ABF Freight System Inc. and the International Brotherhood of Teamsters are meeting in Kansas City this week to continue discussions on a labor agreement between the two parties.

ABF, a subsidiary of Arkansas Best Corp. (Nasdaq: ABFS), is asking employees to accept concessions in wages and pension coverage to cut labor costs to a level comparable with ABF’s chief unionized rival, Overland Park-based YRC Worldwide Inc (Nasdaq: YRCW).

(A little history: ABF sued YRC in late 2010, claiming that YRC cut a deal with the Teamsters that violated the National Master Freight Agreement, a contract covering freight workers nationwide. YRC and the union argued that ABF had removed itself from the NMFA to negotiate separately and thus couldn’t file suit. A federal district court twice has tossed ABF’s lawsuit, and ABF plans to appeal, according to The City Wire, an Arkansas publication.)

The Teamsters and ABF began negotiations Tuesday, and talks are scheduled to run until March. ABF’s current labor agreement with its 7,500 union employees runs until March 31, a Teamster’s release said.

When the two parties met in December, they ended negotiations far apart.

On Wednesday, representatives of the Teamsters released a statement on the most recent round of negotiations. Gordon Sweeton, the co-chairman of the Teamsters’ National ABF Negotiating Committee said the union is disappointed with ABF’s proposals so far.

“ABF’s initial contract proposals ... seek to destroy the NMFA standards that have been in effect for decades and served ABF well,” Sweeton said in a release. “We hope the company will bargain in a traditional manner so that we can make progress on the important issues from the start.”

In a Dec. 20 release, the union said ABF initially proposed reducing paid time off, creating more part-time positions, expanding the use of subcontractors as well as the use of surveillance and computer tracking devices, and replacing the current grievance procedures with arbitration.

In ABF’s most recent statement on the negotiations, dated Dec. 21, the company said its proposals aren’t in line with the NMFA because the agreement, which was drafted in the 1960s, is outdated and is ignored by most of ABF’s less-than-truckload competitors.

Additionally, the company said the proposals put forth by the union will not protect jobs or retirements.

“Instead (they) will have the opposite effect by simply putting us in an even deeper financial hole than we are in now, having racked up $230 million in losses since 2009,” a release said. “Additionally, a two-year agreement that would sync us back up with YRCW simply is not in the best interest of ABF employees.”

ABF is expected to release its fourth-quarter earnings report in a conference call on Jan. 30.

Click here for the Top 100 For-Hire Trucking Carriers of 2012.

The trucking industry and its allies pushed back against modified hours-of-service rules for drivers, while federal regulators pushed ahead with safety initiatives that ranged from requiring electronic onboard recorders to ensuring that unsafe trucking companies cannot keep operating after being shut down.

Just before the year began, the Federal Motor Carrier Safety Administration issued a rule that restricted truck drivers' use of the 34-hour restart, which allows drivers to reset their weekly limits on driving. The rule, set to take effect in July 2013, limits drivers to one restart every seven days and mandates that the restart include two periods, each from 1 a.m. to 5 a.m.

American Trucking Associations publicly blasted those changes, along with a requirement that drivers take a half-hour break before driving more than eight hours. The federation filed a federal lawsuit in February to stop the rule.

"The agency claims that restart restrictions and the off-duty break requirement are justified by the cost-benefit analysis in FMCSA's regulatory impact analysis," ATA wrote in its opening brief filed in July in the U.S. Court of Appeals for the District of Columbia Circuit. "That 'analysis,' however, is a sham; FMCSA stacked the deck in favor of its preferred outcome by basing its cost-benefit calculations on a host of transparently unjustifiable assumptions," the federation said.

A coalition of business groups backed ATA's arguments in their own brief.

FMCSA defended its rule in a September brief, saying it was developed from the "weighing of scientific evidence and its careful consideration of the potential effects on health and safety, as well as the costs and the effects of the rule on the public and the regulated industry."

