Tentative ABF, Teamster contract calls for subcontracting of driver work, pension freeze

Mark B. Solomon
DC Velocity
May 22, 2013

A tentative contract between less-than-truckload (LTL) provider ABF Freight System Inc. and the Teamsters Union, unanimously approved late yesterday by leaders of Teamster locals, would for the first time allow ABF to subcontract driver work, according to language in the agreement.

Under the proposal, ABF could subcontract out roadwork up to the equivalent of 6 percent of its total miles, according to a communiqué issued late last night by the Teamsters for a Democratic Union (TDU), a Teamster dissident group.

The tentative compact also calls for an immediate 7-percent wage reduction, which would be recouped in increments over the life of the contract. The agreement freezes ABF's pension contributions to funds that represent workers in the central and western United States. It affords the company flexibility on work rules by expanding functions that could be handled across job classifications. It also eliminates one week of workers' vacation.

In return, all current union health and welfare benefits will be maintained. In addition, workers would get an undefined profit-sharing bonus if ABF's operating ratio—the ratio of expenses to revenues—hits 96 or better. ABF's first quarter revenues totaled more than $407 million while its expenses were nearly $429 million. This means its operating ratio was over 100 for the quarter.

The tentative contract now goes to ABF's 7,500 unionized rank-and-file workers for a final vote. Ballots will be mailed by June 3, with the tally set for June 27.

Teamster officials said they held the line on health and welfare benefit concessions, which were the members' top priority. The union had harsh words for ABF's purported negotiating tactics, saying management sought to force a contract on the workers that would "allow it to operate as a nonunion company." The union said ABF made numerous demands during the talks that were "unreasonable" and "anti-worker."

ABF, the largest unit of Fort Smith, Ark.-based Arkansas Best Corp., said it needed labor savings to operate more competitively with rivals, most of whom are nonunion, and with unionized carrier YRC Worldwide Inc., itself the beneficiary of significant wage and benefit concessions agreed to by its members four years ago.

Arkansas Best has lost a combined $265 million in the past four years, much of which the company blames on its labor costs, which are the highest in the LTL industry. Arkansas Best has said ABF's workers will remain the highest paid in LTL.

David G. Ross, transportation analyst at Baltimore-based firm Stifel, Nicolaus & Co., said in a research note today that the rank-and-file will likely approve the contract. "Parts of the deal will likely disagree with some of the members, but at the end of the day, it'll be difficult for them to find a better alternative in the marketplace, even with the concessions in place," Ross wrote.

Ross said the rest of the LTL industry should not be affected one way or the other by the new contract, noting that ABF isn't trying to undercut the market but instead is seeking to move closer to industry-average profit margins. "If anything, these changes should help ABF to remain rational on pricing," he wrote.

Today's action by the Teamster locals comes as Arkansas Best told employees that failure to ratify the agreement could pave the way for a purchase by rival YRC Worldwide Inc. and could spell a "very uncertain" future for the company and its workers. CEOs of YRC and Arkansas Best met in late March to discuss an informal offer by YRC to buy Arkansas Best. Arkansas Best rebuffed the offer in early April, and the companies have not talked since then.

In an internal memo, the date of which is unknown, Arkansas Best said YRC's buyout overtures were "serious and not some sort of 'scare tactic'—we have no ability to control what YRC and its board of directors will or won't do in the future regarding our company."

In a message aimed at the union workers, the company said that "if you vote yes and ratify the agreement...then ABF can continue on with our own plan to improve profitability, take back market share, [and] grow and protect your jobs and retirement benefits."

By contrast, a contract rejection means the "likelihood that YRC would be able to consummate a deal grows higher," the memo said.

The memo said Arkansas Best is in a financially "weak position" to fend off YRC's advances. No company executive or group of executives holds enough outstanding shares to thwart a takeover bid, with the board and management combined owning only between 4.5 percent and 10 percent of the company's shares, according to the memo.

Kathy Fieweger, an ABF spokeswoman, said the document was designed to help managers respond to employees' questions and concerns about YRC's strategy, given that company's own financial difficulties over the past four to five years.

Separately, YRC said today that its YRC Freight long-haul unit has implemented a network restructuring calling for it to close breakbulk terminals in Cincinnati; St. Louis; and Memphis, Tenn., and consolidate a number of "end-of-line" terminals used as freight pickup and final delivery points.

The move would save YRC Freight about $30 million a year by improving linehaul density, eliminating unproductive "empty miles," and reducing freight "touches" that slow transit times, increase labor costs, and increase the risk of shipment damage, the company said.

The restructuring would lead to the loss of 760 dock, shop, office, and cartage jobs and an additional 452 over-the-road driver positions at the affected terminal locations. At the same time, 343 over-the-road driver jobs would be created, along with 639 cartage positions. All told, the restructuring is expected to result in a net loss of 230 jobs.

The plan was implemented over the weekend.

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