If YRC Worldwide Fails, You Can't Blame the Teamsters.

By John Schulz,
January 9, 2009

Implications: By a 77-to-23 percent margin, Teamsters rank and file at the YRC Worldwide member companies have approved a 10 percent wage giveback that is expected to save the company between $220 million and $250 million annually. It actually will save the company more than that going forward because it also suspends all cost-of-living raises-- which were supposed to be around 3.5 percent annually--through the end of the contract in 2013. Pension contributions are unchanged, which is of prime importance to the Teamsters.

Analysis: Well, YRC Worldwide's 55,000 or so Teamsters have certainly done their part to help save the venerable 83-year-old trucking concern, the nation's largest.
Now, it's management's turn.
Labor and management leaders have both strong-armed this wage concession through to the point where it passed by a 77-23 percent margin with an impressive 75 percent of affected Teamsters voting. That's a huge number, considering only about 33 percent of eligible Teamsters actually vote in union presidential elections.
Teamsters union President Jim Hoffa called it a desperation move. "We are facing the worst economy in our lifetime," Hoffa said.
Not to be outdone, YRC Worldwide CEO Bill Zollars says in his press release: "During a time of economic hardship, we are proud of the understanding and support of our employees. The amended contract will provide our company with significant annual cost reductions that will also have long-term benefits as the economy recovers."
YRCW also is talking up $75 to $85 million in savings in 2009 from the non-union compensation reductions that were effective Jan. 1, 2009. The company also expects to improve 2009 operating income by a run rate of $200 million from the integration of the Yellow Transportation and Roadway networks that is expected to be complete early this spring.
But actually, selling this wage giveback plan was actually the easy part. Now comes the hard work:
Convincing shippers they should stay with the companies that comprise YRCW.
In this sour economic environment, that is not going to be easy. You've got to figure that in every major account that YRCW has right now, there are about six non-union trucking company sales persons sitting in the waiting room. Whatever rate YRCW is offering, these guys (and ladies) will offer 15 percent less.
In some cases, shippers can't change. Systems and expensive computer networks have been set up to speed freight flows--and help keep shippers from switching for a nickel-a-mile difference in rates.
Zollars recently had his termination agreement amended. Is that a sign of confidence or insecurity? Who knows?
What is known is now he has to perform. In the roughest operating environment for truckers in 30 years, YRC is at once trying to reduce costs, shave cents per mile, defer maintenance and capex, merge its two largest operating units (Yellow and Roadway), renegotiate loans, save fuel, win new customers and try to keep old ones.
Whew! Only President-elect Obama has a longer to-do list.
Whether Zollars and is team is up to it is difficult to tell. The company is in this difficulty because Zollars went on a buying binge in the early 2000s, much as the rest of the country did. Debt levels are extraordinary. The good news for YRCW is it has the terminal network in place to the point where it can afford to sell excess terminals if it needs a quick cash infusion. Of course, that is assuming that one can obtain the credit necessary to finance a terminal buy. Right now, that is debatable.
I personally think YRCW will survive. But much of this is out of their hands. Their destiny is tied to the health of the overall economy (not good), whether they can keep shippers from jumping to another carrier (who knows how cheap shippers can be?) and how much more magical moves YRCW can make to keep their banks and creditors happy.
Another big wild-card is whether rival ABF Freight System, a signor to the same National Master Freight Agreement as YRCW, will go to the Teamsters to ask for the same concessions. If it doesn't, that just rachets up the cost pressures on YRCW.
I don't think YRCW is in the position Consolidated Freightways was on Labor Day weekend 2002 when its consortium of banks finally pulled the plug on that 75-year-old Teamsters company. CF, to its credit, never went the wage-giveback route with the Teamsters. The banks told CF not to bother, just hand over the keys.