Public Citizen, joined by two other interest groups, fought the rule from the opposite side, saying FMCSA should have reduced maximum driving hours to 10 from 11.

The court announced in December that it will hear oral arguments in the case on March 15.

FMCSA also spent the year studying how it could mandate EOBRs for almost all truck drivers while ensuring the drivers are not harassed, following a 2011 court ruling throwing out the rule.

In a series of listening sessions around the country, FMCSA sought to find out what kind of harassment EOBRs could enable and how a regulation might prevent it.

Truck drivers told the agency that the devices allow dispatchers to push them to go beyond legal driving hours, while bothering them when they rest. The drivers also challenged the notion that EOBRs increase safety.

But carriers and ATA maintained that by ensuring compliance with HOS rules, the devices save lives. FMCSA agreed as it pushed forward trying to solve both the harassment issue and the issue of data privacy in EOBR communications.

FMCSA planned to issue a proposal that solved those issues late in 2012 or early in 2013, but at press time for [Transport Topics] it had yet to do so.

And the agency now has a legal mandate to write the rule. The transportation funding bill signed into law in July requires that the rule be finalized by October 2013.

Following a March report that faulted progress on regulating "reincarnated" fleets, FMCSA took a number of actions to crack down on carriers with poor safety records that were shut down only to come back to life under other names.

Among the moves was a November proposal that would allow FMCSA to shut down carriers that hire officers who have shown an "egregious disregard" for safety regulations.

The agency also sought to in-crease its oversight of medical qualifications of drivers with an April rule that sets forth standards and tests for medical examiners who perform driver physicals.

December 28, 2012:  ABF management issued an angry press release which tried to blame Teamster benefits for their low profits.

The International union issued a response, which is available here.

The IBT negotiating team needs to stand firm and keep members informed and involved at every step of the negotiating process.

ABF Teamsters voted down concessions in 2010 and are prepared to do so again.

Concerned ABF Teamsters – and other freight Teamsters, too – can stay informed and get involved by signing up for regular e-mail updates at NoFreightConcessions.org.

You can join TDU or get updated information by calling 313-842-2600 or click here to send us a message.

December 20, 2012: ABF management reacted with an angry press release at the start of negotiations for a new contract. Negotiations will resume in January.   

A City Wire report and an IBT bulletin are available here.  

UPDATED December 21, 2012: ABF this week handed the International Union their wish list of take-aways. They’re all there: more subcontracting, part-timers, expand the use of surveillance, and more.

It’s a wish list which is dead-on-arrival, because there is no way members will accept any of it. Even the International union has said so.

The Trucker has a report on management’s proposal available here.

A City Wire report and an IBT bulletin are available here.  

ABF Teamsters voted down concessions in 2010 and are prepared to do so again.

The IBT negotiating team needs to stand firm and keep ABF Teamsters and their brothers and sisters at YRC and Holland informed and involved at every step of the negotiating process.

Concerned ABF Teamsters – and other freight Teamsters, too – can stay informed and get involved by signing up for regular e-mail updates at NoFreightConcessions.org.

You can join TDU or get updated information by calling 313-842-2600 or click here to send us a message.

Representatives from ABF Freight System Inc. of Fort Smith and the International Brotherhood of Teamsters union are scheduled to sit down Tuesday in a hotel conference room in Kansas City to undertake a high-stakes labor contract negotiations.

One of the nation’s largest trucking companies, ABF says the company has to cut labor costs to compete in the marketplace, including with its chief unionized rival, YRC Worldwide of Overland Park, Kan.

The International Brotherhood of Teamsters, which represents about 7,500 ABF workers, hasn’t released its proposal. But Teamsters for a Democratic Union, a group within the Teamsters, has posted on its website that the union will ask the company to continue current pension, health and welfare benefits and for a $1-per-hour wage increase each year for two years.

The negotiations also come after two years of court battle, still going on, over a current labor contract involving ABF and the Teamsters.

