If ever there was a communique that spoke volumes while saying very little, it was the Teamsters’ union announcement late in the evening of March 21 that its lead freight negotiators had reached a tentative contract agreement with three of less-than-truckload (LTL) carrier’s YRC Worldwide, Inc.’s (NASDAQ:YRCW) units – YRC Freight and regional carriers New Penn and Holland.
Unsurprisingly, the four-paragraph statement was bereft of details – there wasn’t even a mention of the contract’s duration. The current compact, which was set to expire on March 31 but was extended through May 31, was set to run for five years. The tentative agreement goes through a two-step process before the 26,000-member rank-and-file get their hands on it. Union leaders will first brief a cadre of two-person union teams. Those teams, in turn, will brief local officials. Then the rank-and-file will be briefed, and then there will be a ratification vote. Until the teams are briefed, everyone is sworn to secrecy.
Yet Ernie Soehl, head of the Teamsters’ freight division, used phrases in the communique that could be interpreted as thought-provoking. Soehl said that Teamsters negotiators “certainly got creative, but I believe we got every penny we could have and that this contract will improve Teamsters’ lives.”
Members of YRC’s rank-and-file could not be blamed for holding tight to their wallets after reading Soehl’s comments. No one knows how “creative” union negotiators had to be in order to strike a deal. Just a few days before, Soehl had complained about how disappointed he was in YRC’s latest offer. As for getting “every penny we could have,” the language smacks of a union that, try as it might, ran into a stone wall when trying to extract what it felt it was entitled to.
Soehl was dead-on when he said that “there were a lot of issues, history and emotions involved with these negotiations.” Few groups in organized labor have been as battered as have YRC’s Teamsters. In 2009, with their company on the verge of collapse, they agreed to a debt-for-equity swap that diluted their collective equity holdings to near zero, a 75 percent chop in pension benefits, and a 15 percent wage cut. In 2010, the wage cuts which were to expire in 2013 were extended for two years. Then in 2014, with YRC management warning of bankruptcy because its lenders would not restructure $1.14 billion in debt and lower its onerous interest payments unless a contract extension was ratified through March 31, 2019, the rank-and-file grudgingly went along.
YRC got some breathing room in late 2017 when its lenders agreed to extend the maturity date for a $641.7 million term loan to July 26, 2022 from 2019. However, the company still faces massive unfunded pension liabilities, which at the end of 2017 totaled $2 billion. The 2009 agreement pegged YRC workers’ pension benefits at the equivalent of $1.75 an hour, effective in 2011. By contrast, the 2018 contract between the Teamsters and ABF Freight, the LTL unit of ArcBest Corp., (NASDAQ:ARCB) and the yardstick by which YRC’s workers measure their status, provides benefits equal to about $7.83 an hour. YRC would need to raise benefit levels by about $6 an hour per worker to be in compliance with its obligations, according to Ken Paff, national organizer for Teamsters for a Democratic Union, a dissident Teamsters group.
Two analysts, Amit Mehrotra of Deutsche Bank and David G. Ross of Stifel, published notes this morning saying that news of a tentative agreement was a positive for YRC. Yet the devil is in the details, which at this point nobody knows. What is known is that after 10 years of watching a large part of their economic security vanish, the folks who make the YRC system run every day are in no mood for additional concessions or an extension of contract language currently in place. At the same time, YRC operates in a competitive segment, and its pension obligations and additional debt load may constrain it from conceding more than it feels it has to. The two-month extension is designed in part to give the rank-and-file time to cycle through the ratification process. The spring could very well spawn a donnybrook.