District judge tosses out ABF suit against YRC, Teamsters

A federal district judge in Arkansas late Wednesday dismissed a lawsuit filed by less-than-truckload (LTL) carrier ABF Freight System Inc. against rival YRC Worldwide Inc. and the Teamsters union. The suit alleged that YRC and the Teamsters violated the trucking industry's collective bargaining agreement, known as the National Master Freight Agreement (NMFA), by negotiating concessions that allowed YRC to dramatically reduce its labor costs and undercut ABF's wage structure.

Judge Susan Webber Wright's ruling deals a setback to ABF's efforts to bring its labor costs in line both with unionized YRC and with all of its LTL competitors who are non-union. Fort Smith, Ark.-based ABF has the highest cost structure in the LTL industry.

Judge Wright's decision marks the second time she has dismissed the suit. In December 2010, she ruled that the NMFA and the YRC-Teamster agreements were separate legal documents and that ABF lacked jurisdiction to challenge the YRC compacts. However, that ruling was reversed the following July by the Eighth Circuit Court of Appeals in St. Louis, and remanded to Judge Wright for further consideration.

In the wake of yesterday's decision, ABF said in a statement that it is "evaluating its options," which include a second appeal to the Eighth Circuit or re-filing its case in district court. It said it was "disappointed" by Judge Wright's ruling.

In 2009 and 2010, YRC and the Teamsters reached three separate agreements calling for wage and benefit givebacks by YRC's unionized employees. The agreements, designed to keep ailing YRC in business by reducing is labor costs, drew the ire of unionized ABF, which argued that they took place outside of the National Master Freight Agreement, the compact that governs LTL labor relations.

ABF sued in November 2010, asking that the agreements be made null and void and that YRC's cost structure should be returned to NMFA status. Separately, ABF sued YRC and the Teamsters for $750 million in damages.

David G. Ross, transport analyst for investment firm Stifel, Nicolaus & Co. wrote in a research note this morning that ABF's "money and energy is better spent getting the best contract" rather than fighting a legal battle that had not gained much traction anyway.

ABF, like other LTL carriers, has benefited from firming yields on its shipments as the industry at large has become more disciplined in its pricing and is willing to shed unprofitable freight rather than just agreeing to carry it as a way to gain market share. ABF imposed a 6.9 percent increase earlier this year on shipments moving under its published tariffs and not under contract.

Though most analysts are optimistic about ABF's prospects, they have cautioned that meaningful improvement will remain elusive unless it gets its labor cost structure under control. In fact, the lack of cost flexibility in its contract exposes ABF to greater downside risk than other carriers should overall economic trends continue to deteriorate, according to analysts.