ABF complained in its 2010 lawsuit that the Teamsters and YRC Worldwide enacted concessions for the Kansas company that violated a 2008 national labor contract, designed to apply equally to YRC and ABF.

ABF has estimated the concessions translate into $350 million per year in savings for YRC.

Officials with ABF and the Teamsters declined to be interviewed, saying they didn’t want to speak publicly before negotiations begin.

A statement posted on the union’s website Friday said, “The company is expected to bargain aggressively and will seek to save money on labor costs, but the union is prepared to counter the company’s arguments and will stress the bigger picture,” including costs for management labor as well asTeamster labor.

In announcing third-quarter financial results in November, Judy McReynolds, president and chief executive officer of the trucker’s parent company, Arkansas Best Corp., stressed the importance of these negotiations.

“The most significant costs affecting ABF are associated with our union labor contract,” she said in a news release. “ABF’s next labor agreement offers an opportunity for us to work together with the Teamsters and our employees to ensure that ABF is viable in the marketplace and able to grow jobs and effectively compete for additional, profitable business.”

Teamsters for a Democratic Union, a group within the larger union that posts updates on bargaining issues, sizes up union members’ thinking. “TheABF Teamsters want no concessions. No going backward. They’re not looking for the moon, just looking not to go backward,” said Ken Paff, national organizer for the Teamsters for a Democratic Union in Detroit.

He expects the company will focus on cutting wages, benefits and pensions. Both sides, Paff predicts, would like to reach an agreement well before the current contract expires March 31.

The dispute centers on financial troubles dogging two of the biggest U.S. trucking companies in a difficult economy.

Arkansas Best is ranked as the nation’s 13th-largest trucking company.ABF is its largest subsidiary, specializing in less-than-load shipments that combine two or more shippers’ goods into the same truck. The parent company has about 10,800 employees and owns 3,989 tractors and 20,209 trailers, according to Transport Topics, an industry trade journal.

YRC Worldwide is the fourth-largest trucker in the nation, and also specializes in less-than-load services. It has 32,000 employees, 15,602 company-owned tractors and 51,636 trailers.

Both companies were part of a national labor contract for their industry, known as the National Master Freight Agreement. It was signed in 2008 and will expire at midnight, March 31. In 2009, ABF claims, the Teamsters and YRC inked the first round of concessions to benefit the Kansas trucking company, which was teetering on bankruptcy.

In a suit filed in November 2010 against the Teamsters and YRC subsidiaries, ABF said “the International Brotherhood of Teamsters, who in the midst of the most troubled economic times since the Great Depression, granted substantial economic and financial concessions to some, but not all, employers” who were part of the bargaining agreement, known as the National Master Freight Agreement.

ABF has asked for compensatory damages from the defendants.

The International Brotherhood of Teamsters has called the ABF lawsuit “ridiculous.”

ABF has taken its case to the U.S. Court of Appeals, appealing a lower court dismissal of its complaint.

Meantime, both trucking companies have struggled in a down economy. Arkansas Best’s third-quarter profit was down, $6.5 million compared with $12.3 million for the third quarter of 2011. Arkansas Best stock closed Friday at $9.06, up 3.5 percent from Thursday. It has traded between $6.43 and $22.79 in the past 12 months.

YRC Worldwide reported an operating profit of $3 million for the third quarter, improved from a $25.1 million loss for the same period in 2011. YRC stock still lags behind the year, closing Friday at $6.83, up 2 cents from Thursday, with a 52-week trade range between $4.56 and $14.80.

As contract talks begin next week, both sides also know an accord at the bargaining table may not translate into action.

In 2010, ABF and the International Brotherhood of Teamsters leadership agreed to a 15 percent reduction in gross wages and mileage rates for ABF union workers. Rank-and-file members voted it down.

“The members will have the last say,” said Paff, of Teamsters for a Democratic Union. “We are interested in halting a backward slide.”

