Transcon Workers Take Pay Cut to Staunch the Red Ink

Workers at Transcon, the Orange-based freight hauler that has lost $30 million during the past two years, have agreed to a wage cut that the company says will return it to profitability.

In exchange for a large share of future profits, employees agreed in a new, three-year pact, to accept wages 15% below the pay scales established in the master contract of the International Brotherhood of Teamsters, Transcon President Joe Hall said Monday. Transcon’s agreement, which takes effect July 1, was approved earlier this month by 84% of the company’s 3,200 Teamster members.

Union members were reluctant to lose wages but realized that their jobs might be lost without the concessions, according to an agent representing the workers.

Transcon has been losing money since the start of an industry rate war in 1986.

“I’ll be darned. I didn’t think they’d do it. This is great news for the company,” said George Morris, a trucking industry analyst at Prescott, Ball & Turben, a brokerage firm in Cleveland.

Pay concessions aren’t new to most Transcon workers. For nearly five years, 83% of the company’s Teamster-member employees have been receiving wages 12% below scale in exchange for stock in the company. That agreement, however, will expire this year and be replaced by the new pact.

Transcon adopted the five-year employee stock ownership plan in 1983 during troubled times caused by the deregulation of the trucking industry. The plan allows for a maximum of 49% of the company to be owned by employees, and that limit will be reached in October.

The looming expiration of the ownership plan has caused analysts to speculate that the company could not survive without continued concessions.

“I think the employees decided it was too early to throw in the towel. This way, when the company makes money they will get most, if not all of what they are giving up now,” said company president Hall. The new agreement calls for workers to receive between 20% and 60% of Transcon’s future profits, the exact percentage depending on the size of the earnings.

Analysts called the new contract a double bonus for the company because it covers all employees and because employees are giving up an additional 3% in pay. The Teamsters’ international contract approved this spring calls for a top hourly wage of $15.06 an hour, up 35 cents from a year earlier, according to Transport Topics, an industry publication in Arlington, Va.

For trucking firms, wages account for about 60% of the company’s total expenses, so Transcon’s savings could be significant enough to restore the company to profitability, analysts said.

In addition, Morris and other industry analysts said they are aware of no other trucking company that has negotiated a similar money-saving contract, which means Transcon will have a competitive edge against larger firms that must pay at union scale.

“This looks similar to what workers at Chrysler and TWA did to help those companies when they were down,” said Louis A. Marckesano, an analyst at Janney Montgomery Scott, a brokerage firm in Philadelphia. “This kind of agreement only helps operations because it can’t hurt revenues.”

Analysts said they aren’t making specific earnings forecasts for the company but said Transcon could break even this year.

Hall said the company expects to earn a profit in the third quarter, but it won’t be enough to offset losses from the first half of the year. “Expecting break-even is overly optimistic, but in this industry you don’t know what will happen,” he said.

Transcon has been struggling since late 1986 when giant Yellow Freight System in Shawnee Mission, Kan., cut its rates to increase its market share. Other large firms retaliated, and medium-size companies like Transcon were forced to follow to keep business.

Profits have been sharply reduced at the largest companies. Medium-size companies have reported staggering losses, and a few have gone out of business. At Transcon, last year’s loss totaled $20 million, and the company lost $9.4 million for the first quarter of 1988.

Analyst Morris said the price war has subsided in recent months, and freight carriers, including Transcon, have increased rates this year.

“The increases haven’t been in long enough to know if they’re going to hold. But we’re optimistic,” said Jim R. Allen, a spokesman for Palo Alto-based Consolidated Freightways, the nation’s largest trucking company.

Transcon Chairman Orin Neiman said Transcon is considering other options to become more competitive, including potential acquisitions and mergers.