YRC wins latest five-year wage concession package by 2-to-1 margin
January 27, 2014
YRC Worldwide was given a badly needed financial lifetime when continuation of a five-year wage and pension concession agreement was ratified by a 2-to-1 margin of its Teamsters-covered employees.
Voting results were announced Sunday, approximately three weeks after a less-harsh concessionary package was rejected by a 61-39 percent margin. This time, Teamsters working for YRC Worldwide approved a tentative agreement aimed at protecting more than 30,000 jobs. Workers YRC approved this latest proposal by a vote of 12,267 to 6,314.
Teamsters President James P. “Jim” Hoffa called it “a very difficult vote for our members.” YRC officials had threatened bankruptcy filing had the wage concession not passed. The labor agreement is seen as key to new bank refinancing of some $1.4 billion in debt. Approximately $300 million of that debt is due in the next six months, and the labor package is seen as giving the company wiggle room to refinance at more favorable terms.
“In the end they did what they believe will give this company the best chance to stay in business and protect their jobs,” Hoffa said in a statement. “Now we will hold management’s feet to the fire to make sure our members’ jobs are protected and redouble our efforts to make sure this company handles its finances responsibly.”
The plan will provide a pathway for substantial debt reduction and refinancing initiatives that will permit the company to protect jobs, YRC has said.
Tyson Johnson, Director of the Teamsters national freight division and co-chairman of the union’s negotiating committee said “once again, our members’ sacrifices are providing the lifeline for the company.”
The agreement approved last weekend contained significant improvements over the company’s prior rejected proposal, the Teamsters said. But the deal continues a 15 percent wage concession first won in 2009 as well as a 75 percent cut in company contributions to the pension plan. Together those concessions are worth an estimated $300 million annually to YRC.
YRC is facing about $953 million in debt coming due in the next 15 months. It has a $69.4 million bond issue that matures on Feb. 15. It has $325.5 million of loans due in September and $556.7 million of loans and bonds maturing in March 2015. All told, YRC is operating with more debt than all the other publicly held LTL carriers combined.
Within days of the initial 61-39 percent rejection of the original five-year proposal in early January, YRC made another appeal to Teamsters leadership. This latest package lessened some fringe benefit cuts such as vacation time while also ensuring that fewer YRC road driver jobs will be lost to non-union contractors.
YRC can still use third-party trucking companies but only for line haul and not at the direct expense of YRC road drivers. YRC can, however, file for a change of operations that forces drivers to relocate, giving the company the opportunity for replace those drivers by non-union subcontractors.
“We believe more change of operations and more terminal closures are likely,” David Ross, trucking analyst for Stifel Nicolaus, said in a note to investors.
Over-the-road purchased transportation is capped at 6 percent of line haul miles, and 26 percent of overall rail and truck purchased transportation, under the new agreement.
YRC CEO James Welch said the new agreement gave prospective lenders and equity investors “the path they need for the company to achieve a complete recapitalization and achieve a healthy
capital structure” for the 90-year-old LTL carrier.
“The five-year extension includes important customer service enhancements, cost savings and a profit sharing plan for eligible IBT employees that is dependent on operating performance and our ability to become more competitive in the marketplace,” Welch said.
In an interview with LM, Welch said the agreement is especially important at YRC Freight, its long-haul union which has gained greater operational flexibility “to make sure we give right kind of service and keep network more in balance.”
That would be in areas where YRC Freight could have shortages of drivers. Specifically, the new agreement gives YRC much greater use of purchased transportation moving, Welch said.
“Flexibility is one part of cost efficiencies,” Welch explained. “The other things are the hard cost savings where will have (lower) new-hire rates and wage application bonus for the first two years of the five-year agreement.
Specifically, YRC won immediate savings in its base pay rates for the first two years. Instead of annual 40-cent hourly pay raises due on April 1 of each of the next two years, YRC is paying full-time works a $750 one-time bonus for each of those years. They’ll start receiving those 40-cent hourly wage increases in 2016-17-18, Welch said
“The reason we feel good about this even with (wage concession extension) our employees still are in top tier of total compensation for the market place,” Welch said. “Our wages are competitive and our benefits way above market rates.”
Welch said he was grateful for support of both Teamsters and non-union workers who have sacrificed billions in wages the past six years to help keep the company afloat.
“No doubt all employees have sacrificed, non-union and union personnel alike,” he said. “What I think the focus needs to be is that these are very well-paid jobs. But the market place will win. We are competing with other carriers with lower cost bases than we do. It’s a matter of staying competitive in the market place.”
Despite the wage concession by labor, Welch said that shippers still hold the keys to long-term survival of the company.
“One of the things that makes me feel good is our customers have remained very loyal as we went through this process,” he said. “Our customers continue to tell us we continue to fill need in market place. Our three regional carriers are best in class. YRC Freight brings lot of capacity to the long-haul market. We know we still to improve. But shippers say they value the capacity we bring and services we bring to the market.”
News of this agreement brought positive praise from a major 3PL.
GENCO is a major buyer of LTL transportation,” Tom Nightingale, president of GENCO Transportation Logistics. “As such, we and our customers would like to see a robust competitive environment. YRC’s agreement with the union is an important step toward securing the YRC’s future and maintaining a balanced competitive landscape for buyers of LTL service. We were pleased to see that management and the union were able to come to agreement.”
Subscribe to Logistics Management magazine
entire logistics operation. Start your FREE subscription today!