Teamsters Union members at less-than-truckload (LTL) carrier ABF Freight System have rejected a proposed agreement calling for a 15-percent wage cut over the next three years, leaving ABF at a significant cost disadvantage to rival YRC Worldwide Inc. and forcing union leaders and management who had negotiated the deal to scramble for alternatives to keep ABF's cost structure competitive with the industry.

The agreement went down to defeat by a 56-44 percent margin, with 3,764 voting to reject the pact and 2,936 voting in favor of it, according to results released late May 24. About 80 percent of ABF's approximately 7,000 unionized employees cast ballots.

Two major Chicago locals as well as locals in Atlanta, Dallas, and Little Rock, Ark. (ABF's home state) cast votes decisively against the proposed agreement, according to the Teamsters for a Democratic Union (TDU), a Teamster dissident group that has opposed the pact.

In return for agreeing to the wage concessions, ABF workers would have received extra payments on a quarterly basis if ABF's operating ratio reached what the company called "certain, profitable levels." It is believed the concessions would have saved Arkansas Best Corp., ABF's parent, about $70 million a year.

"It is unfortunate that our union employees have chosen not to participate in better aligning ABF's cost structure with those of its LTL competitors," said Judy R. McReynolds, Arkansas Best's president and CEO, in a statement. McReynolds said the company would evaluate its options in "dealing with our cost structure and the other issues we face during this challenging freight environment."

"We took a proactive approach to help ABF get through the worst economic recession since the Great Depression, but our members have rejected the plan," said Tyson Johnson, director of the Teamsters' National Freight Division. "The union will regroup to determine if there are other means to protect jobs and benefits. Our first priority continues to be the members' best interests."

Ken Paff, head of the TDU dissident group, said he had expected ABF's rank and file to reject the deal. Paff said the margin of defeat is such that a re-vote would be unlikely to change the outcome.

Weak Q1 results
The union's rejection of the wage plan comes at a time of continuing financial struggles for the carrier. Arkansas Best recently reported a first-quarter loss significantly larger than the loss it reported in the first quarter of 2009. ABF, which accounts for virtually all of Arkansas Best's business, reported revenue of $333 million, a per-day increase of 2.2 percent over the 2009 period. However, ABF reported a $35.7 million operating loss, compared with a $26.8 million operating loss in the year-earlier quarter. The company's operating ratio, the ratio of operating expenses to operating revenues, rose to 110.7 from 108.3, a sign that ABF's expenses rose at a faster clip than its revenues during the quarter.

The company warned when it released its results that wage concessions, along with stronger freight levels and a more favorable pricing climate, were critical to improving its financial performance. Despite improving industry fundamentals, the LTL sector has remained hobbled by stubbornly weak volumes and cutthroat pricing.

Recently, however, analysts have noted a firming trend in LTL pricing. If sustained, a better pricing environment would help ABF offset the adverse impact that the May 24 vote will have on its bottom line.

Teamster members at rival YRC last year accepted a similar wage reduction plan as well as a freeze on company pension contributions through the rest of 2010. Contributions are expected to resume in January 2011.

About 75 percent of YRC's 37,000 Teamster members voted to accept the proposal.