Is Yellow’s 3PL Selloff Too Little, Too Late?
In what feels like a last-ditch effort to stave off a bankruptcy, Yellow Corp. is trying to sell its third-party logistics (3PL) business.
The less-than-truckload (LTL) trucking giant says it is currently engaged in active and ongoing discussions with multiple interested parties regarding the sale of its non-union, independent 3PL, Yellow Logistics, Inc.
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“They need cash. Selling one of the units will get them some,” said Jason Miller, interim chairperson, department of supply chain management at Michigan State University’s Eli Broad College of Business.
Miller pointed out that Yellow pulled a similar move to raise cash back in 2010 when it was known as YRC Worldwide.
At the time, the company sold off most of its YRC Logistics business for $38.7 million to a private equity firm, just months after the trucking firm averted bankruptcy by negotiating a debt-for-equity with its creditors. Just one year later, YRC Worldwide had to restructure its business to narrowly avoid bankruptcy again.
But this time, the move could be too little, too late, especially as the company is nearly $1.5 billion in debt, with $1.3 billion due next year.
The company had more than $100 million in cash as of June 30, but has hemorrhaged money in recent weeks as major retailers like Walmart and The Home Depot have reportedly backed away from the firm.
“My guess is a lot of the volume that they lost the last couple of weeks is not coming back anytime soon,” Miller said. “The business that has been diverted is gone for the time being, until Yellow can prove that they are actually a viable entity.”
The LTL carrier recently had to secure a waiver from lenders that allows its finances to drop below predetermined levels tied to its loans, but even that may be on shaky ground. A research note from investment bank Stephens speculated that the mass diversion of freight forced Yellow to fall below its $35 million liquidity requirement to keep the waiver active.
“I don’t see how Yellow survives this, I really don’t,” Miller told Sourcing Journal. “I just think the loss of volume [in] the last two weeks is going to have been too severe.”
Yellow also needs to raise cash as it navigates an ongoing labor dispute with the International Brotherhood of Teamsters over a new contract that expires next March 31, 2024. The Teamsters threatened to strike over $50 million in missed pension and benefits payments. The strike was averted when Yellow agreed on making the payment by Aug. 22.
Yellow and the Teamsters have a testy relationship, with the trucking giant recently suing the labor group for $137 million on allegations that it is preventing the company from implementing its One Yellow turnaround plan, which would consolidate the firm’s four LTL operations.
Dr. Chris Caplice, executive director at the MIT Center for Transportation & Logistics, evoked an American icon in his critique of the potential 3PL divestment.
“I am reminded of the Ernest Hemingway quote: ‘How did you go bankrupt? Two ways. Gradually, then suddenly,’” Caplice told Sourcing Journal. “It is at most a slight delay.”
Others see Yellow trying to sell the logistics arm while it still has market value.
“They could still spin it off after entering bankruptcy, which seems more and more likely with each passing day, but the market value for the logistics unit would likely sink,” said Dr. Tom Goldsby, professor and Haslam Chair of Logistics at the University of Tennessee’s Global Supply Chain Institute. “The logistics business could have many attractive suitors despite a softening of freight volumes overall.”
But ultimately, although a quick sale could help to bolster the company’s finances and buy it some more time, Goldsby said, the LTL business requires fundamental changes to remain a viable carrier.
The sale comes amid another report from FreightWaves Friday that Yellow laid off an unknown number of corporate employees, most of whom were non-union workers in IT, customer service and sales.
Sourcing Journal has reached out to Yellow for comment.
Tacitly address its liquidity issues, fighting with the Teamsters and possible bankruptcy, which could come as soon as Monday, Yellow Logistics labels its operations as “business as usual” on its website.
The site seems to throw a barb at the Teamsters, who are fresh off winning a $30 billion tentative contract for 340,000 UPS workers, saying that the 3PL will be “unaffected by any union-related disruptions to the LTL business.”
Yellow Logistics specializes in a wide range of logistics services, including truckload shipping, final-mile “residential” delivery, contract logistics, engineered solutions, distribution and warehousing.
