This story appears in the June 22 print edition of Transport Topics.
YRC Worldwide last week said it has reached an agreement with the largest pension fund that pays benefits to YRC’s unionized employees. The agreement allows the company to defer $83 million in second-quarter pension payments while it provides real estate as collateral.
In the deal, which was announced June 18 after negotiations with the Teamsters union and trustees of the Central States Funds, YRC said it would pay its deferred obligations from January through the end of 2012. The company contributes to a number of Teamsters’ multi-employer benefit plans and Central States is the largest, taking in 58% of the company’s spending on such funds.
The less-than-truckload giant, which ranks No. 4 on the Transport Topics list of the 100 largest U.S. and Canadian for-hire carriers, also said it has started a plan to reduce its multi-employer pension costs and is accelerating the trimming of its terminal network.
“These transactions are especially critical as we continue to face substantial headwinds from the global economic recession,” William Zollars, YRC’s chairman and CEO, said in the statement.
“Today’s announcement marks important milestones, which are part of our overall strategy to provide us with greater financial flexibility during the economic recession, giving us additional liquidity and the ability to use our cash to support the business,” Zollars said.
Teamsters union spokesmen were unavailable for comment.
YRC had stopped making cash pension payments, and at least two funds terminated YRC’s participation in their plans, a first step that might lead to broader liability for the company.
The issue for YRC is that about half of those payments, which total about $500 million annually, pay for benefits to union workers from failed less-than-truckload companies that never worked for a YRC unit.
“We do want help in fixing the structural inequities created by multi-employer pension plans,” Zollars said in an e-mail to employees. “We don’t want a bailout.”
Last month, Zollars told a reporter the company was exploring the prospect of seeking Troubled Asset Relief Program bailout money — the funding source that helped automakers and banks — to defray the company’s pension costs. However, YRC has not applied for TARP funds.
Both Zollars and Arkansas Best Corp. CEO Robert Davidson have said they favor federal legislation to change the multi-employer obligations that were established soon after deregulation, when the unionized LTL business was thriving.
Today, Arkansas Best’s ABF Freight System and UPS Freight are the only other unionized LTL companies with revenue exceeding $1 billion.
On the operational front, YRC said June 15 it would move more quickly to slim down its terminal network. The new plan calls for reducing terminal numbers to about 400 from 430 by the end of the second quarter — instead of the company’s earlier year-end target — to further reduce operating expenses.
Fewer terminals “will result in a meaningful reduction in fixed and variable cost,” the company said in an e-mailed statement.
Before network integration began, YRC’s national units had a total of 570 terminals and employed at least 45,000 Teamsters, a number that has shrunk to about 35,000 as the recession has lowered freight volumes and rates and as intensified competition led to market-share losses.
Zollars has estimated that savings from previous moves to integrate national and some regional operations, a 10% Teamsters wage reduction and other cuts would lower costs by $665 million a year. His e-mail to employees also noted that YRC was well above its required $100 million cash minimum under loan covenants.
In its June 18 statement on Central States, YRC also said it would use $73 million from recently released escrow funds to pay down some of the money owed in its revolving credit facility. The escrow funds were set up as part of the company’s sale/leaseback of a substantial part of its terminal network.
Associate News Editor Jonathan S. Reiskin contributed to this story.