On Jan. 9, YRC Worldwide Inc.'s unionized workers shot down a proposal to extend their collective bargaining agreement by a 5,000-vote margin.
On Jan. 26, YRC's unionized workers ratified the company's second proposal by a 6,000-vote margin.
What accounted for the wide swing in less than three weeks? Management may have succeeded during that time in persuading the rank and file that the choice came down to accepting a revised offer or kiss their company, and their jobs, goodbye. But it could have just as easily come down to one word: equality.
The company's first offer included wage increases and lump-sum bonuses for its drivers over the five-year life of the extended contract. However, it froze salaries for so-called non-CDL employees, or workers who don't hold a commercial driver's license. These employees include the thousands of dockworkers manning breakbulk terminals in mostly large, established markets. These cities have sizable voting blocks and have members both seasoned and active in labor contract issues.
Angered by the exclusion and by the prospect of no wage increases through March 2019, many workers told the company to pound sand; big markets like Los Angeles, Chicago, Atlanta, Dallas, and Kansas City had a wide swath of "no" votes, according to data from SJ Consulting, a Pittsburgh-based consultancy. SJ estimated that non-CDL employees account for 7,000 of YRC's unionized workforce of 26,000 to 30,000 members.
Stunned by the outcome, YRC executives scrambled to right the rig. Unlike the first proposal that was sent directly to the membership without any input from union negotiators, the second proposal was the byproduct of intense bargaining with Teamster hierarchy. It included, among other things, a softening of vacation restrictions, additional protections for drivers affected by provisions allowing YRC to subcontract up to 6 percent of its driver work, and language that would not subject any profit-sharing bonuses to the 15-percent annual wage reductions that were first negotiated in 2010 and will remain in effect through March 2019.
Perhaps most important, the revised offer brought nondrivers to parity with their driver counterparts; all union workers will now receive annual lump-sum bonuses in each of the extended contract's first two years, with annual hourly increases—offset by the 15- percent wage reduction—in the next three years.
The change in the wage language, combined with the knowledge that the union's top officials were involved in the process, may have turned the tide. SJ's data, which took the form of a map of YRC's nationwide terminal network, showed a dramatic shift in a number of key markets. Many cities that had either rejected the first offer or had split the votes down the middle swung to ratification the second time around.
The contract extension restarted the all-important debt restructuring process that had stalled after the initial vote. YRC said today it would go ahead with its plan to issue $250 million in equity, the proceeds of which will be used to pay off part of its $1.4 billion debt load. In addition, bondholders have agreed to swap an additional $50 million in debt for new equity.
The company is also expected to receive two five-year-term loans for a total $1.1 billion in two five-year-term loans. Each loan will be repaid at lower carrying costs than the crushing double-digit interest rates that currently accompany the company's debt service. YRC's lenders demanded a contract extension with labor concessions in return for agreeing to restructure the company's debt.
The ratification vote buys YRC labor peace for nearly the rest of the decade. But as in 2009 and 2010 when the rank and file agreed to three extraordinary rounds of concessions to keep the company alive, this latest cycle will not play out painlessly for labor. The company had estimated its original proposal would, along with unspecified corporate efficiencies, save it about $100 million a year. There is little doubt that a chunk of those savings will come on the backs of workers, especially since major wage and pension cutbacks already in effect will be unchanged.
For union employees at YRC's profitable regional division, the hurt of continued concessions is amplified by the bitterness of feeling like the proverbial good son punished for the sins of the father. The elder, in this case, is YRC Freight, the company's long-haul division, which has been an operating and financial mess since the old Yellow Transportation Co. bought rival Roadway Express in 2003 and launched what would become a disastrous, multiyear integration.
"It makes me sick to my stomach," said Stephen Walski, a Joliet, Ill.-based driver for Holland, one of YRC's regional carriers. Walski, an 18-year employee who had opposed further concessions, said many workers were scared by management's threats that the company would cease operations Feb. 1 if the revised offer was rejected. Walski said he was suspicious about the wide swing in the margins of the two votes and charged the union and the company with lying to the workers.
WELCH'S CHALLENGE
In this climate of mistrust, the burden falls squarely on YRC CEO James L. Welch to reassure anxious shippers,
boost the morale of deflated workers, and fend off thrusts by rivals poised to pick off profitable accounts if the
revised deal fell through. Welch will have several gusts of tailwind, namely a better—though hardly robust—economy;
a more disciplined pricing environment that will deter competitors from underbidding YRC for business; and a still-solid terminal
network with prime locations in markets like Chicago. YRC is also past a botched summertime network realignment of YRC Freight
that caused service disruptions, ratcheted up costs, and helped lead to the removal of Jeffrey A. Rogers as the unit's CEO.
Welch, who has since taken over the helm of the unit, said its operating metrics are back to where they were prior to the
start of the restructuring.
YRC also enjoys, from a wage standpoint at least, a seeming cost advantage over its two unionized rivals: ABF Freight System, a unit of Fort Smith, Ark-based Arkansas Best Corp., and UPS Freight, the LTL division of Atlanta-based UPS Inc. According to SJ data, the top rate for a YRC Freight driver in central Pennsylvania is $21.10 an hour. The top rates for ABF and UPS Freight drivers are $22.72 and $26.65 an hour, respectively. The regional data is representative of the nationwide wage differential between the carriers. Over the past three months, ABF and UPS Freight reached new collective-bargaining agreements with the Teamsters.
Satish Jindel, founder and president of SJ consulting, however, cautions that the data excludes the impact of health, welfare, and benefit contributions as well as work-rule changes, all of which can add or subtract to the total cost of a carrier's operations. Thus, there is no certainty that UPS Freight has the highest costs even though it pays the highest wages, he said.
YRC, which currently controls about 9 percent of U.S. LTL capacity, also has what is believed to be a loyal cluster of big customers, including The Home Depot Inc., Wal-Mart Stores Inc., the Boeing Co., and broker and third-party logistics giant C.H. Robinson Worldwide Inc. Welch said in an interview yesterday that YRC was regularly communicating with customers about operational scenarios but was not addressing financial issues with them.
A top-level transportation executive who asked not to be identified said it was in the shippers' best interests for YRC to remain on the road. "None of these guys want YRC to fail. It will cause panic and it will trigger chaos on multiple fronts," the executive said prior to the results of the second vote.
The most significant takeaway from this wrenching and seemingly endless saga is that YRC has gained financial breathing space, increased its operating maneuverability, and cast its lenders off its back. However, the company still has significant mountains to climb. It is a high-cost, unionized player in a largely low-cost, nonunion environment. It has old terminals and an aging fleet—although a fleet's age is less important for LTL carriers that don't log as many miles as their truckload brethren. One day, it will have to make good on a multibillion dollar pension nut. It still has a billion-dollar debt load, though it will be carried at lower interest expense than before. And those who've walked this road for the past five years know that YRC has made similar pledges of improvement before, only to return to the precipice.
Still, Jindel—who during YRC's darkest days in 2009 said that the company would survive while others wrote it off—believes that Welch is a strong and competent leader who now finally has the tools he needs to make YRC sustainable. "He has a very long runway to land safely on and bring people home," he said.