The U.S. Court of Appeals for the District of Columbia has set March 15, 2013, as the date for oral arguments in the case seeking to overturn the Hours of Service rule scheduled to be implemented July 1, 2013.

Both trucking stakeholders, led by the American Trucking Associations, and safety advocacy groups, led by Public Citizen, separately petitioned the court for a review of the new rules shortly after they were published in December 2011.

The court combined the cases.

Both groups will argue before the court March 15.

Of grave concern to the trucking industry is whether the court can rule before the July 1 date.

Industry spokespersons say for the new rule to go into effect and then have the court overturn the rule would create a chaotic situation.

Concerns about the rule differ between the two groups.

Trucking interests are concerned mostly about the revisions for the 34-hour restart provision that would mandate drivers could only use the 34-hour restart to reset their weekly driving limits once every seven days, and the restart time must include two periods between 1 a.m. and 5 a.m. And, they don’t like the new provision that would require drivers take a half-hour rest break before driving more than eight hours in a day.

Both portions of the rule would decrease productivity, trucking interests believe.

The safety advocates would like to see the 34-hour restart completely eliminated and they would like to see the daily driving limit reduced from the current 11 hours.

For more than a decade, ABF Freight System Inc., the less-than-truckload (LTL) unit of Arkansas Best Corp., has convened a media reception on the first night of the joint annual meeting of the National Industrial Transportation League and Intermodal Association of North America. After a convivial hour of socializing, ABF's then-CEO would step to the mike to field mostly hardball queries from the assembled scribes.

The 2012 joint meeting came off as planned. But the ABF reception didn't happen.

ABF didn't comment on why the event, which would have taken place Nov. 11, wasn't scheduled. However, it may be more than coincidental that five weeks from that date, the unionized company would begin negotiations with the Teamsters union on a new contract covering about 7,500 employees. Given the talks' critical nature, it's doubtful ABF executives would have been comfortable answering questions on the issue.

The talks, scheduled to start Dec. 18, are aimed at replacing the current five-year pact when it expires March 31. On Nov. 29, the Teamsters fired the first shot, proposing a two-year agreement calling for a $1-an-hour wage hike in each year and maintenance of the union's current pension, health, and welfare benefits. Union leaders did not say at the meeting why they sought a shorter contract duration, according to those in attendance. However, the duration of the proposed contract aligns with the expiration of the union's current pact with YRC Worldwide Inc., ABF's chief unionized rival.

For Fort Smith, Ark.-based ABF, the goal is twofold: to reach an agreement as quickly as possible to avoid marketplace uncertainty and possible customer defections, and to fashion a deal that mitigates what are the LTL sector's highest labor costs. The company declined all requests for comment for this story.

As of mid-2012, salaries, benefits, and the cost of purchased transportation represented 71 percent of ABF's expenses, according to data from SJ Consulting, a Pittsburgh-based consultancy. A source who asked for anonymity said executives at several nonunion carriers estimate they hold a wage and pension cost advantage of between 25 and 40 percent over ABF.

Virtually every public pronouncement from Arkansas Best contains a reference to the economic burden imposed on the unit by the current labor pact. The parent said in a statement accompanying its third-quarter 2012 results the "most significant costs affecting ABF are associated with our labor contract." ABF reported a 1.4-percent year-over-year drop in third-quarter tonnage, blaming the drop on sluggish macroeconomic conditions.

Judy R. McReynolds, Arkansas Best's president and CEO, said in the statement that "we have remained diligent in our efforts to address ABF's high cost structure." She did not go into detail in the statement.

Arkansas Best has already taken steps to distance itself from the Teamsters. In June, it bought Panther Expedited Services, a leader in the time-critical delivery market, for $180 million in cash and debt. The purchase of nonunion Panther, a nonasset-based company that also has a growing presence in international freight forwarding, will diversify ABF into businesses outside of LTL, where before the Panther purchase it generated about 90 percent of its revenue. It also takes the company into a segment where organized labor plays a minimal role, though its workforce may benefit if Panther's sales generate additional over-the-road business.

