Understanding the Yellow Situation: What it Means for the Marketplace and What You Need to Do
Jul 27, 2023
This is a special edition of the Two Minute Warning with breaking news about Yellow.
Folks, I am reasonably certain that most, if not all, of our Two Minute Warning audience is aware that Yellow is on the ropes. The past couple of weeks have highlighted the company's most recent troubles.
After notifying the Central States Welfare and Pension Funds on July 17, that they would not be making their required $50 million payment, the Teamsters at Yellow threatened to strike this past Monday, July 24, unless the required payment was made.
Given the probability of a strike, Yellow acted responsibly and last Thursday shifted their attention to clearing freight out of their system in an effort to minimize the damage that a strike would cause. On July 23, the Teamsters blinked and said there would not be a strike and gave the company an additional thirty days to make the payment. But the damage was done.
As I was quoted in today’s Wall Street Journal, the Teamsters actions induced a high level of variability and uncertainty in the market for Yellow’s customers. The market abhors variability and uncertainty. Consequently, Yellow lost substantial and much needed volume.
To make matters worse, an internal email from Yellow was leaked to the press. This email stated that this Friday (tomorrow) would be the last day of work for Yellow’s salesforce. And it highlighted the fact that a bankruptcy filing was imminent.
The financial analysts and numerous publications had already predicted that Yellow would likely be filing for bankruptcy in the near future, but the events of the past couple of weeks haven't helped. Like I said, it has not been a good time for Yellow.
A Yellow representative said Wednesday that “in keeping with the fiduciary responsibility of the company’s executives, the company continues to prepare for a range of contingencies.”
What does this mean for shippers
Last week I gave a talk to a sold-out audience at the Traffic Club of Chicago about the Yellow situation and what this means for both shippers and carriers. I encourage you to check out the video of this talk, that includes the interview I gave to a reporter after the talk if you are interested in a more in-depth discussion about all the different issues associated with the Yellow situation.
For now, here is the Cliffs Notes version of what we are seeing.
First, it is clear that the Teamsters have overplayed their hand in opposing Yellow’s efforts to restructure under the One Yellow initiative. Since the Teamsters have representatives on Yellow’s Board of Directors, they had to have known that the One Yellow restructuring initiative was likely the only way the company could be competitive in today’s LTL marketplace.
Weeks ago, when Teamster president Sean O’Brien put out a tasteless picture of Yellow’s name on a tombstone and attacked their CEO, it was pretty clear that Mr. O’Brien was willing to sacrifice thousands of Teamster members who work for Yellow. The Teamsters had to have known that even the threat of a strike would be disastrous. But that didn’t stop them from issuing that threat. The conciliatory tone that the Teamsters took this week in proclaiming that they have returned to the negotiating table would almost be comical if the results of their negotiating tactics had not been so devastating.
Second, while the analysts and publications have thrown out the bankruptcy word, no one knows if Yellow would seek a plan to reorganize the company, or have a liquidation of the assets. TranzAct was among the first to highlight the fact that Yellow has valuable assets in their network and they also have three large regional carriers that they believe can be viable competitors in the marketplace.
For example, Yellow sold its terminal in Compton, CA for $80 million. And were the One Yellow initiative successful, it is believed that they would have at least 23 other locations/terminals which could be sold for hundreds of millions of dollars which could be used to substantially reduce its debt. They also have a significant amount of relatively new equipment that was purchased under the CARES loan received from the government.
Third, as a lifelong Chicago sports fan, I have plenty of experience in rooting for the underdog. Using a baseball analogy, for Yellow, it’s the bottom of the ninth-inning, with two outs, an 0-2 strike count and they are down several runs, but the game is not yet over. Yellow’s executive team continues to communicate their intention to continue working through these challenges and we hope they succeed.
LTL Shippers Need an LTL Strategy
In closing, it is important to note that even if Yellow does survive, they will look much different than they do today and the LTL marketplace will look much different. On an immediate basis, capacity could once again become an issue similar to what occurred in 2021 and 2022.
That is why it is imperative that LTL shippers have a written strategic plan that identifies their sourcing strategy, addresses the use of a Carrier Yield Test, the criteria used in your carrier selection processes, and contingencies that could cause disruptions or issues that could affect your LTL costs.
Of course, if you’re looking for some experience and expertise in helping to create an effective LTL strategic plan, TranzAct can help. Having negotiated billions and billions of dollars in contracts over the years, TranzAct can provide insights on best practices in managing your LTL costs.
BY MIKE REGAN, CO-FOUNDER OF TRANZACT
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