YRCW Teamster members vote to ratify labor agreement

Less-than-truckload (LTL) transportation services provider YRC Worldwide Inc. (YRCW) took a significant step forward in its recovery plan, announcing that more than 60 percent of its roughly 40,000 Teamsters members voted to ratify a modified labor agreement.

YRCW officials said that this new labor contract extends its previous agreement with the Teamsters that was slated to expire in 2013 to March 31, 2015.

YRCW employees participating in the vote work at the company’s YRC, New Penn, and Holland operating companies. According to the International Brotherhood of Teamsters, YRCW and Holland members voted in favor of the agreement by a 62 percent to 38 percent margin, and New Penn Teamster members voted at a 69 percent to 31 percent clip, with roughly 67 percent of all YRCW Teamster members participating.

“This new labor contract positions our company for improved performance by providing a long-term market competitive cost structure as well as enhanced efficiency to meet the demands of today’s transportation and supply chain customers,” said Mike Smid, President of YRC Inc. and Chief Operations Officer of YRC Worldwide, in a statement. “Given the progress we have made over the last two quarters, this new labor agreement provides a strong foundation for long-term growth.”

At the end of September, YRCW said that its board of directors approved a tentative agreement with the Teamsters, explaining the Teamsters approved submitting the tentative agreement, which is designed to improve YRCW’s competitive position in the LTL sector.

Last year, YRCW won concessions from its 40,000 or so Teamsters on a 15 percent wage give-back and an 18-month freeze on pension contributions which was set to expire in January. And according to an 8-K filing with the Securities and Exchange Commission, YRCW said the temporary cessation of the payment of pension contributions to the multi-employer pension funds (the “Funds”) in which the Employers participate would continue until June 1, 2011, at which time the Employers would contribute to those Funds until the end of the extended term of the company’s National Master Freight Agreement (NMFA) at the rate of 25% of the contribution rate in effect on July 1, 2009.

In the 8-K Filing released in late September, YRCW said the tentative labor agreement would amend to and extend the company’s National Master Freight Agreement (NMFA) to March 31, 2015 upon ratification by its Teamster employees.

Other 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;
• a renewal of its expiring ABS facility; and
• a requirement for YRCW to raise $300 million in new equity by December 31, 2010 and close the deal by March 31, 2011 (under these terms, YRCW is required to obtain a definitive agreement with an equity player, and failing that agreement require that lenders convert a portion of their debt to equity in order to keep their concessions in place).

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.

This vote comes at a time when YRCW is starting to see some financial and tonnage improvements on a sequential basis, as it has lost more than $2 billion going back over the last ten quarters.

On October 18, YRCW said it on track for a positive third quarter EBITDA and also noted that third quarter tonnage per day at YRC National and YRC Regional was up 1.2 and 2.1, respectively, compared to the second quarter. And third quarter revenue per shipment at YRC Regional and YRC National was up 1.9 percent and 3.7 percent, respectively, compared to the third quarter of 2009.

In the second quarter, YRCW showed some sequential and annual gains, although the company posted quarterly net and revenue losses. YRCW recorded a quarterly net loss of $9.5 million and $.01 per share, which is ahead of a net loss of $309 million and a $5.20 loss per share during the second quarter of 2009. Operational revenue at $1.12 billion was down 8.7 percent year-over-year, and total operating expenses at $1.1 billion were off by about 30 percent. Operating income for the quarter at $48.3 million was up significantly compared to a $294 million loss a year ago.

Industry analysts have told LM that YRCW’s performance compared to other publicly-traded LTL players on a sequential basis in terms of tonnage increases and shipment increases was as good or better in some cases that its public competitors.

“This is an indication that YRCW is not losing market share anymore to competitors like they did three months ago or a year ago, which is positive,” said an analyst. “They are also focusing on pricing rather than pushing for volume gains, and it is an important message that they needed to convey from a customer and competitor point of view as a price war hurts everyone and prevents investment into the business for YRCW.”

But even though some gradual improvements are occurring, a research note from Jon Langenfeld, a transportation analyst at Robert W. Baird & Co. points out much more needs to occur for YRCW to truly emerge on solid footing in a crowded LTL marketplace.

YRCW’s preliminary 3Q results showed necessary operating performance and stabilizing cash burn rates, which are both crucial trends to ensure near-term survival, said Langenfeld. And while industry demand has improved and industry yields have stabilized, he said YRCW still faces meaningful challenges.

“Though industry volumes have firmed and YRC Regional’s volume growth has resumed, the company continues to lose market share on an overall basis given YRC National’s continued volume contraction,” he wrote. “Further, as early as 2011, the company will face deferred costs returning to its model, which will limit profitability in the intermediate term.”

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