LTL news: ABF Teamsters reject deal

Following an April announcement focusing on a tentative agreement between ABF Freight System (ABFS) Inc., a less-than-truckload subsidiary of Arkansas Best System, and the Teamsters Union, ABF Teamsters members have rejected the agreement.

The agreement between ABF and its roughly 7,300 Teamster members was comprised 15 percent wage concessions and an “Earnings Plus” plan that pays union and non-union ABF employees when ABF’s operating ratio reaches certain levels for the duration of its National Master Freight Agreement which expires on March 31, 2013. When this agreement was struck, ABF officials said it provides the company the opportunity to adjust its cost structure to be more comparable with the LTL marketplace.

Teamsters officials said the final count against the agreement was 3,764-to-2,936, with 80 percent of ABF Teamsters voting.  Along with a 15 percent wage reduction, the agreement also called for a 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.

This news comes at a time when the LTL sector continues to lag behind other freight transportation modes, including truckload, which are starting to see signs of a recovery underway. But LTL remains hampered with overcapacity, low tonnage, and declining rates.

“The current economic decline has been unprecedented in its depth and duration.  Our company, including our nonunion employees, has made significant financial sacrifices during this period.  It is unfortunate that our union employees have chosen not to participate in better aligning ABF’s cost structure with those of its LTL competitors,” said Judy R. McReynolds, Arkansas Best President and Chief Executive Officer, in a statement.  “Going forward, we will evaluate our various options in dealing with our cost structure and the other issues we face during this challenging freight environment.”

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.

When the tentative agreement was intact, ABF Freight System President and CEO Wes Kemp, told LM that the purpose of the deal was to sustain the company through this 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 of two.”

Unlike the 2009 Teamsters deal struck by LTL player YRC Worldwide in which YRC Teamsters took a 15 percent wage concession for a 15 percent ownership stake in the company, as well as an 18-month pension contribution freeze and a reduction in health and welfare contributions, Kemp labeled this deal as a straight wage reduction, coupled with the “Earnings Plus” plan.

What’s more, SJ Consulting Principal Satish Jindel said that when YRC made this deal, it created a non-competitive situation for ABF as YRC Teamsters were making less in terms of wages and other benefit concessions. These deals, said Jindel, represent the Teamsters and company unions realizing they need to provide their employees with the ability to compete in the market.

As for the next steps for ABF, Dahlman Rose analyst Jason Seidl wrote in a research note that it is unlikely that ABF would immediately try for another Teamsters vote. He added that unlike YRC, ABF has ample cash on its balance sheets and fairly low debt but will struggle with bottom line losses and cash burn if it does not take steps to offset its high structure.

These steps, according to Seidl, could include: layoffs, network downsizing via service center closings, and modifying the rejected Teamsters plan, among other possibilities.