The International Brotherhood of Teamsters (IBT) has seen a lot in its 107 years of existence. But in its near two-year effort to rescue troubled trucker YRC Worldwide Inc., it's a safe bet the venerable union went where it has never gone before.
During 2009, as YRC's financial situation grew more precarious, its 35,000 Teamster employees agreed to two wage reductions and an extraordinary 18-month freeze on YRC's pension contributions.
Throughout the year, the union's leadership actively participated in YRC's financial restructuring, acting in an advisory role that was considered well outside the union's traditional box.
Then, as YRC faced a New Year's Eve deadline to execute a swap of $530 million in debt for 1 billion shares of new equity or else confront bankruptcy and a possible shutdown, Teamster General President James P. Hoffa put very public pressure on several financial institutions, notably the colossus Goldman Sachs & Co., to stop buying arcane derivatives called "credit default swaps" that were essentially bets that YRC would default on its obligations and file for bankruptcy protection.
Hoffa pulled out all the political stops, shrewdly framing the debate as a choice between preserving thousands of middle-class jobs and letting greedy financial firms scavenge for a few extra dollars in profits. Facing a potent backlash from lawmakers and regulators already angered over the industry's role in causing the financial meltdown, the firms caved. Not only did they stop buying the derivatives, but they bought up enough YRC notes to enable the debt-for-equity exchange to succeed.
To be sure, YRC's burden had already been eased by the remarkable forbearance of its banks, which threw the company numerous financial lifelines. But the flexibility of YRC's lenders would have meant little, experts said, if not for the concessions of its rank and file, and the efforts of Hoffa and other union leaders to adopt a collegial attitude toward YRC instead of a confrontational one.
"If it wasn't for the IBT, YRC would not be here," says Michael H. Belzer, associate economics professor at Michigan's Wayne State University and one of the nation's leading experts on trucking labor relations. Belzer says he doesn't recall the Teamsters or any trade union playing such an active and pivotal role in ensuring a company's survival. He called Hoffa's 11th-hour push to force Goldman's hand on the derivatives transactions an "amazing" achievement.
Rough road ahead
But it came at a price. The wage cuts and the suspension of pension contributions will cost YRC's rank and file about $1.5 billion through 2013, according to a 2009 estimate from investment firm Stifel, Nicolaus & Co. As with all YRC common shareholders, the Teamsters' original equity stake was wiped out following the debt-for-equity swap. Though YRC workers are expected to receive options worth between 30 and 35 percent of the new equity, there is considerable doubt as to its value.
One analyst, Jon A. Langenfeld of Robert W. Baird & Co., values YRC stock at zero. YRC stock closed March 8 at 49 cents a share, and the company faces delisting from the Nasdaq stock exchange if it can't get its stock above $1 a share for 10 consecutive days between now and Aug. 30.
YRC is scheduled to resume pension payments in January 2011, at a cost of about $15,000 for the year per Teamster employee. Given the weak market for less-than-truckload (LTL) services and continued cut-throat pricing, some wonder if a company saddled with hundreds of millions in losses can meet an estimated $500 million pension commitment next year.
YRC burned through $72 million in cash during 2009's fourth quarter as its financial crisis was coming to a head, according to New York-based research firm Wolfe Research. YRC's cash burn has not worsened in 2010, the firm said. However, it noted that worried shippers that diverted their freight from YRC to other carriers are not "flocking back" to the carrier. Tonnage losses, though stabilizing somewhat from 2009 levels, "remain daunting," Wolfe said.
YRC declined to comment other than issuing a statement through a spokeswoman that it is "contractually obligated" to make the pension payments.
Ken Paff, the long-time head of Teamsters for a Democratic Union (TDU), a relatively small but influential dissident group that has clashed often with Hoffa during his 11-year tenure, is pessimistic about YRC's ability to resume full contributions in January. "You want to bet the mortgage on it?" Paff asked with characteristic rhetorical bluntness. "Because I hate to see you become homeless."
Charles W. Clowdis Jr., a long-time trucking executive and now managing director, North America for the global trade and transport unit of consultancy IHS Global Insight, says YRC's pension challenges are a frequent topic of conversation with shippers across the nation. Clowdis says he doubts that YRC will be able to generate the needed funds through its earnings power and that it may have to resort to borrowing to raise the capital.
