YRC's unionized workers face another moment of truth

Mark B. Solomon
DC Velocity
December 10, 2013

For the second time in less than four years, YRC Worldwide Inc.'s unionized workers will be voting on a contract as if their livelihoods depended on it.

Leaders of the Teamsters Union, which represents about 26,000 unionized workers at the less-than-truckload (LTL) carrier, on Friday approved a membership vote on the company's proposal to extend the current collective bargaining agreement through March 2019. Ballots will be mailed either tomorrow or Wednesday and will be counted around Jan. 8.

YRC executives and union officials met on Friday both in person in Dallas and by conference call to discuss the contract proposal. During the meeting, YRC executives stressed that the company may go out of business by Feb. 1 unless the company's lenders agree to restructure about $1.4 billion in debt, according to a communiqué from the Teamster dissident group Teamsters for a Democratic Union. Ratification of the labor contract extension is essential to the restructuring effort.

The first principal payment of $69 million is due Feb. 15. Overland Park, Kan.-based YRC said today it expects to save $100 million a year through the contract's provisions and other so-called corporate initiatives.

James L. Welch, YRC's CEO and president of its YRC Freight long-haul LTL unit, said today he was not at the Friday meeting and was unaware of comments made by his executives of such a drastic step. Welch said he remained confident that workers would ratify the agreement, adding that it would be hard to find jobs elsewhere in the LTL sector as well-paying as YRC's. The LTL industry is overwhelmingly made up of nonunion carriers whose compensation is generally below that of YRC and its unionized rival, ABF Freight System Inc.

In late October, ABF's rank-and-file ratified a new five-year agreement that called for wage cuts and productivity improvements that would save the trucker between $55 million and $65 million a year over the contract's life. The agreement narrowed the cost differential between YRC and ABF, which had the LTL industry's highest cost structure, and made ABF more cost-competitive in the eyes of many shippers.

In a filing today with the Securities and Exchange Commission, YRC said that it "may be unable to refinance or restructure" parts of its debt that mature in 2014 without an extension of its current agreement. The rank-and-file's failure to ratify the compact would have a "materially adverse effect on our business, financial condition, and results of operations," the company said.

In 2009, YRC's rank-and-file approved a series of extraordinary contract concessions that helped keep the company out of bankruptcy protection. After close brush with bankruptcy at the end of 2009, YRC appeared to be making slow headway under Welch, who was named CEO in mid-2011. However, the company's struggles have resurfaced, most recently in the wake of a major YRC Freight network restructuring that did not go well. The outcome led to the dismissal of then-YRC Freight President Jeffrey A. Rogers and Welch's assumption of the YRC Freight post.

Under the contract proposal, union workers would receive, in lieu of pay raises, $750 in annual bonuses over the first two years of the extended contract. After that, they would receive net annual raises equal to 34 cents an hour. Vacation pay would be capped at 40 hours per week or 1/58 of annual earnings. Three-week paid vacations would only be available to workers with 11 years seniority.

The first bonus would be paid in early 2014 should employees ratify the contract extension and lenders agree to the debt restructuring, Welch said.

Profit-sharing programs will kick in if YRC Freight achieves a 97-percent operating ratio per year starting in 2015. Workers will share in a larger percentage of profits should the unit's ratio decline further. For YRC's profitable regional units, profit sharing would begin at 94.1 percent. Operating ratio is the ratio of expenses to revenues and is a measure of a transport company's efficiency and profitability. YRC Freight's third-quarter operating ratio stood at 101.2, meaning it spent a little more $1.01 for every $1 in revenue. The company said its ratio in the quarter was impacted by problems surrounding the network revamp. YRC Regional's third-quarter operating ratio stood at 95.5.

In addition, the contract would allow YRC for the first time, to subcontract out 6 percent of its driver work, with supposed protections for all currently employed drivers. Some drivers have voiced concern that the protections would only apply to the originating drivers on a multistop trip. As a result, "relay" drivers, (or those drivers other than the originating driver who pick up loads at various points) could have their work subcontracted out, they warn.

Welch said the use of "purchased transportation," another term for subcontracting, would be confined to markets like Chicago where the company is facing a driver shortage. "We will not use it in place of existing rank-and-file drivers," he said.

Pension contributions, which were suspended in mid-2009 and resumed in 2011 at one-fourth their prior amount, will be fixed at the current levels through the life of the extended compact.

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