Teamster's vote only a start on YRC Worldwide overhaul

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.

As trucking goes, so goes the economy

Looking for signs of economic recovery? Try counting the number of trucks on the road.

Trucks carry almost all the manufactured and retail goods in the country - from refrigerators to lumber, detergents to toys. Many economists gauge how fast assembly lines are running, and how much consumers are buying, by the volume of goods hauled by trucks. But the most recent earnings reports show trucks are not carrying enough yet to indicate recovery is near.

Slow consumer spending and stalled manufacturing activity took its toll on truckers in the first three months of the year. Nearly all major trucking companies reported lower first-quarter revenue and falling profits as the recession continued and shipping demand slid. Many cut back their fleets because of soft demand. Werner Enterprises Inc., for example, said it trimmed an additional 4 percent of its fleet of over 8,000 trucks in the first quarter. Many companies said more cuts will come.

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Obama: Transportation can get economy moving

When President-elect Barack Obama says he wants to get the economy moving again, he means it quite literally.

Transportation will play a central role in Obama's first months in office, not just for policy changes aimed at improving highway, air and rail travel, but as a road toward economic recovery, energy independence and environmental protection.

Solve road congestion, Obama's reasoning goes, and you put people to work.

Use less gasoline and help clean the air.

Build better trains and move goods more efficiently.

Get people out of their cars and reduce greenhouse gas emissions.

"We will create millions of jobs," he said recently, "by making the single largest new investment in our national infrastructure since the creation of the federal highway system in the 1950s."

This expansive approach contrasts with the Bush administration's policy that transportation - like other government functions - works best when it is in private hands, or at least in a public-private partnership.

Adopting a libertarian, smaller-government-is-better approach to repairing and modernizing the nation's transportation systems, Bush sought to shift more responsibility to state and local governments and encouraged the use of tolls and private enterprise to pay for it.

Obama is not necessarily against such arrangements. He just thinks the national government should play the leading role in a transportation network on which the country and its economy depends.

"Now is the time to invest in our future and strengthen our core infrastructure," Obama said in an October letter to a coalition of groups interested in transportation and environmental issues. "With unemployment rising, these investments are even more important."

Obama takes office as many critical transportation issues are coming to the fore, creating what some experts see as a once-in-a-generation opportunity to remake national policy.

"What's very hopeful about this president, when it comes to infrastructure, is he's prepared to think big," said Janet Kavinoky, chief transportation lobbyist for the U.S. Chamber of Commerce. She said there is broad political support for major changes in transportation policy.

Obama's transition team is working with congressional Democrats on an economic aid bill that could total as much as $500 billion. The hope is to have it ready for the new president to sign when he takes office Jan. 20.

While details have not been finalized, the bill is expected to include tens of billions of dollars for highway, mass transit, airport, and intercity passenger and freight rail improvements.

Bush's transportation philosophy "seemed to be, `This is what the federal government should be responsible for and nothing else.' And the `nothing else' category was public transportation," said William Millar, executive director of the American Public Transportation Association, whose members include transit agencies.

Obama, on the other hand, has described himself as a strong advocate of mass transit.

While Bush proposed what some lawmakers described as "starvation budgets" for Amtrak, Obama has pledged support for the passenger rail carrier and for developing a national network of high-speed passenger trains.

The Bush administration has feuded bitterly with air traffic controllers since the Federal Aviation Administration imposed a contract in 2006. Obama has promised to appoint an FAA administrator who will work cooperatively with controllers.

Bush tried to ease cross-border trucking between the U.S. and Mexico, angering domestic truckers who fear the competition and say safety would be compromised. Obama promised the International Brotherhood of Teamsters to aggressively inspect cross-border trucks and buses and enforce safety regulations.

Obama's transportation goals face several potential roadblocks.

The federal program that provides aid to states for highway construction and transit expenses expires on Sept. 30, 2009. The current program was funded at $286 billion over five years. Its cost is mainly underwritten by the federal 18.4 cents-per-gallon gas tax, but revenues have failed to keep up with obligations.

Last January, a blue-ribbon transportation commission recommended increasing the gas tax as much as 40 cents a gallon over five years. The additional money would to help cover the federal share of an estimated $225 billion the commission says is needed each year to upgrade transportation systems.

Boosting the gas tax carries political risks. The last time it was raised, a backlash against Democrats in the 1994 elections helped Republicans capture control of the House and Senate. Obama has expressed concern about raising taxes in the current economic climate.

Even without an increase, Obama will have to deal with environmentalists who want to undo a bargain struck during the Reagan administration that funnels roughly 80 percent of gas tax revenue to highway projects and 15 percent to transit. They want to redirect money away from highways to alternatives such as transit and intercity passenger trains.

Obama's energy plan calls for saving as much oil as the U.S. currently imports from the Middle East and Venezuela within 10 years, which is about 3.5 million barrels a day.

"That's going to require a pretty robust program to save oil, which means not just better vehicle technology and not just alternative fuels. ... Something will have to be done about transportation policy," said Deron Lovaas of the Natural Resources Defense Council.

"The question is, does it make sense if energy security is an overarching national commitment to stick to ... a 25-year-old deal?" Lovaas said. "I think the answer is, `No.' That's going to be an enormous fight."