will Teamster givebacks be enough to save YRC?

As of this mid-December writing, 40,000 Teamsters working at YRC Worldwide's four trucking units were voting on wage concessions their leaders had negotiated with YRC management—an agreement that called for a one-time 10-percent wage cut and elimination of cost-of-living increases over the next four years in return for 15 percent ownership in the troubled trucker. If the rank and file blesses the deal, it would save YRC well over $200 million annually. Yet some say the concessions will do little more than give the country's largest less-than-truckload carrier a reprieve from its date with destiny.

The contract modification, attempted only a handful of times in the annals of American trucking, is designed to preserve union jobs, pensions, and health benefits while reducing YRC's annual costs by $220 million to $250 million. YRC says the changes are needed to manage through the triple whammy of a deepening recession, weakening freight demand, and a brutal pricing environment.

In a statement, YRC said the agreement allows it to "preserve market share and compete in the predatory pricing environment, while continuing to support our workers' pension recipients." Employee health, welfare, and pension benefits will remain unchanged, as will current work rules. In addition, union members will still receive scheduled annual wage increases over the next four years. Those increases, negotiated earlier under the National Master Freight Agreement, will boost pay by $1.70 an hour by the time the agreement expires in 2013.

Teamsters officials hailed the agreement as the most far-reaching they've negotiated with an employer in such difficulty. At the same time, the union was blunt in its assessment of YRC's prospects. "Even under the best scenarios, YRC will be stretched to its limits over the next two years, and managing liquidity will be the primary business task over that time," the union said in a statement.

Storm clouds gather
YRC's financial condition darkened in mid-November when Standard & Poor's downgraded its debt rating three notches and raised doubts about the company's ability to meet its obligations in the wake of falling profits. The S&P action required the company to pledge about $1.5 billion of its remaining unencumbered assets as collateral. Because YRC no longer has any free assets to leverage, its borrowing window has been all but shut, and the company "could face the ultimate liquidity crisis" in 2009, the Teamsters said.

In an effort to lighten its debt load and avoid being in violation of its loan covenants, YRC has offered to buy back $260 million of its debt for $150 million in cash. In addition, the company says it has begun selling what it termed "excess" assets, entering into sale/leaseback transactions for its real estate holdings and executing what it called "various cost-reduction activities."

Analysts at J.P. Morgan Chase say the cost savings under the proposed Teamsters agreement should give YRC a "meaningful boost." Others are not so sanguine, saying the agreement will buy the company some time but will do little to alter its long-term fortunes.

One veteran trucking executive, speaking on condition of anonymity, says there is a 75-percent chance YRC will not survive unless the economy and freight traffic rebound in the first quarter of 2009—a scenario few expect. The executive says YRC buried itself in debt when it acquired Roadway Express and then the USF family of carriers. The weakening economy and the credit crunch only worsened an already difficult situation. Absent a swift and strong recovery, the challenges facing the company are likely to be insurmountable, the executive adds.

Mixed reviews
In September, YRC said it would accelerate the integration of its Yellow Transportation and Roadway units by unifying their sales and operational networks. YRC said that move would save $200 million while enhancing service and improving transit times.

But John G. Larkin, managing director, transportation logistics group for Stifel,Nicolaus & Co., told a transportation gathering in November that operational consolidations during the integration may result in YRC's losing 30 to 40 percent of its combined volume.

Phil J. Gaines, Yellow Transportation's president and the executive heading the integration, told DC VELOCITY at that gathering that "it is not our intention to lose anywhere near that level of business."

YRC said in a statement later in the year that the integration already is producing better-than-expected results in terms of service and performance. However, a third-quarter shipper survey conducted by the New York investment firm Wolfe Research found a significant deterioration of service levels. About 53 percent of survey respondents who are YRC customers said the carrier's service levels were unchanged, while 23 percent said they experienced more frequent transit delays and 15 percent said they have seen a rise in the frequency of freight damage. Only 8 percent have reported an improvement in transit times as the integration accelerates. For William D. Zollars,YRC's chairman, president, and CEO, the year begins with innumerable problems and what appear to be very few solutions." Zollars has backed himself into a real nasty corner," says the trucking executive.