100-Year-Old Freight Yellow Corp. Has Entered Bankruptcy
Yellow Corp. didn’t need a Teamsters strike to enter bankruptcy - in its 100th year, Yellow did it completely on its own.
The Teamsters blamed the company for being poorly managed. In turn, the company said the union wasn’t willing to change with the times. But in the end, the brutal, cutthroat market place that is trucking in 2023 doomed one of the grand old names in transport and its nearly 30,000 workers.
Yellow, which had $5.24 million revenue in the $58 billion less-than-truckload (LTL) market, told the union it was formally declaring bankruptcy, following decades of losses that exceeded $1.5 billion. It was the fifth-largest trucking company in America.
Teamsters General President Sean M. O’Brien said in a statement:
“Today’s news is unfortunate but not surprising. Yellow has historically proven that it could not manage itself despite billions of dollars in worker concessions and hundreds of millions in bailout funding from the federal government. This is a sad day for workers and the American freight industry.”
Included in that debt is a $730 million loan from the federal government won during the final days of the Trump administration. It is unclear what happens to that deal. U.S. taxpayers are the hook for a 30% equity stakeholder in Yellow. But that equity would be wiped out in the bankruptcy.
Yellow’s cessation was two decades in the making. It survived at least four close brushes with bankruptcy in this century. Its closing leaves unionized carriers with roughly a 22% share of the LTL market, mostly at rival ABF Freight System and TForce Freight (formerly called Overnite and UPS Freight). In the larger $403 billion truckload market, unionized carriers barely have a 4% share.
Jason Seidl, analyst for TD Cowen, called ABF “a natural alternative” to Yellow for shippers. “Gradual phase-out of transactional freight should position (ABF) well to capture share at incrementally favorable pricing,” Seidl wrote in an investor note.
Yellow Corp: 30,000 Employees and a 48 State Footprint
Yellow had approximately 30,000 employees (24,000 Teamsters) and operated 13,800 tractors and 43,400 trailers. As a national carrier, Yellow had a 48-state footprint but was especially strong in the Northeast and Central States.
Photos taken last week at Yellow’s huge Akron and Cleveland terminals showed scores of empty trailers and no workers. Word of its pending bankruptcy leaked midweek as shippers finally abandoned the company as well.
A potentially company-ending strike at Yellow Corp. was averted last Sunday when the union said its Central States Health and Welfare Fund agreed to extend health care benefits for workers at Yellow subsidiaries YRC Freight and Holland.
But that turned out to be a pyrrhic victory for Yellow’s employees.
Analyst Dave Ross in his blog Beyond Logistics:
“The best summary of Yellow’s fight over the last 15 years is The Black Knight from Monty Python. Yellow is The Black Knight. But there is no fight anymore.”
The move came after what the union called “intense pressure” from the Teamsters. The threat of a strike began a shipper exodus away from the Nashville, Tenn.-based company.
Yellow handled only about 7% of the nation’s 720,000 daily LTL shipments last year, according to estimates from trucking analyst Satish Jindel of SJ Consulting. Because of recession fears, there is about 8% to 10% excess capacity in the LTL sector right now. So Yellow’s cessation shouldn’t cause a significant disruption in supply chains, he said.
But Jindel is predicting higher rates for shippers who depend on LTL carriers, since it was the excess capacity putting downward pressure on pricing.
“The reason they were using Yellow was because they were cheap,” he said.
Big winners in this case will be rival large LTL carriers such as market leader Old Dominion Freight Line (ODFL), FedEx Freight, XPO Logistics, Estes Express and ABF Freight System. The latter is the only large Teamsters-covered carrier remaining in the LTL sector.
An internal notice from ODFL to employees said that carrier would pick up a “selective increase” in Yellow freight, but would not be carrying abandoned freight.
“If the freight is profitable, OD will consider handling it,” said the internal ODFL memo obtained by LM.
Higher prices will particularly be true for ex-Yellow customers, Jindel said.
Intense discussions between Teamsters leadership and Yellow representatives last week failed to produce anything meaningful. Yellow management told the Teamsters the future of the company was at stake—and it wasn’t kidding.
Yellow was founded in 1924 as an offshoot of Yellow Cab Co. The trucking company was formed that year in Oklahoma City by brothers Cleve and A.J. Harrell. For decades in a regulated environment, Yellow thrived by methodically buying the operating authorities of defunct companies to build a 48-state footprint.
Yellow’s problems began in the late 1990s under CEO Bill Zollars, recruited out of the Xerox Corp. “Dollar Bill” talked big, dreamed big and built up the company to a $6 billion behemoth. His biggest purchase was long-haul rival Roadway Express for $966 million that loaded Yellow up in debt in 2007—right before the Great Recession.
Zollars’s dream of enacting hundreds of millions of “synergies” never materialized. Then, it became a fight for survival. Regional carriers such as the former U.S. Freightways units Yellow had purchased had to be jettisoned for cash. Solid truckload acquisitions such as Jevic Transportation went downhill under Yellow’s ownership.
Through it all, the Teamsters stayed. The union agreed to a 15% cut in wages. Then, there was over a 70% cut in pension and health care contributions. But finally the union drew a line when it refused to go along with a long-touted network redesign dubbed “One Yellow.”
One Yellow Became Last Yellow
Finally, two weeks ago, Yellow Corp. said it would begin withholding approximately $50 million in pension contributions to the Teamsters Central States pension fund because it says Teamsters’ leadership is causing “obstruction” to the company’s major change of operations.
That caused what Yellow labeled a “liquidity crisis” and the need to implement cash-conservation measures, including its benefit funding deferral request.
Yellow maintained the Teamsters’ threat of a strike would be illegal and a violation of the collective bargaining agreement, which doesn’t expire until March 31.
The company lost a plea for a temporary restraining order in its District of Kansas lawsuit against the Teamsters. It said the union’s actions are the “direct cause” of Yellow’s inability to make contributions to the funds.
Yellow had asked U.S. District Judge Julie Robinson to issue a temporary restraining order and preliminary injunction against the union to prevent a threatened strike two weeks ago. But the die was cast.
Robinson ruled she does not have authority to issue such orders. She expressed sympathy for the workers. But she wondered aloud whether such aggressive actions as a strike would not mean the Teamsters had won a battle but lost the war.
At issue was Yellow’s plan to convert its regional operations to a “One Yellow” format of multiple regional carriers operating in a long-haul system. The union is protesting potential change of domiciles for what the company calls a “small number” of drivers.
Teamsters’ O’Brien said:
“Following years of worker givebacks, federal loans and other bailouts, this deadbeat company has only itself to blame for being in this embarrassing position.”
To keep up with the times and customers’ needs, Yellow said it needed its well-publicized business modernization plan known as “One Yellow.” But it says Teamsters’ leadership has rejected all proposed changes of operations. For nine months, the union has balked, freezing the company’s business plan in time.
The company said this has cost Yellow in excess of $137 million in adjusted earnings before interest, taxes, depreciation and amortization (EBITDA). Finally, the lenders said enough was enough. Yellow just ran out of time.
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