Could Top US Trucking Firm Go Bankrupt?
One of America’s largest trucking companies may be near bankruptcy, and it’s suing the union that counts more than 80 percent of its employees as members.
Less-than-truckload (LTL) firm Yellow Corp. filed a $137.3 million lawsuit against the International Brotherhood of Teamsters in a Kansas federal district court. The freight transportation company’s legal complaint said the union allegedly got in the way of the trucking giant’s much-needed restructuring.
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And while the company reported $167.5 million in total liquidity at the end of the first quarter, Yellow said in the lawsuit that it could run out of cash by mid-July, when creditors will likely force the company to liquidate.
Yellow contends that it must implement the second phase of its One Yellow restructuring plan—which includes consolidating its four LTL operating companies and closing excess terminals—to pay off debt, cut costs and compete with non-union carriers. The attempted restructuring comes as companies like Amazon and FedEx are overhauling their own distribution networks and getting rid of redundancies.
The company alleges the Teamsters have breached the collective bargaining agreement by rejecting the proposed changes and not agreeing to schedule a required hearing on the matter. The union fought back saying its has fully honored the agreement’s terms, which expire March 31, 2024.
Currently, Yellow has $1.3 billion in debt that comes due in 2024, with total obligations of $1.5 billion outstanding when including lease financing obligations.
“We do not take this action lightly, but the union’s leadership has left us with no choice,” Yellow’s management stated in a news release. “For many months, we have made good faith efforts to meet with the IBT to propose a path forward that works for all parties, but they refuse even to meet, let alone engage in honest talks.”
While Yellow doesn’t explicitly reveal its customers in the retail space, approximately half of the 14.2 million shipments it made in 2022 were to retail customers, with CEO Darren Hawkins saying in a February earnings call that these client “tend to be very large shippers.”
The company’s vast transportation network covers a wide swath of North America with 308 service facilities, operating 12,700 trucks and 42,000 trailers.
The complaint alleges that Sean O’Brien, the general president of the Teamsters, orchestrated these breaches and has prevented Yellow from meeting with union leadership. O’Brien is the face of the Teamsters’ efforts, representing more than 330,000 UPS employees engaged in heated contract negotiations.
Although the Teamsters approved first of the three phases of the One Yellow plan, the trucking company said the union pulled an about-face on the modernization efforts, accusing O’Brien of assuming “the role of public agitator for the company’s demise,” describing some of his social media posts as “false, unconstructive and irresponsible.”
In line with some of his public behavior in the UPS contract spat, O’Brien did not hold back in his opinion of the lawsuit.
“Yellow Corp.’s claims of breach of contract by the Teamsters are unfounded and without merit,” O’Brien said in a statement. “For a company that loves to cry poor, Yellow’s executives seem to have no problem paying a team of high-priced lawyers to wage a public relations battle—all in a failed attempt to mask their incompetence.”
Yellow’s financial struggles come amid a wider freight recession that has seen demand for goods plummet this year, with freight rates falling as well. According to DAT Freight & Analytics data, dry van spot trucking rates plunged 23.8 percent for the 12 months starting in May 2022 to $2.06 per mile.
And with that, many smaller trucking businesses are going out of business. As last month, 11,000 operating authority agreements have been revoked since 2022, according to the U.S. Department of Transportation, suggesting that trucking fleets are voluntarily exiting the market.
Yellow reported net losses of $54.6 million on operating revenue declines of 8.1 percent to $1.16 billion in the quarter. LTL tonnage per day at the carrier was down 12 percent in the first quarter, driven by a 13.3 percent decrease in LTL shipments per day.
Despite being laden with debt, Yellow also may be lucky to still be in the current position it is in. A new congressional report determined that the U.S. Treasury Department erred in judgment in giving Yellow, then known as YRC Worldwide, a $700 million Paycheck Protection Program (PPP) loan in 2020. The agency deemed Yellow as critical to national security even though the trucking company didn’t meet the standard for that designation, the report said.
In exchange, the Treasury Department received a 30.1 percent stake in Yellow.
O’Brien was critical of the PPP loan, and Yellow’s handling of it, saying “After decades of gross mismanagement, Yellow blew through a $700 million bailout from the federal government, and now it wants workers to foot the bill.”