Hoffa is unapologetic about the process and the outcome. "We feel we did the best given the circumstances of balancing need, preserving jobs, and maintaining decent wages and health benefits," Hoffa said in an interview with DC Velocity. "It is easy to second guess, but I don't think you can put a price tag on livelihoods of 30,000 families."
Hoffa declined comment on whether YRC would be able to resume full pension contributions next year. He said the company has made its operations as lean as possible and is in a "good position to take advantage of the upswing" in freight volumes when it occurs.
Hoffa said the union's overarching goal has been to help YRC "bridge the recession" and that steps such as the pension freeze were needed to "provide the company time to weather the storm."
All of this has been playing out against the backdrop of a dubious anniversary for organized labor in the trucking business. In 1980, Congress deregulated the industry, freeing truckers to compete against each other to provide the best service at the lowest price. The open market soon would give shippers the upper hand in rate negotiations with carriers, a grip they've never relinquished.
Deregulation's supporters claim that it has fostered innovation and lowered costs, twin boons to the U.S. economy and its citizens. However, the post-deregulation years have been a nightmare for Teamster truck labor, as company failures, bankruptcies, and consolidations thinned the union's ranks and diminished its influence.
At its peak in the 1970s, membership in the Teamsters' freight division—long considered the core of the union—stood at about 400,000, about 20 percent of total IBT membership. Today, that number has dwindled to about 70,000, with roughly half employed at YRC. The freight division accounts for 5 percent of the union's 1.4 million members.
Hoffa acknowledges that deregulation "changed the rules of the game and has decimated the industry." But he disputes the notion that the freight division is in permanent decline, noting that the Teamsters added more than 12,000 freight members last year when workers at UPS Freight, a unit of UPS Inc. formerly called Overnite Transportation Co., joined the ranks.
Ticking time bomb
The crisis at YRC has exposed what some consider a ticking time bomb for truckers and workers: the fate of the multi-employer pension program established by Congress and commonly used in the trucking industry. An arrangement between a union and at least two employers usually in a common industry, a multi-employer plan requires member companies to fund the pensions of workers and retirees not only from their companies but from other firms participating in the plan.
The program, whose main objective was to allow workers to change employers without losing their vesting privileges, worked fine as long as there were enough unionized trucking firms to spread the cost around. However, as company failures and consolidations winnowed the universe of unionized firms, the burden fell on those remaining to absorb an even larger portion of total retirement obligations, including obligations to retirees who had worked at now-defunct entities.
As a result, YRC and rival ABF Freight System, which employ most of the Teamster workers covered under the main freight agreement between the union and industry, are liable for the pension obligations of retirees who worked for competitors that have long since closed their doors and who were never employed at either YRC or ABF.
In 2007, UPS Inc., the nation's largest transport company and biggest Teamster employer with 240,000 members, negotiated a $6.1 billion pre-tax payout to remove 44,000 of its full time employees from the Teamsters' Central States pension fund, one of the union's largest. UPS withdrew from the program because it did not want to face the future liabilities of paying into the Central States fund for its employees and for workers at other companies.
William D. Zollars, YRC's chairman, president, and CEO, has been actively pushing for an overhaul of the nation's multi-employer pension program. In addition, YRC and the Teamsters have thrown their support behind House legislation sponsored by Reps. Earl Pomeroy (D-N.D.) and Patrick Tiberi (R-Ohio), and a similar bill introduced in the Senate by Sen. Bob Casey (D-Pa.), which would shift the pension liabilities of retirees from failed firms away from the Teamsters and to the Pension Benefit Guaranty Corp. (PBGC), a federal corporation that protects more than 29,000 pension plans.
However, the union has insisted it will not support any bill that doesn't maintain full payouts to so-called orphan Teamsters, employees who worked for companies no longer in business but who have accrued benefits all or in part through their employment at now-defunct firms. Under current PBGC rules, workers or retirees with orphan pensions are eligible for a maximum payout of $1,080 per month. That is about one-third of the top payout received by a Teamster member with a non-orphan pension and identical years of service.
In a February newsletter, TDU made clear where it stands: "It's up to our Teamsters Union to make sure that any bill that is passed would guarantee that the PBGC would pay full pensions and would have sufficient funding to do that." Both the Pomeroy-Tiberi bill and the Casey bill would provide those protections.