MORE CHALLENGES AHEAD

ABF's woes aren't limited to labor, however. The company faces other challenges that will remain long after the contract talks conclude. Its "operating ratio," a measure of expenses to revenues, hit 105.5 in the first quarter of 2012. That meant ABF spent $1.05 for every $1 in revenue it took in. This was the worst performance of any publicly traded LTL carrier during that period, according to SJ data.

The company improved its operating ratio as the year progressed. Still, it stood at about break-even as of late November, and its fourth-quarter ratio was expected to climb above 100. By contrast, during 2004, the company achieved an impressive 91.9 ratio even though wages, benefits, and purchased transportation costs accounted for 76.8 percent of total expenses, SJ said.

According to the consultancy, ABF generates about $380 in revenue per shipment, $104 per shipment more than rival YRC Freight, YRC's long-haul unit, and $109 more than Old Dominion Freight Line Inc., considered by many the best-run carrier in the sector. ABF's rising revenue is due largely to pricing discipline by LTL carriers that has enabled recent rate hikes to stick.

ABF continues to expand its presence in the regional trucking category, whose trends are more favorable than the national LTL market's; ABF's regional network now accounts for 61 percent of its total tonnage, double the levels when the network was formed in 2006.

The company wins plaudits for its conservative management style and is considered a leader in driver and network safety, security, and information technology. Some analysts believe the parent's stock—which had fallen from a 52-week high of $22.79 a share in January 2012 to a low of $6.43 a share in mid-November—is significantly undervalued and will rebound smartly once the fog of uncertainty lifts over its labor situation. As of Dec. 4, ABF stock was trading at $8.31 a share.

Yet ABF's overall tonnage count, shipment volume, and profitability continue to stagnate. Erratic freight flows and its uncompetitive labor cost structure are likely contributors, but data from SJ Consulting reveal other factors at work.

For instance, consider that in mid-2012, ABF operated 265 terminals nationwide. By contrast, Old Dominion and Estes Express Lines operated 217 and 191 terminals, respectively, over similar geographies as ABF, SJ said. As of mid-year, ABF handled 70 shipments per terminal per day. By contrast, Estes handled 184, YRC Freight handled 155, and some private carriers handled more than 350, SJ said. The data indicate that ABF either lacks sufficient density or that its terminal network is too large for its traffic.

Between 2008 and 2011, financially ailing YRC, facing possible bankruptcy and coping with massive customer defections, shed 38,000 shipments a day, according to SJ data. This translated into an 18-percent compounded annual shipment loss. ABF reported a 1.8-percent annual shipment decline during that period, meaning it was unable to capitalize on YRC's woes.

YRC Freight's share of the long-haul market dropped to 27 percent in 2011 from 42 percent in 2006. Yet ABF's share fell to 7 percent from 10 percent during that time, according to SJ data.

"There is no question that labor costs are an issue for ABF," said Satish Jindel, SJ's president and a long-time industry executive and consultant. "But they are not the only issue, and they are not the biggest issue."

MAKING LABOR PEACE

Still, a Teamster contract that affords ABF some degree of cost relief would go a long way toward allaying marketplace and investor concerns. It has been a difficult last five years for the company as its labor costs have spiraled to levels that make it tough to compete just with unionized YRC, not to mention the nonunion companies that constitute most of the LTL segment.

ABF's current problems began in the 2007-08 period, when the last National Master Freight Agreement (NMFA), the compact that governs labor relations between the Teamsters and the remaining unionized truckers, came up for renewal. At the time, ABF wanted to exit the NMFA and bargain independently. According to ABF, it was persuaded by the union to remain in the pact under the proviso that the contract's terms would apply to all parties in the NMFA. A Teamster spokeswoman did not respond to a request for comment.

