Summary
Teamsters are YRC Worldwide's New Penn Northeast regional unit have voted by a nearly 3-to-1 margin to approve the company's wage and pension benefit concessions. The actual vote was 890-to-329. This comes after YRC threatened to close the unit and fold some of the jobs into its larger Holland Central States regional unit. Even with those threats, New Penn Teamsters in Local 25 in Boston and in Local 107 in Philadelphia rejected it.
Analysis
Well, it took two votes but more than 1,200 Teamsters at YRC Worldwide's financially ailing New Penn unit in the Northeast approved a wage and pension benefit cut the second time around.
The ratification came by nearly a 3-to-1 majority after YRC officials not so subtly threatened to close the company and move a few jobs to its Holland subsidiary in the Central States.
The ratification came after urgings from both the company and the Teamsters' National Freight Industry Negotiating Committee (TNFINC) urged rank and file to OK the concessions. Under the plan, Teamsters would accept another 5 percent wage cut (on top of the 10 percent concession earlier this year) and a pension freeze for at least 14 months.
Clearly, New Penn is hurting. YRC doesn't break out company by company performance. Instead it lumps New Penn's data into its "regional group," which has seen revenue decline in excess of 33 percent in the past year. Its operating loss was $120 million last year for the regional group, which also includes the larger Holland and smaller Reddaway units.
That is a stunning reversal from when New Penn operated as a stand-alone company, routinely posting operating ratios in the low 80s or even high 70s. Even after it was purchased by Roadway Express, New Penn was solidly profitable.
It was only after YRC bought Roadway in 2003 (and assumed control of New Penn, absent its majority owner Ed Arnold, a trucking legend) that New Penn's profitability went downhill.
What happened? Loss of control, loss of key management and sales personnel and invasion of the Northeast by rough-and-tumble LTL giants FedEx Freight and UPS Freight helped hasten New Penn's demise.
New Penn simply now does not stand apart from other YRC operating companies. YRC's management appears to be taking a one-size-fits-all approach, even though New Penn operates in a distinctly different environment in the high-cost, high-tax, congested Northeast regional where only the best survive. Just ask New England Motor Freight, the dominant LTL player in the Northeast, how difficult it is to turn a profit in that region.
I believe New Penn has been on the sales block by YRC Worldwide for much of the past year or two. But given the dire financial straits of both the industry and this company, I can imagine there can be too many takers. The fact that New Penn is unionized further muddies the situation. That would likely mean that only an ABF Freight System, a unit of Arkansas Best, or perhaps a UPS could buy New Penn. Likely, both companies investigated the company, but passed on any buy.
So what's the future for New Penn? Likely it will continue operations--it probably would cost YRC more to close the company than to operate it as it now is configured--but I don't see any sharp upturn company. The sharks from rival LTL carriers--NEMF, Estes, Con-way, FedEx Freight and others--are circling the waters, sniffing blood. They don't figure to let up any time soon.
With proper management and sales personnel, I believe New Penn could be turned into YRC's most profitable unit, pound for pound. But that would take a commitment, heretofore lacking, to run New Penn uniquely as a stand-alone Northeast regional carriers.
Like it was before YRC Worldwide came along.
John Schulz consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
