ABF Freight System Inc. warned today it will need to make "extensive changes" to its network if it can't dramatically lower its labor costs and increase its flexibility through a new agreement with the Teamsters union. Those changes could include shutting terminals and distribution centers.

In its first comment about its ongoing contract negotiations with the union, the 90-year-old less-than-truckload (LTL) carrier would not detail what proposed changes it has in mind. The extent of any operational upheaval "depends upon the savings ABF is able to achieve," it said. As of mid-2012, ABF operated 265 terminals nationwide.

Fort Smith, Ark.-based ABF added that its future success would not be linked to any improvement in the U.S. economy. ABF said that based on its historical growth patterns dating back to the 1930s, it can't produce the level of future growth needed to return the company to its pre-recession earnings levels. ABF has lost $230 million since 2009.

ABF's comments were in response to a Dec. 14 Teamster communiqué, which said the carrier's profits will rebound to pre-recessionary levels once the U.S. economy returns to a 4 percent or higher annual growth rate. ABF made clear that it was not happy that the Teamsters would issue a statement on the talks four days before they began.

The contract talks, which began Wednesday in Kansas City, are aimed at negotiating a new pact covering ABF's 7,500 unionized workers before the current agreement expires on March 31. ABF is negotiating this contract on its own rather than as part of the National Master Freight Agreement (NMFA), the near 50-year-old compact that has long governed labor relations in the trucking business.

On Nov. 29, Teamster locals representing ABF workers voted to approve a proposed two-year agreement calling for a $1-an-hour wage hike for each year and maintenance of the union's current pension, health, and welfare benefits. More likely by design than coincidence, the duration of the proposed contract coincides with the expiration of the Teamsters' current pact with YRC Worldwide Inc., ABF's chief unionized rival. ABF is unlikely to agree to a contract of such short duration and with that level of rate increases.

In its comment, ABF again drove home its long-held point that the status quo is no longer acceptable in an industry dominated by nonunion rivals. The company noted that six out of 10 unionized LTL jobs have disappeared since 1999. During that period, the number of nonunion jobs increased 160 percent, it said. "Even during periods when the economy was strong, this trend continued," it said.

The numbers, if accurate, hurt ABF in two ways. First, it makes it tough for ABF to compete against nonunion rivals. Second, because the company participates in multi-employer pension plans requiring it to also contribute to the pensions of workers at now-defunct firms, it is responsible both for the pensions of its own workers and, to some extent, payments to those who may have never worked at ABF. The company said its 2011 pension costs totaled $132 million.

As of mid-2012, salaries, benefits, and the cost of purchased transportation represented 71 percent of ABF's expenses, according to data from SJ Consulting, a Pittsburgh-based consultancy. A source that asked for anonymity said earlier this month that executives at several nonunion carriers estimate they hold a wage and pension cost advantage of between 25 and 40 percent over ABF.

ABF's labor problems are compounded by the cost advantage also held by rival YRC, which negotiated three separate agreements with the Teamsters in 2009-10 that lowered YRC workers' wages and allowed the company to defer required pension contributions. ABF attempted to obtain similar concessions from its rank-and-file but were rebuffed.

Pension expenses today account for up to two-thirds of the $11- to $12-an-hour cost gap per employee between YRC and ABF, according to Ken Paff, national organizer of dissident group Teamsters For a Democratic Union.

Paff told DC VELOCITY earlier this month that said there's virtually no chance that ABF employees will agree to contract concessions equal to the current cost differential with YRC.