ABF Freight Systems, the less-than-truckload (LTL) unit of Arkansas Best Corp., and national leaders of the Teamsters union late Friday reached a tentative five-year labor contract governing 7,500 unionized ABF workers. However, ABF's efforts to bring its high labor costs in line with its rivals are far from over.
It is expected that within two weeks, leaders of the Teamster locals representing ABF workers will meet to vote on endorsing the contract. Should the local chiefs approve, the contract would go before ABF's rank-and-file, a scrappy group that in 2010 rejected a proposal calling for wage reductions and benefit cuts similar to those granted in 2009-2010 by Teamsters employed at archrival YRC Worldwide.
The rank-and-file's decision spawned what has become a near three-year lawsuit filed by the company against YRC and the Teamsters alleging the agreements were negotiated outside the national compact that governs trucking labor relations. It has also been, in management view, a key factor behind Fort Smith, Ark.-based Arkansas Best's cumulative losses of more than $230 million since 2009.
The Teamsters declined comment beyond a statement confirming a tentative five-year deal had been reached. ABF also declined comment beyond its own prepared statement. In the statement, the company said it was "very pleased" that an agreement was reached, adding the compact would "maintain the best-paying jobs in the freight industry" and allow unionized workers to remain in its pension funds.
Arkansas Best, which has the highest labor costs in the LTL industry, has recently become increasingly vocal about the need for labor cost reductions in order to remain competitive with YRC and with the nonunion carriers that have come to dominate the LTL space. Management raised the ante last December when it warned it would need to make "extensive changes" to its network if it was unable to dramatically lower its labor costs and increase its flexibility through a new labor contract. Those changes could include shutting terminals and distribution centers, the company said at the time.
Charles W. Clowdis, a long-time trucking executive and current managing director of transportation advisory services at the consulting firm IHS Global Insight, estimates that YRC's labor costs are about 35 percent below ABF's. Clowdis added that YRC's current labor cost structure could even fall below that of some major nonunion carriers.
One of YRC's biggest cost savings has been in the pension contribution arena. In mid-2009, as the company was hurtling towards a bankruptcy filing, it struck a deal with the Teamsters to suspend pension contributions for 18 months. When the contributions resumed at the start of 2011, they were only at one-quarter what they were prior to the 2009 deal. YRC is scheduled to resume full contributions in 2015, at which time it will face a $5 billion liability, estimates David Ross, transport analyst for Stifel, Nicolaus & Co., an investment firm.
Although virtually impossible to quantify, it is widely believed ABF's labor costs make it burdensome to gain or keep business in the fiercely competitive LTL industry. ABF's parent, which generated about 80 percent of its overall revenue from traditional LTL trucking in the first quarter, is attempting to diversify into largely nonunion areas. The most notable of these efforts is the company's $180 million purchase of the nonunion expedited transportation company Panther Expedited Services Inc. last June. The Panther unit contributed $53.2 million in revenue in the first quarter, according to ABF's financial results released last week. However, the unit reported an $864,000 operating loss due to subpar customer demand and high upfront investments in its business.
Coincidentally, the ABF-Teamster deal was announced the same day that YRC and its YRC Freight long-haul unit reported first-quarter operating gains for the first time since 2007.
It also comes a little more than a week after UPS Inc. and Teamster leaders reached tentative five-year labor contracts covering nearly 250,000 unionized employees at UPS and the company's LTL unit, UPS Freight. Those agreements would cover about 240,000 Teamster members working in Atlanta-based UPS' small-package operations and another 10,000 to 12,000 union workers at UPS Freight. Combined, it represents the largest collective-bargaining agreement in North America.
Local union leaders for UPS are expected to meet tomorrow to review the tentative agreements.