The 2:00 Minute Warning

Well, based on recent events in the transportation marketplace it’s not too surprising that the # 1 item we're watching now is the situation with Yellow.

Due to our coverage of the One Yellow initiative and how it yielded labor disputes with the Teamsters, several shippers have been asking: What is going on with Yellow? Here's the latest that we've learned and background on the situation.

According to recent news reports, Yellow informed union members that failure to proceed with the One Yellow initiative could deplete their funds by August. Then this week it was announced that Yellow has filed a lawsuit against the Teamsters alleging that their refusal to negotiate in good faith over the restructuring has caused Yellow to lose $137 million. The Teamsters have stated that the lawsuit is frivolous.

In a market where freight demand has dropped, it can be hard to picture a light at the end of the tunnel for a company in Yellow’s circumstances. Add it all up and numerous financial analysts and reports are questioning Yellow’s viability and ability to survive. Obviously this is not a good situation for shippers.

However, we think there are some points being overlooked. But before diving in to these points, in the “Full Disclosure Department,” Yellow has been a valued partner in our Freedom Logistics LTL freight buying network since 1995. We are proud to work closely with all of the carriers in this network.

What’s driving the dispute?

The Teamsters and Yellow are in the middle of intense negotiations regarding the restructuring that’s occurring under the One Yellow initiative. Yellow has carried out the initial phase of this plan and is facing resistance from the union to proceed with the next phase. Yellow maintains that this restructuring is necessary because of changes in their network. The Teamsters think it is a convenient way for Yellow to reduce its labor force.

How serious is it?

Yellow has been on the ropes before and has been able to beat the “Ten Count” and pick themselves off of the mat and continue operating. For example, when Yellow was under duress in 2020, they were bailed out by the government with a $700 million loan under the pandemic related CARES Act.

Right now they are in the final stages of negotiations to restructure their financial debt. In conjunction with these negotiations, Yellow is seeking to defer payments to pensions and healthcare funds for two months (July and August) until they refinance their debt. While this is not an ideal move to make, it shows that the company is taking actions to preserve their future.

What does the future look like?

One of the things that is critical in any debt negotiation is the collateral securing the loans. In that regard, one advantage is that the value of the real estate underlying their terminal network is most likely higher than it has ever been. The One Yellow initiative addresses the fact that Yellow has a “redundant network” with terminals that support its regional carriers (Holland, New Penn, and Reddaway) and terminals that support Yellow, or its long haul operations. If Yellow can reduce its terminal network and free up/sell its real estate assets, the funds can then be used to reduce its debt and improve its liquidity.

Why should shippers care about Yellow?

In today’s freight markets where there is abundant capacity, some shippers may not be too concerned about Yellow’s survival. From our perspective, that is extremely shortsighted thinking. As the third largest LTL carrier with about a 10% market share, if Yellow were to cease operations it would have a significant impact on the market and would, as we saw when Consolidated Freightways ceased operations, eliminate the overcapacity and most likely result in higher rates. For that reason, we hope that Yellow and the Teamsters can work things out and that Yellow successfully completes its loan negotiations.

Final Notes

What would be catastrophic for Yellow would be a significant attrition of customers. Some shippers are concerned about freight being trapped in the network if something happens to Yellow. We think those concerns may be a bit overblown. Yellow has a relatively short delivery cycle (between 3-4 days) and thus it is unlikely that trapped freight would be a major issue.

Given the significance of this matter, we are closely monitoring the situation. If you are looking for more information, or want to discuss various strategies free of charge, simply give us a call, send us an email, or schedule time to meet on Calendly.

BY MIKE REGAN, CO-FOUNDER OF TRANZACT

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