YRC Worldwide Inc.’s union workers unloaded at least $45 million in monthly costs for the company when they approved a second round of concessions.“This is an important step forward in our comprehensive recovery plan,” YRC Chairman and CEO Bill Zollars said in an online video to customers.
But the vote probably means only about a $7 million a month incremental cash benefit, leaving the trucking titan with plenty of weight to shift — including improving its freight volumes — to roll out from under its financial woes. Some analysts still doubt YRC can avoid bankruptcy much past the end of the year.
On Aug. 7, International Brotherhood of Teamsters members agreed, among other things, to forfeit 18 months of pension payments and take an extra 5 percent pay cut, for a total 15 percent cut this year. Because YRC already deferred about $128 million in pension payments in the second quarter, the concessions bring only an incremental cash benefit, analysts said. Other variables, some of which YRC has little control of, have to cooperate for it to survive and head to black.
Results must improve each quarter, shipping volumes need to stabilize or recover each quarter, and cost-saving measures and cash-building arrangements have to proceed as expected, YRC said in an Aug. 10 Securities and Exchange Commission filing. A key hurdle — without which the union can terminate concessions — is resolving almost $387 million of bonds in the first half of 2010. Pension funds also must allow YRC to skip 18 months of pension payments.
Key unknowns remain: customer decisions about continuing to ship with YRC and freight economy recovery, particularly the less-than-truckload (LTL) segment in which YRC leads.
An area third-party logistics provider, who asked not to be named, said a local client shipped about 40 percent of freight with YRC last year and by June had cut that to 25 percent, with the intention of reaching zero. The shift began because of service concerns and now is based on YRC’s finances, the source said.
Should YRC fail, the source said, it would be “unbelievably devastating to the local economy.”
YRC senior managers are spending the second and third weeks of August on the road, trying to reassure key customers.
Freight tonnages have yet to show promise. In June, the most recent month for which data is available, the American Trucking Associations’ truck tonnage index fell 2.4 percent, after a 3.2 percent rise in May.
“We did a dramatic fall off a cliff, and it appears we’re just sort of bouncing around on the bottom now,” ATA Chief Economist Bob Costello said. “But it’s a volatile bottom if we’re really at the bottom.”
He predicted a slow recovery, with growth beginning sometime this year and remaining slow into next year.
Recovery for the hard-hit LTL industry, which hauls consolidated small loads, probably will lag the overall industry, Costello said.
John Wagner Jr., president of North Kansas City logistics company Wagner Industries Inc., said he’s seeing stabilization in the freight market.
Although he said he expects a mild seasonal uptick in the fall, it would be up to YRC to recapture business and demonstrate improvement.
He said he’s heard stories of “dirty sales tactics” by carriers trying to scare customers away from YRC. However, small and midsize shippers are swayed more by price and service.
“Right now, price is the name of the game,” Wagner said.
