Yellow Corp., a 99-year-old trucking company that was once a dominant player in its field, halted operations Sunday and will lay off all 30,000 of its workers.
The unionized company has been in a battle with the Teamsters union, which represents about 22,000 drivers and dock workers at the company. Just a week ago the union canceled a threatened strike that had been prompted by the company failing to contribute to its pension and health insurance plans. The union granted the company an extra month to make the required payments.
But by midweek last week, the company had stopped picking up freight from its customers and was making deliveries only of freight already in its system, according to both the union and Satish Jindel, a trucking industry consultant.
While the union agreed not to go on strike against Yellow, it could not reach an agreement on a new contract with the trucking company, according to a memo sent to local unions Thursday by the Teamsters’ negotiating committee. The union said early Monday that it had been notified of the shutdown.
“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,” said Teamsters President Sean O’Brien in a statement.
Company officials did not respond to numerous requests for comment Sunday and Monday.
While the company is based in Nashville, Tennessee, it is a national company with terminals and employees spread between more than 300 terminals nationwide. Experts in the field said it was primarily an unaffordable amount of debt, more than the cost of the union contract, that did in Yellow.
“The Teamsters had made a series of painful concessions that brought them close to wage parity with nonunion carriers,” said Tom Nightingale, CEO of AFS Logistics, a third-party logistics firm that places about $11 billion worth of freight annually with different trucking companies on behalf of shippers. He said the company began taking on significant amount of debt 20 years ago in order to acquire other trucking companies.
“Now their debt service is just enormous,” he said, pointing to $1.5 billion in debt on its books.
There are two other national competitors in Yellow’s segment of the trucking market which are also unionized, ABF Freight and TForce. Both were far more profitable in recent years than Yellow, which posted only a narrow operating profit in 2021 and 2022 and a $9.3 million operating loss in the first quarter.
There were reports last week that a bankruptcy filing would come by July 31, although the company said last week only that it continued to be in talks with the Teamsters and that it was considering all of its options. The Teamsters said Monday the company is filing for bankruptcy.
US taxpayers to take a hit
The closing is bad news not only for its employees and its customers, who generally used Yellow because it offered some of the cheapest rates in the trucking sector, but also for US taxpayers. The company received a $700 million loan from the federal government in 2020, a loan that resulted in taxpayers holding 30% of its outstanding stock. And the company still owed the Treasury department more than $700 million according to its most recently quarterly report, nearly half of the long-term debt on its books.
Yellow’s stock lost 82% of its value between the time of that loan and Thursday close after reports of the bankruptcy plans, closing at only 57 cents a share. It bumped up 14 cents a share on Friday, but still remained a so-called penny stock.
The company had received that loan during the pandemic, despite the fact that at the time it was facing charges of defrauding the government by overbilling on shipments of items for the US military. The company eventually settled the dispute without admitting wrongdoing but was forced to pay a $6.85 million fine.
Yellow handles pallet-sized shipments of freight, moving shipments from numerous customers in the same truck, a segment of the trucking industry known as less-than-truckload, or LTL. The company had been claiming as recently as June that it was the nation’s third largest LTL carrier.
But the company handled only about 7% of the nation’s 720,000 daily LTL shipments last year, said Jindel. He said there is about 8% to 10% excess capacity in the LTL sector right now, so the closure of Yellow shouldn’t cause a significant disruption in supply chains. But he said it will cause higher rates for shippers who depend on LTL carriers, since it was the excess capacity that sent prices lower.
Higher prices will hit Yellow customers, Jindel said.
“The reason they were using Yellow was because they were cheap,” he said. “They’re finding out that price was below the cost of supporting a good operation.”
While the US economy has remained strong, spending by consumers has been shifting in recent years from the goods they were buying in 2020 and early 2021 when they were still stuck close to home due to the pandemic, to services, such as plane tickets and other experiences that don’t need to move by truck. Nightingale said industrywide LTL shipments fell 17% between 2021 and 2022, and another 5% in the first quarter compared to the first quarter a year earlier.
He said that while Yellow could be profitable when demand for trucking was strong, it couldn’t get by in the face of the slowdown in freight, and the drop in trucking rates that went with it. Shippers worried about Yellow’s future started shifting to other carriers, as its shipments fell 13% in the first quarter compared a year earlier.
“It’s what Warren Buffett says, when the tide goes out you discover who’s been swimming naked,” Nightingale said.
End of an era in trucking
When the trucking industry was deregulated nearly 40 years ago, the segment of the industry that handled full trailers of cargo, known as truckload, soon was dominated by non-union trucking companies. The only thing low-cost competitors needed to enter that segment of the industry was a truck.
But the LTL segment requires a network of terminals to sort incoming and outgoing freight. That limited, but did not prevent, the entry of low-cost competitors. So unionized carriers such as Yellow continued to be major players, even as non-union rivals grew.
Eventually non-union carriers came to dominate the LTL segment as well. By early in this century, many of the remaining unionized LTL carriers, including Yellow and rivals such as Roadway Express, New Penn and Holland, merged to survive.
Yellow, Roadway and a third company known as CF or Consolidated Freightways had once been known as the Big Three of the trucking industry. CF went out of business in 2002. And with Yellow Corp. closing, the final two parts of the Big Three are now out of business as well.
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