YRC Asks Union for More Cuts To Satisfy Lenders’ Demands

This story appears in the Nov. 11 print edition of Transport Topics.

YRC Worldwide Inc. last week pressed the Teamsters for more cost cuts to placate its lenders and sought formal negotiations with the union to extend the existing contract that is set to expire in early 2015.

“It is the company’s intent to engage in formal negotiations, extend its current contract and increase its competitiveness in the market.” YRC announced late on Nov. 6. In the same announcement, the company pushed back its scheduled Nov. 7 third-quarter earnings release to Nov. 12.

YRC’s contract with the Teamsters expires in March 2015, but about 30% of its $1.4 billion in debt comes due next year. The union first agreed to cost reductions four years ago, and subsequent deals extended the YRC contract into 2015.

The union met with company executives Nov. 5 in Dallas, soon after CEO James Welch made it clear in a letter to employees that lenders were insisting on changes to reduce costs before they would agree to another round of debt refinancing.

“We need a labor agreement with our Teamster employees that extends beyond our current expiration and any new debt maturities, and increases our competitiveness, before any refinancing can be completed,” he wrote in his letter.

No details of last week’s meetings have been released, and YRC didn’t give more details on its negotiation request. The union didn’t

respond to requests for comment on the company’s Nov. 6 statement.

“Reaching an understanding would be a positive and important step in the future of this company,” Welch said in the Nov. 6 statement. “In addition to securing the jobs of over 26,000 union employees, it will substantially increase the likelihood of a holistic refinancing solution to address the debt maturities in 2014 and 2015.”

When earnings are announced, YRC will be the only publicly traded less-than-truckload carrier that is losing money, based on the average estimate of analysts surveyed by Bloomberg News.

The carrier is forecast to lose $4.9 million, a modest improvement from the $6.2 million loss from operations in the 2012 quarter.

Elsewhere, Old Dominion Freight Line’s net income rose 18% to $60.1 million, Saia Inc. increased net income 40% to $12.9 million and Con-Way Inc.’s LTL unit boosted profit by 50%.

In addition, Roadrunner Transportation Systems’ LTL unit raised profit by 9%, and Vitran Corp.’s Canadian LTL business turned in a $1.4 million profit as the company shed its money-losing U.S. business in that segment (see story, p. 31).

YRC’s debt last was refinanced in mid-2011, when Welch returned to the company after predecessor William Collars retired.

Welch’s letter said that “huge interest payments” were eating into the company’s available cash after wages, benefits and operating costs were paid.

Those payments totaled $81.1 million in the first half, wiping out the $24.2 million in operating income over the same period.

At the end of the second quarter, YRC’s available cash had fallen more than 20% since the beginning of 2013 to $165.9 million.

Operations at YRC have been losing money since late 2007, though they have moderated.

Three years ago, the company lost nearly $300 million during the first half of the year, and then improved the result to a $140.5 million loss in the first six months of 2011,

Losses were whittled down further during the comparable periods of 2012 and this year. The loss was $104.2 million in the 2012 period and $39.6 million this year.

The latest struggles at YRC were dramatized a few days after workers at ABF Freight System, another major unionized LTL carrier, ratified a contract that could save ABF more than $55 million annually in future labor costs.

When ABF’s parent, Arkansas Best Corp., reports this week, earnings are expected to top $9 million, based on the average estimate of analysts surveyed by Bloomberg News.

In his letter, Welch also said, “We’ve demonstrated real progress, and you should all take pride in our collective efforts. Unfortunately, while things have improved, we still have significant work to do.”

“In the past, some companies in our situation would have simply declared bankruptcy,” Welch’s letter said. “We have all worked too hard and sacrificed too much to go that route. The better path is to refinance the debt.”