Thirty thousand workers lose their jobs when the 99-year-old trucking business Yellow closes. On Sunday, Yellow Corp., a 99-year-old transportation company that once dominated its industry, ceased operations and laid off 30,000 employees.
The unionized company has conflicted with the Teamsters Union, which represents approximately 22,000 of the company’s drivers and dock employees. A week ago, the union called off a threatened strike prompted by the company’s failure to contribute to its pension and health care programs. The league granted the organization an additional month to make the necessary payments.
Read more: Grimace shakes help McDonald’s sales go through the roof.
According to the union and trucking industry consultant Satish Jindel, the company ceased gathering goods from its customers. It began delivering only goods already in its system by midweek of the previous week.
According to a Thursday memo sent to local unions by the Teamsters’ negotiating committee, although the union agreed not to go on strike against Yellow, it could not agree with the transportation company on a new contract. The association reported Monday morning that it had been informed of the closure.
“Today’s news is regrettable but not unexpected. Yellow has historically demonstrated that it cannot manage itself, despite billions of dollars in worker concessions and hundreds of millions in federal stimulus funding. “Today is a sad day for American workers and the freight industry,” said Teamsters President Sean O’Brien in a statement.
Sunday and Monday, company representatives have yet to respond to numerous requests for comment. Although the company’s headquarters are in Nashville, Tennessee, it is a national enterprise with more than 300 terminals and employees dispersed across the country. According to field experts, Yellow’s demise was predominantly due to an unmanageable level of debt, which exceeded the cost of the union contract.
“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. This third-party logistics firm places approximately $11 billion worth of freight with various trucking companies on behalf of shippers each year. To acquire other trucking companies, he stated that the company began amassing substantial debt 20 years ago.
“Their debt service is enormous,” he said, alluding to the company’s $1.5 billion debt.
In Yellow’s transportation market segment, two additional unionized national competitors, ABF Freight and TForce. Both were significantly more profitable in recent years than Yellow, which posted a meager operating profit in 2021 and 2022 and an operating loss of $9.3 million in the first quarter.
There were rumors last week that the company would file for bankruptcy by July 31, but it stated that it was still negotiating with the Teamsters and evaluating its options. The Teamsters announced on Monday that the company is declaring bankruptcy.
US taxpayers will be penalized.
The closure is unfortunate for Yellow’s employees and customers, who used the company because it offered some of the lowest rates in the transportation industry but also for American taxpayers. The corporation received a $700 million loan from the federal government in 2020, resulting in 30% of its outstanding stock being held by taxpayers. According to its most recent quarterly report, the company still owed the Treasury Department more than $700 million, representing nearly half its long-term debt.
After news of the bankruptcy plans, Yellow’s stock lost 82% of its value between the time of that loan and Thursday’s close, closing at only 57 cents per share. The price per share increased by 14 cents on Friday, but it remained a so-called penny stock.
Despite facing allegations of government fraud for overcharging on shipments of items for the US military, the company received the loan during the pandemic. Eventually, the company settled the dispute without acknowledging any wrongdoing but was required to pay a $6.85 million fine.
Less-than-truckload, or LTL, refers to a segment of the trucking industry that manages pallet-sized freight shipments and transports shipments from multiple customers in the same truck. The company claimed as recently as June that it was the third-largest LTL carrier in the country.
Jindal stated that the company only managed about 7% of the nation’s 720,000 daily LTL shipments last year. According to him, there is currently an 8% to 10% excess capacity in the LTL sector, so the closure of Yellow should not significantly disrupt supply chains. However, he stated that it would result in higher rates for transporters who rely on LTL carriers, as the excess capacity lowered prices.
Jindal stated that higher prices will affect Yellow’s consumers.
“They were using Yellow because it was inexpensive,” he explained. “They are discovering that the price was below the cost of maintaining a successful operation.”
While the US economy has remained robust, consumer spending has shifted in recent years from the goods they purchased in 2020 and early 2021, when they were confined to their homes due to the pandemic, to services, such as plane tickets and other experiences that do not require transportation by truck. Nightingale reported a 17% decline in LTL shipments between 2021 and 2022 and a further 5% decline in the first quarter compared to one year prior.
He stated that while Yellow could be profitable when trucking demand was high, it could not survive the freight slowdown and the resulting decline in transportation rates. As Yellow’s shipments dropped 13% in the first quarter compared to the same period a year ago, shippers concerned about the company’s future began transitioning to other carriers.
Nightingale stated, “As Warren Buffett says when the tide goes out, you discover who has been swimming naked.”
The conclusion of an epoch in trucking
The segment of the transportation industry that handles full trailers of cargo, known as truckload, was quickly dominated by non-union trucking companies after deregulation nearly four decades ago. The only requirement for low-cost competitors to enter this industry segment was a vehicle.
However, the LTL segment requires a network of terminals to sort incoming and outgoing freight. This hindered the entrance of low-cost competitors but did not prevent their entry. As non-union rivals grew, unionized carriers such as Yellow became significant players.
In time, non-union carriers also came to dominate the LTL market. Many of the remaining unionized LTL carriers, including Yellow and competitors such as Roadway Express, New Penn, and Holland, merged to survive at the beginning of this century.
Yellow, Roadway, and CF or Consolidated Freightways were once considered the “Big Three” of the transportation industry. CF ceased operations in 2002. And with Yellow Corporation’s demise, the remaining two members of the Big Three are now also defunct.
