Unionized workers at less-than-truckload (LTL) carrier ABF Freight System Inc. late last night ratified a five-year national collective bargaining agreement by a narrow 52-percent margin, according to the Teamsters union, which represents ABF workers, and the company.

The agreement takes both sides a giant step closer to ending an often tense, eight-month contract fight requiring three separate one-month extensions to the current agreement, which had originally expired March 31. Sandwiched between the talks was the surprising revelation that CEOs of ABF and arch-rival YRC Worldwide Inc. had met in late March to discuss a possible YRC purchase of ABF's parent, Arkansas Best Corp. Arkansas Best rebuffed YRC's advances, and it seems unlikely at this time that any transaction will take shape.

The ABF rank and file also ratified 21 of the 27 local or regional contract addenda, known in labor lingo as supplements, while rejecting six others. The national compact cannot be implemented until all 27 supplements have been renegotiated and ratified by the affected members.

The outstanding supplements cover various local work-rule and technical items, and don't affect the major economic issues covered by the master agreement, ABF said.

About 80 percent of the approximately 7,500 union members cast ballots.

TERMS OF THE DEAL
The tentative compact calls for an immediate 7-percent wage reduction, which would be recouped in increments over the life of the contract. For the first time, ABF can subcontract out roadwork, at least up to the equivalent of 6 percent of its total miles. The agreement affords the company flexibility on work rules by expanding functions that could be handled across job classifications. It also eliminates one week of workers' vacation.

In return, all current union health, welfare, and pension benefits will be maintained. Workers would get a 1-percent bonus if ABF's operating ratio—the ratio of expenses to revenues—fell between 95.1 and 96. They would get a 2-percent bonus if the ratio fell between 93.1 and 95, and a 3-percent bonus if it dropped below 93. ABF's first-quarter revenues totaled more than $407 million, while its expenses were nearly $429 million. That translated into an operating ratio of more than 100.

Labor sources have said the agreement freezes ABF's pension contributions to funds representing workers in the central and western U.S. Kathy Fieweger, a company spokeswoman, declined comment. A Teamster spokesman was unavailable for comment at press time.

Judy R. McReynolds, Arkansas Best's president and CEO, said the contract would result in a "more efficient, profitable ABF" that will work alongside Arkansas Best's other businesses. ABF accounts for about 80 percent of the parent's annual revenue.

"Once ratified, the national contract will protect our members' health, welfare, and pension benefits and will also give the company the ability to compete in a very tough trucking environment, which is good for ABF and the long-term job security of our members," said Gordon Sweeton, co-chair of the National ABF Negotiating Committee, in a separate statement.

TOUGH TALK ON WAGES
Arkansas Best and ABF executives have been very vocal about the need to drive down labor expenses through a new contract. ABF has the highest labor costs in the LTL sector, and management said its workers would still be the best paid after the agreement takes effect.

It is widely believed that ABF has been unable to bid on new business or has been forced to shed existing business because it cannot overcome its labor cost disadvantage. Most of the LTL industry is nonunion, and ABF's costs are significantly higher than those of its nonunion rivals.

The company has played public hardball over the issue. In December, it warned of "extensive changes" to its network, which could include the shuttering of terminals and distribution centers, if it couldn't reduce labor costs and increase flexibility through a new labor agreement. It also used the specter of YRC buy-out talks as leverage, saying in an e-mail communiqué earlier this year that failure to ratify an agreement could weaken ABF and make it easier for YRC to consummate its buy-out plans.

In the e-mail, executives told union workers that "if you vote yes and ratify the agreement... then ABF can continue on with our own plan to improve profitability, take back market share, [and] grow and protect your jobs and retirement benefits." By contrast, a contract rejection means the "likelihood that YRC would be able to consummate a deal grows higher," the document said. The date of the communiqué was unknown.

A freeze on pension contributions in two key regions could also help narrow the pension cost gap between ABF and YRC, one of its chief union rivals. ABF's pension contributions have risen 8 percent a year, on a compounded basis, since its last contract in 2008. Meanwhile, YRC was allowed by the Teamsters to suspend pension payments from the end of 2009 through mid-2011, and resume contributions at about one-fourth the rate that was in place prior to the suspension. YRC is not expected to resume full payments until 2015, at the earliest.

The pension expense today accounts for as much as two-thirds of the $11 to $12 an hour cost gap, per employee, between the two truckers, according to Ken Paff, national organizer for dissident group Teamsters for a Democratic Union (TDU).