Saber-rattling begins ahead of LTL labor negotiations

O’Brien took the helm in March after winning an election by a wide margin. He has vowed to rebuild the organization and take a hard-line approach in contract negotiations. He recently voiced a similar tone heading into labor talks with UPS (NYSE: UPS).

“The day our administration took office was the day concessions to the freight industry ended. We’re eager to get to work on negotiating contracts that raise standards and rebuild this industry for workers,” O’Brien said, referring to past negotiations in which members accepted cuts to wages and benefits to keep struggling carriers afloat.

The news release said the union has received a record number of responses to bargaining surveys from workers at ABF and TForce.

The agreements with the two companies cover more than 15,000 members.

An agreement covering roughly 25,000 workers at Yellow (NASDAQ: YELL) expires March 31, 2024. Negotiations for that deal likely won’t ramp up until later this year. The union is currently in a dispute with Yellow regarding proposed changes to operations that would further consolidate terminals and redefine work rules for some employees.

Judy McReynolds, ArcBest’s chairman, president and CEO, took a more measured approach when discussing the upcoming interchange.

“We’re prepared for what’s coming in terms of the contract negotiations. I feel like our team has prepared and planned, and we’re in a good place, and our leaders are regularly in the field with our employees and hear directly from them about what’s on their minds,” McReynolds told analysts on a call discussing fourth-quarter results.

“I’ve been through a number of these, and they’re all different, but as long as you’re prepared and you have a good approach and intentions and information, typically, we can work our way through this.”

The negotiations come at an inflection point for the industry.

An extended pullback in retail demand is coinciding with a softening in industrial markets. Tonnage for most carriers turned negative at the end of the summer with the year-over-year (y/y) declines accelerating through the end of the year. Several carriers reported mid- to high-single-digit tonnage declines during the fourth quarter; however, yields increased by a similar percentage when excluding fuel surcharges.

As far as the negotiations, the union will be able to point to multiple quarters of record profits as justification for higher wages. Carriers will call out the potential for a global recession and assert that weakened demand and broader cost inflation will weigh on earnings in 2023 and potentially beyond.

However, management teams from most LTLs are calling for normal seasonality and higher volumes to return by midyear.

ABF’s current contract stipulates approximately a 2% annual bump to wages and benefits. The agreement also has a profit-sharing component paying up to 3% based on the unit’s performance. ABF has produced operating ratios warranting the maximum payout over the past several quarters.

Negotiations with Yellow may be tougher given that it continues to lose money as it executes a companywide overhaul. Yellow posted a 99% OR, excluding a gain on the sale of a terminal, during the fourth quarter, meaning it was barely profitable at the operating line before interest, taxes and other items are paid. The company booked a fourth-quarter net loss of $15.5 million when including the $28.2 million gain.

The company normally sees 200 basis points of margin deterioration from the fourth to the first quarter.

“We are ready, we are militant, and we will win strong national contracts for Teamster members at TForce and ABF this year,” said John Murphy, Teamsters freight division director. “Our negotiating team isn’t going to back down. We have a plan and a vision focused entirely on getting our freight members what they deserve.”

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