DC Velocity - August 2011

In his final conference call with analysts, Zollars said YRC was gaining market share (though he couldn’t quantify it) and said former customers are returning to the company in increasing numbers.

FINANCIALLY FRAGILE

At the same time, Welch takes the reins of a company that remains financially fragile. YRC’s net losses widened in the second quarter to $39 million from $10 million in the 2010 quarter, and it also reported a consolidated operating loss of $2 million in the 2011 quarter versus consolidated operating income of $48 million in the 2010 quarter. The poor performance of YRC’s truckload operation—a small piece of the total company but one that reported an operating ratio of nearly 114 percent (meaning that for every $1 in revenue it had $1.14 in expenses)—led David G. Ross, an analyst for Stifel, Nicolaus & Co. and probably the company’s sharpest critic in the analyst community, to ask in a research note why YRC “continues to fund the unit’s operating losses” especially in an improved environment for the truckload industry.

Ross was unimpressed with YRC National’s performance in generating compensatory yields on its traffic, measured in revenue per-hundredweight. YRC National reported a 6-percent increase in revenue per-hundredweight year over year. However, Ross said that with the significant escalation in fuel surcharges over that period adding to YRC’s revenue, the company’s yields should have been in the 8 to 10 percent range.

Ross acknowledged that many of YRC’s national account contracts could have fuel caps that prevent the company from fully recouping its own fuel costs. However, Ross said the results tell him that YRC is having a tough time obtaining the increase in base rates it needs to remain competitive and profitable.

Lurking in the shadows is an ongoing legal fight with rival ABF Freight System Inc. Late last year, ABF filed a lawsuit alleging that three separate concession agreements between YRC and the Teamsters were illegal because they fell outside the collective bargaining agreement covering the union and the trucking industry. The ABF lawsuit, which seeks $750 million in damages, had been tossed last December by a federal district court in Arkansas on jurisdictional grounds. However, a federal appeals court last month reversed that ruling and remanded it to the lower court for further consideration. Should ABF eventually prevail, YRC would face the prospect of rescinding much of the cost savings generated by the separate compacts and face monetary damages as well, a scenario that could cripple a company still trying to find its footing. ;

David, Goliath, and Gegare

The Teamsters union’s long and colorful history has included its share of moments that transcend labor-management relations and find their way into cultural lore. The race to elect the union’s next general president could become one of those moments.

Consider the candidates, whose intersecting story lines seem straight out of central casting:

▪ The incumbent, a 70-year-old Detroit native whose last name is virtually synonymous with organized labor. Drawing on the power and resources of the office, he is vying for his third full term at the union his late father built into an entity as powerful as it was controversial.

▪ A 54-year-old single mother of two with a black belt in Tae Kwon Do. A child of privilege who quit college at 21 for what would become a 33-year Teamster career, she is running as a virtual one-woman band to become the first female president in the union’s 108-year history.

▪ A salty-tongued 59-year-old ex-Marine with 39 years at the Teamsters. Currently an international vice president and a former ally of the incumbent before splitting off in 2010, he now mostly swears at him instead of by him.

If the results of the June 30 balloting by about 1,800 Teamster delegates at the union’s annual convention are any indication, James P. Hoffa, the current president, will win this fall’s election by a landslide. Hoffa garnered 82 percent of the delegate vote, while his two opponents, Alexandra (Sandy) Pope and Fred Gegare, each captured 9 percent.

Hoffa supporters said the results give their man positive momentum heading into the campaign and reflect the members’ confidence in his leadership. His opponents maintain that the balloting is not a good barometer of the general election outcome, noting that in 1991 a relatively unknown candidate named Ron Carey got only 14 percent of the convention’s ballot count and went on to win the presidency.

UGLY BATTLE TAKING SHAPE The balloting is the first shot in what could end up being an ugly battle for Teamster power. The Pope and Gegare teams have already framed the election as a referendum on Hoffa’s leadership, charging Hoffa runs the union from the top down and routinely ignores local concerns, and has jettisoned long-time associates in favor of high-priced consultants with little knowledge of labor issues.