News

The Yellow trucking company meltdown, explained

By:
Posted on:

< < Back to the-yellow-trucking-company-meltdown-explained

WASHINGTON, D.C. (NPR) — It’s the end of the road for one of the nation’s largest freight carriers.

Yellow, a trucking company that just three years ago took a $700 million federal pandemic loan, is shutting down, according to the Teamsters union, which represents the company’s 22,000 unionized workers.

The company is expected to file for bankruptcy as soon as Monday, according to industry experts, following a recent exodus of customers amid union strife and on top of years of financial troubles.

With 30,000 jobs at stake, it’s poised to be the largest trucking bankruptcy in the history of the U.S., experts said. The company, formerly known as YRC Worldwide, is the third largest less-than-truckload carrier by revenue, behind FedEx and Old Dominion. LTL companies move pallet-sized shipments — smaller than a container, but bigger than a parcel.

Yellow has not publicly announced any plans for bankruptcy or a potential shutdown.

Here’s what we know.

Employees were told to prepare for a company shutdown

The Teamsters union, which had been locked in contentious negotiations for a new contract with Yellow, said it received a legal notice that Yellow is ceasing operations and filing for bankruptcy, according to a news release posted Sunday night.

“Today’s news is unfortunate but not surprising,” said Teamsters General President Sean O’Brien. “This is a sad day for workers and the American freight industry.”

The union’s announcement comes hours after The Wall Street Journal reported that Yellow shut down on Sunday afternoon, citing internal notices sent to customers and employees.

Yellow says it will issue a public statement on Monday about “the state of the company and the operation,” according to the industry outlet FreightWaves, which also obtained internal documents.

Yellow has not responded to NPR’s requests for comment.

Yellow laid off an unknown number of its employees on Friday, reported FreightWaves, citing a memo sent to staff informing them that the company is “shutting down its regular operations” and “laying off employees at all of its locations.”

The same day, Teamsters had advised Yellow employees to “prepare for the worst.”

“Yellow appears to be headed to a complete shutdown within the next few days,” said Teamsters National Freight Director John Murphy in a Friday memo shared with NPR.

A strike threat delivered the final blow to cash-poor Yellow

The shutdown comes just days after a Teamsters strike at the company was averted. A week ago, a pension fund agreed to extend health benefits for workers at two Yellow operating companies after the carrier missed its $50 million benefits payment to the fund on July 15, the union said.

While the extension held off a July 24 strike, the threat of a walkout that could disrupt operations prompted a wave of Yellow customers to bolt.

“The Teamsters actions induced a high level of variability and uncertainty in the market for Yellow’s customers. The market abhors variability and uncertainty,” wrote Mike Regan, co-founder of TranzAct Technologies, which manages transportation services for retailers. “Consequently, Yellow lost substantial and much needed volume.”

After the strike threat, Yellow’s freight volumes fell 80% within the span of a week, according to Jack Atkins, a managing director at the financial services firm Stephens who researches the transportation sector.

At the same time, he said, Yellow’s cries that it was running out of cash during union negotiation attempts scared off customers. After fleeing to rival carriers like FedEx and ABF Freight, customers didn’t return.

“Both sides bear fault,” Atkins said. “Once that freight left, there was nothing left to really restructure,” he added. “It was really too late to save the company.”

The company has been at risk of bankruptcy for years

Animus between Yellow and Teamsters has grown in recent months, with each party blaming one another for the company’s problems.

After the trucking carrier tried to restructure its operations this spring as a cost-saving measure that would allow it to refinance its debt. In June, Yellow sued the union for blocking the restructuring plan it said was “essential to the company’s survival.” The Teamsters in turn called the lawsuit “baseless,” instead blaming Yellow for “decades of gross mismanagement,” that included its alleged exhaustion of the $700 million bailout loan.

The company reported a net income of $21.8 million last year. Yellow has $1.3 billion in loan debt due in fall 2024, $729 million of which is owed to the federal government, according to the company’s latest quarterly report.

Yellow received a $700 million loan from the government in 2020 as part of a COVID-19 rescue package. In return, the Treasury Department took a 30% stake in the company’s shares, which have since plummeted to less than a dollar apiece as of Friday.

In June, a congressional probe found that the Treasury Department’s disbursement of the loan was a mistake; the freight company — whose customers included the Department of Defense — did not actually meet the standards to qualify for the business loan because its survival was not “critical to maintaining national security.”

“Before the COVID-19 pandemic, Yellow was a financially struggling company that had a long-term non-investment grade (i.e., junk) rating and previous close calls with bankruptcy over the years. The pandemic did not cause Yellow’s longstanding problems, nor is the Treasury’s loan to the company likely to solve those problems,” the Congressional Oversight Commission report read.

A world without Yellow

An end to the Nashville-based company would mean the loss of 30,000 jobs.

In its Sunday statement, the Teamsters union said it’s working to help “affected members get the assistance they need to find good union jobs throughout freight and other industries.”

Atkins doesn’t expect the federal government to come to the rescue this time. While there may be some slight disruptions, the analyst anticipates other freight carriers will have some capacity to absorb Yellow’s business because of a recent dent in freight volumes.

“This is not going to create a supply-chain crisis,” he said.

Retailers and manufacturers are likely to see higher shipping rates if the company folds, he said. Yellow is known for its low shipping rates compared to its rivals.

Atkins visited the Yellow terminal in Little Rock, Ark., on Sunday to find all gates chained up, a sign of ceased operations.

“They’ve been in wind-down mode, clearing the network out of all the remaining freight,” he said. “This is the end.”

NPR’s Camila Domonoske contributed to this story.

Copyright 2023 NPR. To see more, visit https://www.npr.org.