ABF's worst fears were realized the following year when YRC negotiated the first of three extraordinary agreements with the Teamsters calling for wage and pension cuts through 2015. ABF asked its rank and file for similar concessions, but its employees, defying the recommendations of Teamster leadership, rejected management's proposal.

ABF then sued YRC and the Teamsters' negotiating arm over the separate concessions, claiming they were illegal because they were negotiated outside of the NMFA. It also requested $750 million in damages. But in late 2010, U.S. District Court Judge Susan Webber Wright rejected ABF's claim, ruling it had no legal standing to contest the agreements. After the case was remanded to Judge Wright on appeal by a federal appeals court, she ruled against the company again in 2012.

ABF is considering another court challenge, despite calls by some to drop the legal fight and concentrate instead on the contract talks. "We've been told all along by our lawyers that they had no case," said Ken Paff, national organizer of Teamster dissident group Teamsters for a Democratic Union.

Paff called the ABF suit a "propaganda ploy" that could actually succeed in scaring the rank and file to agree to contract terms favorable to the company. Jindel took the opposite view, arguing the specter of legal action against the Teamsters doesn't create an atmosphere conducive to a productive dialogue.

Already burned once, ABF announced in August that it would end its involvement in the NMFA and bargain independently with the Teamsters. The company is also unlikely to agree to the union's Nov. 30 proposal, preferring a longer-term contract with little or no wage hikes.

PENSION HEADACHES

ABF's chief headache has been the 8 percent compound annual increase in its union pension contributions negotiated in the 2008 contract. The headache turned into a migraine in 2009 after the separate agreements between the union and YRC allowed the carrier to suspend pension payments from the end of 2009 through mid-2011, and then to resume contributions at about one-fourth the rate in place prior to the suspension. YRC is not expected to return to a full payment schedule until 2015, at the earliest.

Paff estimates that the pension expense today accounts for as much as two-thirds of the $11 to $12 an hour cost gap, per employee, between YRC and ABF.

What's more, ABF participates in about two-dozen union multiemployer pension plans, where the pensions of retirees from failed trucking companies are paid for by surviving firms. About half of ABF's pension expense is for workers who were never employed at the company, according to data from investment firm Stifel, Nicolaus & Co. The millstone around ABF's neck is the result of a multitude of unionized trucking bankruptcies over the last 30 years that stuck surviving companies with a larger share of the pension tab.

The company has sought legislative relief on the issue, but none has come to pass. It could negotiate a withdrawal from multiemployer pension schemes, but the exit would come at a price. It would cost ABF about $1.7 billion to pull out from its largest multiemployer plan, the Teamsters' Central States plan, according to recent estimates from investment firm Robert W. Baird & Co.

Paff said there's virtually no chance ABF employees will agree to concessions equal to the current differential with YRC. However, some help for the company may be on the way. The Central States plan has agreed to freeze the company's contributions at current levels through the life of the next contract. In addition, the rank and file will likely accept very small wage increases in any new contract, though the company will still have to make healthy contributions to the workers' health-care plan, Paff said.

Those factors, combined with the specter of YRC's resuming regular pension contributions by mid-decade—assuming it will have the resources to do so—should narrow the cost gap between the two carriers.

The U.S. Department of Transportation's pilot program to open the border to Mexican trucks must be shut down because it is "dangerous and illegal," the Teamsters union argued in the U.S. Court of Appeals for the D.C. Circuit Court this week.

The three-year pilot program was set up to demonstrate the impact of Mexican trucks on U.S. highway safety. The Teamsters allege  the program breaks laws because Mexican trucks do not display proof that they meet federal vehicle safety standards, the drivers do not meet U.S. physical requirements, the trucks do not comply with the National Environmental Policy Act and more.

The case, filed in March, was heard Thursday along with a similar lawsuit by the Owner-Operator Independent Drivers Association against the DOT's Federal Motor Carrier Safety Administration.