chased transportation represented 71 percent of ABF’s expenses, according to data
from SJ Consulting, a Pittsburgh-based
consultancy. A source who asked for
anonymity said executives at several
nonunion carriers estimate they hold a
wage and pension cost advantage of
between 25 and 40 percent over ABF.
Virtually every public pronouncement
from Arkansas Best contains a reference to
the economic burden imposed on the unit
by the current labor pact. The parent said in
a statement accompanying its third-quarter
2012 results that the “most significant costs
affecting ABF are associated with our labor
contract.” ABF reported a 1.4-percent year-over-year drop in third-quarter tonnage,
blaming the drop on sluggish macroeconomic conditions.
60
2008
Judy R. McReynolds, Arkansas Best’s
president and CEO, said in the statement
that “we have remained diligent in our
efforts to address ABF’s high cost structure.”
She did not go into detail in the statement.
Arkansas Best has already taken steps to distance itself
from the Teamsters. In June, it bought Panther Expedited
Services, a leader in the time-critical delivery market, for
$180 million in cash and debt. The purchase of nonunion
Panther, a nonasset-based company that also has a growing
presence in international freight forwarding, will diversify
ABF into businesses outside of LTL, where before the
Panther purchase it generated about 90 percent of its revenue. It also takes the company into a segment where
organized labor plays a minimal role, though its workforce
may benefit if Panther’s sales generate additional over-the-road business.
110
EXHIBIT 1
Handicapped by costs
Wages and benefits/employee
(in $thousands)
100
90
80
70
2009
2010
2011
ABF Con-way ODFL
Saia YRC FedEx
2012 (est.)
SOURCE: STIFEL, NICOLAUS & CO. INC.
UNION BLUES? LABOR PACT PUTS ABF AT A COST DISADVANTAGE TO THE LTL COMPETITION.
MORE CHALLENGES AHEAD
ABF’s woes aren’t limited to labor, however. The company
faces other challenges that will remain long after the contract talks conclude. Its “operating ratio,” a measure of
expenses to revenues, hit 105.5 in the first quarter of 2012.
That meant ABF spent $1.05 for every $1 in revenue it took
in. This was the worst performance of any publicly traded
LTL carrier during that period, according to SJ data.
The company improved its operating ratio as the year
progressed. Still, it stood at about break-even as of late
November, and its fourth-quarter ratio was expected to
climb above 100. By contrast, during 2004, the company
achieved an impressive 91. 9 ratio even though wages, benefits, and purchased transportation costs accounted for 76. 8
percent of total expenses, SJ said.
According to the consultancy, ABF generates about $380
in revenue per shipment, $104 per shipment more than
rival YRC Freight, YRC’s long-haul unit, and $109 more
than Old Dominion Freight Line Inc. (ODFL), considered
by many the best-run carrier in the sector. ABF’s rising rev-
enue is due largely to pricing discipline by LTL carriers that
has enabled recent rate hikes to stick.
