Teamsters Ratify YRC Wage Cut

By Rip Watson, Senior Reporter

This story appears in the Jan. 12 print edition of Transport Topics.

The Teamsters union said employees at YRC Worldwide Inc. have approved a landmark 10% wage cut to help reduce costs as the largest less-than-truckload carrier struggles with falling tonnage in a weak economy.

By an approximately 3-to-1 margin, drivers, dockworkers and other union members backed a plan that gives them a 15% stake in YRC in exchange for reductions that could save the company at least $220 million a year. More than 75% of the 40,000 eligible voters returned their ballots by the Jan. 6 deadline, the union said Jan. 8.

YRC approached the union about wage cuts as industrywide freight levels deteriorated. Falling business also has been pressuring competitors such as Arkansas Best Corp., FedEx Freight and National LTL, Con-way Freight and Old Dominion Freight Lines. YRC’s tonnage dropped more than 10% in October and November.

The union last approved LTL wage cuts in 2002.

“While we never want to see wage reductions, this vote shows that our members understand that we are facing the worst economy since the 1930s and that the company needs some help to get through this difficult period,” said Tyson Johnson, director of the Teamsters National Freight Division.

When ballots were sent last month to union employees at Yellow, Roadway, USF Holland and New Penn, union leaders told the workers “any potential prospect of a near-term collapse of the union’s second-largest employer would have a catastrophic and irreversible effect.”

A 15% stake in YRC through is-suance of warrants to buy 9 million shares of stock was offered as a way for union workers to recoup losses from the pay cuts if shares rise in the future. Before the vote count was announced last week, the stock traded under $5 a share, compared with about $15 last January.

“During a time of economic hardship, we are proud of the understanding and support of our employees,” YRC Chief Executive Officer William Zollars said. “This agreement is another critical step in our wide-ranging plan to strengthen our balance sheet, while enhancing service for our customers through our national integration of Yellow and Roadway.”

While ballots were being cast, YRC told the union it will move up the integration date of the Roadway and Yellow units to March 1.

The wage-cut deal announced on Dec. 3 runs through the end of the National Master Freight Agreement in March 2013 and represents about $2.20 an hour. Benefits aren’t being cut.

The company also reduced wages and benefits for nonunion workers by a percentage that was equivalent to, or greater than, union wage cuts.

YRC said in a Jan. 7 regulatory filing that it was creating a stock-option plan for nonunion workers that could result in the company issuing another 5.3 million shares. Those options will vest at 25% a year, starting in January 2010, and awards will be based on pay levels.

In addition, YRC reduced its debt load by buying back notes, and plans to raise cash by selling or leasing assets that won’t be needed after the integration.

YRC on Dec. 24 ended a tender offer of up to $150 million for contingent convertible notes because that offer was contingent on the outcome of the wage concessions balloting that had not been completed.

During the fourth quarter, a debt downgrade forced YRC to pledge its terminals and rolling stock as collateral. Just before Christmas, the company said it was seeking to renegotiate debt obligations because it faced tighter financial performance targets in order to stay within its debt covenants.

Voting was extended for one week beyond the original Dec. 30 deadline because of demand for ballots, mail delays and bad weather, the union said.

The union last agreed to a wage cut for an LTL carrier in 2002 at Consolidated Freightways Inc., which subsequently went out of business. Cuts also were negotiated in 2007 for Teamsters at Allied Systems Holdings, an auto hauler, which remains in business.

When the Dec. 3 agreement was announced, YRC said the cuts would make the company more competitive with nonunion carriers and sustain the company for the long-term.

Through the integration, the company hopes to boost its operating earnings at least $200 million annually by trimming down to a network of about 450 terminals.