Union Leaders Approve ABF Deal That Includes 7% Wage Reduction

This story appears in the May 27 print edition of Transport Topics.

Leaders of the Teamsters union last week said they approved a tentative five-year contract agreement with ABF Freight System that includes a 7% pay cut, setting the stage for rank-and-file voting to begin June 3.

The wage reduction would be in effect until June 30, 2014, followed by two 2% increases and a 2.5% rise in 2017 that would bring wages back to current levels. As part of the deal, ABF won new operating freedom, including some subcontracting of work and more flexible job assignments.

ABF, the less-than-truckload unit of Arkansas Best Corp., reached the tentative deal May 3. It came four days after Arkansas Best posted a $13.4 million loss for the first quarter. Its less-than-truckload operating ratio was 105.5, the second worst among publicly traded LTL carriers.

“With a still shaky freight economy persisting into 2013, it’s simply unrealistic to conclude that ABF’s mounting losses would reverse without some level of employee sacrifice,” the union’s May 20 statement said. It offers “a combination of balanced relief on the economic side while also allowing some industry standard operational practices that were hindering ABF’s ability to compete.”

Arkansas Best declined comment on the Teamsters’ contract an-nouncement last week. The tentative deal extends until March 31, 2018. Vote counting is likely to begin about June 27, the union said.

Analysts estimate the hourly average wage for the 7,500 Teamsters members employed by ABF at $25.

The pay reduction alone was estimated by analysts to offer potential savings of as much as $39 million annually. Based on last year’s ABF results, that would be enough to turn an actual operating loss of $19.4 million into a hypothetical $19.6 million operating profit.

“Nobody ever wants to see a pay cut, but in light of the company’s struggles and our desire to see the company survive, something needed to be done,” top Teamsters negotiator Gordon Sweeton said in the union’s statement.

The wage cut was accompanied by “equal wage and benefit sacrifice for all employees, union and nonunion,” a commitment to dedicate savings to buying new equipment and a profit-sharing program beginning after the operating ratio improves to 96, according to the union’s statement. The parties also agreed to a one-week reduction in paid vacation for union members and a 5-cents-an-hour increase for cost of living if inflation tops 3.5% annually.

ABF agreed to contribute additional funds for health, welfare and pension-benefit programs the union administers.

On the operational side, the Teamsters agreed to allow ABF to use nonunion drivers to run 4% to 6% of over-the-road miles in places such as Florida and the Northeast, where there are inbound freight balance issues.

Also included was new flexibility to have road drivers do some yard work, and some subcontracting of local cartage in areas where freight is scarce.

Separately, Arkansas Best on May 17 announced it was freezing its defined benefit pension plan, as of July 1. Nonunion workers who joined the company prior to 2006 are covered by that plan, according to a company spokeswoman. Benefits for nonunion retirees are not affected.

The announcement said workers affected by the freeze could switch over to the company’s defined contribution plan, which covers those hired in 2006 and later years. Arkansas Best has about 3,700 nonunion workers. The company didn’t say how many were covered by each plan.

“Our sense is that this [pension change] is a ‘well-timed’ plan change ahead of the unveiling of ABFS’ tentative agreement,” Deutsche Bank analyst Justin Yagerman said in a report.

Arkansas Best spokeswoman Kathy Fieweger told Transport Topics the pension announcement was unrelated to the Teamsters agreement.

Meanwhile, YRC Worldwide CEO James Welch explained to employees in a May 16 letter, which was available online, why his company considered an Arkansas Best acquisition.

YRC’s March initiative, disclosed by Arkansas Best five days after the ABF tentative agreement this month, was rebuffed. YRC remains interested in a combination.

Welch’s letter said an acquisition would have improved profitability and that “we should stand united and not let the noise and speculation created by ABF and others distract us.”

Welch also said his company didn’t interfere in ABF’s contract talks.