Union Offers YRC Savings

By Rip Watson, Senior Reporter

This story appears in the Dec. 8 print edition of Transport Topics.

The Teamsters tentatively agreed to a 10% wage cut to help YRC Worldwide Inc. cope with the recession as part of a package that, among other things, requires YRC to give the union a 15% stake in the less-than-truckload carrier.

The agreement applies only to wages, now set at about $22 an hour. While it also cuts cost-of-living wage adjustments, benefits are to be unchanged. The agreement would be in effect until the union contract expires in March 2013 and must be ratified by the membership.

“No one wants to see wages get cut, but this agreement will help get the company through this deepening recession while protecting the jobs, health, welfare and pension benefits of our members,” said Tyson Johnson, director of the union’s freight division.

YRC estimated that the annual savings would be between $220 million and $250 million.

“Even as we take steps to improve our balance sheet, liquidity and net income, it is clear that we need to address our current cost structure to remain competitive in this environment,” said Mike Smid, chief executive officer of YRC North American Transportation.

“The Teamsters have been supportive in reaching a tentative agreement to modify the current contract,” Smid said.

YRC rival ABF Freight System, which also has a Teamsters contract, signaled its interest in possibly seeking similar reductions.

The Teamsters “are productive, and they provide value-added services that are important to ABF’s success,” President Wes Kemp said in a memo to employees.

“Nevertheless, the total cost of our wages and fringe [benefits] are higher than many of our competitors, and that makes it difficult for us to grow, especially in the current economy,” he said. “As a result, we always welcome the opportunity to talk to the Teamsters about additional ways to improve our competitive position and to preserve Teamster jobs.”

Local union officials overwhelmingly recommended approval of the YRC deal at a Dec. 3 meeting, the Teamsters said in a statement. About 40,000 active Teamsters members at Roadway, Yellow Transportation, New Penn and Holland will vote on approval, starting this week.

YRC said in a Nov. 28 statement that the request for wage reductions was motivated by weakening demand that has lowered tonnage, pressured pricing and hurt YRC’s ability to comply with debt covenants. YRC already has seen its tonnage drop about 10% through the first three quarters.

If approved, the wage cuts would be occurring at the same time that YRC plans to permanently cut about 3,750 Teamsters driver and dockworker positions, independent of the number of workers who are temporarily laid off.

Last month, Roadway President Terry Gilbert said the number of laid-off workers is more than 4,000 at the national carrier.

The union’s last wage-cut agreement was in 2002 at Consolidated Freightways, which went out of business later that year.

Unlike CF, YRC has taken multiple steps to raise cash and lower costs, such as planning the sale and leaseback of facilities, re-deeming higher-interest debt and making a tender offer for $100 million contingent convertible notes. YRC also is integrating the Roadway and Yellow Transportation national LTL businesses, which could save $200 million or more annually.

YRC’s shares have fallen about 70% in the past year and were trading around $6 a share late last week. The company’s third-quarter loss was $823.1 million, due in part to asset write-downs.

The Teamsters deal includes issuing stock warrants to give the union 9 million shares, representing 15% ownership. YRC’s statement said the details of the share issuance still are being finalized.

The other four conditions include:

• YRC’s certification that its financial plan will work.

• An agreement that nonunion workers would take an equivalent pay reduction.

• Limits on use of the savings to acquire a nonunion carrier.

• A provision to restore full wages if YRC is sold or goes bankrupt.

“Given the economic backdrop, competitor bankruptcies, as well as the recent domestic withdrawal by DHL [Express], we believe Teamsters will be receptive to a wage reduction,” said Wachovia Securities analyst Justin Yagerman.

“This announcement is good for the stock and debt in the short to intermediate term,” Stephens Inc. analyst Thom Albrecht said in an investor note. He estimated that the move could boost earnings more than $2 a share.