The Teamsters Are Not to Blame for YRC Wordwide's Current Desperation

Implications

YRC Worldwide has too much debt, has lost nearly $2 billion in the last nine quarters, is downsizing its network and has outdated work rules. Of all those shortcomings, probably only the latter can be blamed exclusively on the Teamsters' union. Yet an article in Today'sFinancialNews.com tries to blame all of YRC's shortcomings on its union, and very little to management's buying binge earlier in this decade that saddled the company with an unrealistic debt load.

Analysis

YRC Worldwide, the nation's largest trucking company by revenue, is facing a financial showdown with its consortium of bank lenders. It has a liquidity crisis that may cause it to file for bankruptcy or liquidation.

If it is lucky, YRC's consortium of lenders will continue to throw the company more financial rope. If it is lucky, its customers will continue to enjoy the deep discounts it is offering for its services. If it is lucky, the economic downturn will finally turn around and the company may survive.

But none of these circumstances would have happened without the cooperation and, yes, enlightened labor relations approach showed by its 50,000 Teamsters members and its president, James P. Hoffa, son of the legendary Teamsters leader.

The Teamsters have shown remarkable flexibility in helping YRC stay afloat. They have approved one wage giveback of 10 percent and probably are close to approving another 5 percent shave. These wage cutbacks are saving the company approximately $250 million a year.

Furthermore, and maybe more importantly to freight Teamsters whose average age is about 60, the Teamsters have OK'd a pension contribution freeze to allow YRC to remain financially viable. In the first quarter alone, that pension payment deferral was worth about $83 million.

Now that YRC's shares have sunk to about the buck-a-share level, a reporter, Andrew Snyder of Today'sFinancialNews.com, has written that all this is because of stubbornness by the union.

Mr. Snyder writes: "In YRC's case, the Teamsters are maintaining their infamous negotiating might and bargaining themselves right out of a job."

That is exactly, precisely, and stunningly, 100 percent wrong, Mr. Snyder.

In fact, Teamster flexibility and willingness to work with management are the only reasons this company is still afloat. Time after time when YRC officials have gone to the Teamsters asking for concessions, they have obtained them.

Now, I'm not going to go as far as saying the Teamsters have been blameless in other unionized trucking companies' demise. After all, more than 500,000 Teamsters jobs in the freight sector have disappeared since the industry was deregulated in 1980.

But those closings have nothing to do with YRC's current plight. YRC is in the trouble it is in because of its overwhelmingly high debt load.

David Ross of Stifel Nicolaus has estimated YRC has $1.427 billion of total debt, including $728 million to its group of bank lenders. Those banks have chosen to keep YRC alive.

That $1.427 billion of debt is perhaps three times as much as an $8 billion-a-year company such as YRC can afford in lean times such as this. It suffers under that debt load because of a pair of ill-timed acquisitions -- Roadway Express in 2003 for $1.1 billion and USF Corp. in 2005 for $1.2 billion -- highly leveraged acquisitions that have been costly to YRC in the long run.

The Teamsters didn't have a darn thing to do with deciding to make those acquisitions, Mr. Snyder. The decision to plunge ahead with those debt-laden acquisitions lies squarely with YRC's management, specifically its Chairman and CEO Bill Zollars.

Even Zollars has admitted publicly that the Teamsters have been helpful in giving the company flexibility to survive. Mr. Snyder is correct in labeling YRC as a "high-risk, speculative play" for investors. But it is high risk because of management's decisions, not labor's.