The International Brotherhood of Teamster’s rejection this week of a contract extension proposed by YRC Worldwide that sought to maintain wage cuts and other concessions partly to help it gain a new $1.15 billion loan to pay down its debt isn’t being viewed quite yet as a major stumbling block to the LTL conglomerate’s effort to revitalize itself.
“They’ve been through much worse back in 2009 and 2010 and they’ve been able to survive,” Jonathan Starks, director of analysis for research firm FTR Transportation Intelligence, told Fleet Owner. “They’ve been through far more stressful times.”
Starks also believes FTR’s stable outlook for the freight market could help YRC keep traction in a market where capacity continues to tighten.
“Our view of the freight market really hasn’t changed over the last six to nine months: it’s still stable though not accelerating,” he said. “LTL really makes up only about 5% of the total tonnage out there, but there’s growing emphasis on shorter haul and last-mile delivery services: LTL operates well there.”
Tyson Johnson, director of the Teamsters’ national freight division and co-chairman of the Teamsters national freight industry negotiating committee, said in a statement that union members voted down YRC’s proposal to extend and modify the existing memorandum of understanding by 61% to 39%.
“Our members have made huge sacrifices to keep this company alive and a majority made the decision not to sacrifice anymore,” he added, noting that YRC has been in discussions with the union since October last year trying to make modifications and get an extension in order to address upcoming debt maturities.
YRC currently maintains about $1.4 billion in debt, much of which is due in the next two years, and the company's creditors have said previously that they wouldn't agree to a refinancing unless YRC was able to renegotiate its labor contract to stabilize expenses.
Following the initial outreach, the company submitted a proposal that Teamster local union leaders agreed to send to members for their vote, while management also worked to line up new money to reduce company debt and go to market on refinancing its remaining debt – with all three contingent on the other.
Yet Jim Hoffa, the Teamsters general president, added that union has already made in his words “tremendous sacrifices” beginning six years ago with a 15% wage concession from the National Master Freight Agreement rate and a 75% reduction in pension contributions.
“Our members have sacrificed billions of dollars in wages and pension benefits over the past five years and yet the company has been unable to recover from the disastrous policies of the previous management,” he added.
YRC Worldwide CEO James Welch noted in a statement he was “disappointed” in the vote outcome.
“We believe that timing of events related to our refinancing did not work in our favor,” he said. “Many employees had already returned their ballots prior to December 23, the date the company announced it had a refinancing agreement in place. We believe that was information employees needed to make a fully informed decision.”
Still, he noted that it remains “business as usual” for YRC today with the carrier operating 15,000 trucks on the road today serving 250,000 customers – and the ongoing growth in overall LTL tonnage in the U.S. may help.
Wall Street investment firm Stifel Nicolaus & Co. noted in a report in late December that the LTL industry “remains well positioned to continue raising rates and expanding margins,” as long as the U.S. economy keeps expanding – especially on the industrial side – and carriers remain disciplined with respect to pricing.
“How fast the carriers’ revenues, tonnage levels, margins, and earnings grow, however, remains company-specific and will vary meaningfully, in our view,” the firm noted.
Stifel noted that LTL tonnage in the third quarter last year increased 3.1% vs. the same period in 2012, with higher year-over-year growth expected for the fourth quarter of 2013. On the pricing side, yields grew an average of 1.8% in the third quarter of 2013, versus just 0.8% year-over-year growth seen in the second quarter last year.
“From our recent conversations with carriers and shippers, average LTL rates continue to increase,” the firm said in its report. “However, we have heard anecdotes of national account business being particularly difficult to achieve rate hikes, with some rate decreases actually given in the third quarter.”
One of the reasons for the yield/price mismatch, in Stifel’s view, is increased third party logistics (3PL) penetration. “And as the rate negotiation transitions from XYZ shipper to ABC 3PL, even if the same freight is still hauled by the same carrier, it erodes the margin of the carrier in the process,” the firm said. “On the other side, large national accounts are not giving much in the way of rate increases and are much less profitable, if profitable, accounts.”
Still, Stifel’s outlook for LTL industry tonnage through 2015 is for a continuation of this slow recovery, unless a tight capacity situation emerges in truckload. For 2014, the firm expects roughly 2%-3% volume, with any bleed-over in freight from TL to LTL volumes being beneficial for the LTL sector.
Yet Stifel analyst David Ross noted that YRC’s issues are company-specific, stressing that the industry environment will not necessarily “bail them out,” no matter how good it is.
“And it’s not that good – just OK right now,” he explained. “The company needs to address many internal issues with respect to labor, operations, debt, and pension obligations, and quickly, regardless of industry conditions. As for their options, it will depend on the flexibility of its lenders, unions, pension funds, and workers, as has their survival to-date the past five years.”
