ABF, Union Reach Agreement on 15% Reduction in Wages

This story appears in the April 26 print edition of Transport Topics.

Arkansas Best Corp.’s ABF Freight System and the Teamsters union said they have reached agreement on a 15% wage reduction to help the less-than-truckload carrier cope with losses triggered by the recession.

The plan, which is subject to ratification by union members, includes a provision that managers and other nonunion workers would receive the same percentage reduction, including the benefit, pension and wage adjustments that already have taken effect for those workers. The agreement also calls for the gradual restoration of the cuts for union workers as ABF’s profitability improves.

ABF is the second less-than-truckload carrier to win a wage concession deal from the Teamsters union, more than a year after YRC Worldwide first won a deal, partly by trading an equal wage cut for company stock.

Unlike YRC’s plan, ABF will keep making payments to Teamster union pension plans, and ABF workers also stand to gain bonus payments when that carrier becomes profitable again.

“Local union leaders understand that we need to take a bold step to help ABF get through this terrible economy and that we must act now to prevent far worse problems down the road,” Tyson Johnson, director of the union’s National Freight Division, said in a newsletter sent to union workers. “No one wants to see wage cuts, but this agreement protects ABF members’ jobs and their health, welfare and pension benefits.”

ABF began talking with the union about cost reductions during 2009 as losses mounted. The trucking company’s operating loss was $168.7 million in 2009, after ABF posted a profit before taxes and interest of $49.1 million the year before.

“We are pleased to have reached a tentative agreement with the IBT [International Brotherhood of Teamsters] and are also pleased by the overwhelming endorsement by the local union leaders,” ABF spokesman Danny Loe told Transport Topics. “We appreciate the many hours given by the Teamster negotiators and leadership in working to finalize the tentative agreement and are pleased by the insight and wisdom shown in electing to take this action now before our financial situation deteriorates further.”

Leaders of union locals recommended approval of the plan after hearing details at an April 19 meeting in Chicago. The union said ballots would be sent out April 29.

Analysts said they expected the vote would be close and the rank-and-file might reject the deal because ABF is in a stronger financial position than YRC and there is a perception that the LTL market is improving, which could boost profits. The second round of YRC wage cuts passed by less than a 3-2 margin last year, but the initial 10% cut was approved by close to 80% of union workers.

One-third of the ABF wage cut will be restored in April 2011 and another one-third a year later, if ABF’s operating ratio is below 97 or earnings before interest, taxes, depreciation and amortization are $99.5 million or more for the prior calendar year.

ABF in 2008 posted an operating ratio of 97.2, compared with 107.2 last year. During 2007, the operating ratio was 95.1.

The union said that the “snap-back” or restoration of a portion of the cuts was a “distinct possibility” because ABF’s financial situation was not as bad as other carriers.

As currently structured, the wage reduction would extend until the current National Master Freight Agreement contract expires on March 31, 2013.

In addition to the potential restoration of some wage reductions, workers also would receive what the union described as an “Earnings Plus Plan,” which would give workers a percentage bonus based on quarterly profits when the operating ratio falls below 98. The percentage amount wasn’t disclosed.

Cost-of-living increases based on the federal Consumer Price Index also would continue, the union said.

Neither the company nor the union estimated how much ABF would save if the plan is ratified.

The savings would be more than $60 million a year if the company’s union workforce averaged 8,000 during the year, and those workers’ pay was cut at least $3.55 an hour from the prevailing $23.66 an hour base.

Last year, the total company workforce averaged nearly 10,000, 75% of whom were Teamsters union members.

If approved, the agreement would take ABF partway along the same path that YRC Worldwide took to slash its costs last year, in response to far larger operating losses that totaled $877.9 million.

YRC and the union agreed to a total pay cut of 15%, and the company cut wages and benefits for nonunion workers by an equivalent amount.

YRC also won cessation of pension contributions for part of 2009 and all of this year, saving the carrier at least $100 million a year.