.
 
“It is unconscionable that in the middle of the IBT’s sensitive negotiations for a new contract for 6,000 ABF Teamsters, and in the context of years of continuing sacrifice by our members at YRC, that YRC would advance a secret effort to acquire ABF’s freight division,” Hoffa said. He called YRC’s offer “interference” in the collective bargaining process and an “affront” to workers at both companies.
  
“Before YRC begins looking for acquisition targets they should first restore our members’ wages and pension contributions,” Hoffa said. “We have seen this kind of arrogance from YRC before. We thought they had finally learned the lessons of past management catastrophes. Unfortunately it appears they have not.”
 
If Hoffa is surprised, some union members say he shouldn’t be. As part of the last concession with YRC, the Teamsters won two seats on the YRC board.
 
In the “work preservation” clause of the memo of understanding the Teamsters signed with YRC, it states: “The Employers agree not to establish or buy any new non-union regular route common carrier entity without the prior approval of the Union.”
     
Meanwhile, ABF says its pending labor agreement helps it “maintain the best-paying jobs in the freight industry,” remain in current multiemployer pension funds, ensures its employees have “great benefits” but also adapts to the changing needs of shippers and puts parent company ABC on a “path to profitability.”