Freight Carrier Yellow Shutting Down, 30,000 Jobs On The Line; All You Need To Know
One of the nation's largest freight carriers, Yellow, is facing a bleak end. The trucking company which received a $700 million federal pandemic loan just three years ago is now shutting down, as confirmed by the Teamsters union representing its 22,000 workers, per NPR. “This is a sad day for workers and the American freight industry,” Teamsters' statement said.
Industry experts expected Yellow to file for bankruptcy, attributing the move to a recent loss of customers amid union disputes and longstanding financial struggles. With 30,000 jobs on the line, this could be the largest trucking bankruptcy in U.S. history.
Financial struggles and loss of customers
Yellow, previously recognized as YRC Worldwide Inc., was once among the largest less-than-truckload carriers in the United States, ranking third in revenue among less-than-truckload carriers, trailing behind FedEx and Old Dominion and it employed approximately 30,000 people nationwide. However, the company's recent shutdown is a culmination of over a decade of financial challenges and a significant loss of customers.
Yellow's downfall: The strike threat that sealed its fate
The decisive factor in Yellow's cash-strapped situation was the looming threat of a strike. The company's shutdown occurred shortly after narrowly avoiding a Teamsters strike. To prevent the strike, a pension fund was agreed to to extend health benefits for workers at two Yellow operating companies after the carrier missed a $50 million benefits payment on July 15, 2023. While this extension delayed the strike, the fear of potential disruptions to operations drove many Yellow customers to switch to other carriers.
The uncertainty and variability in the market induced by the strike threat caused a substantial loss of freight volume for Yellow. Customers' departure to competitors like FedEx and ABF Freight combined with Yellow's financial struggles ultimately led to an 80% drop in their freight volumes within a week. "Both sides bear fault," according to Jack Atkins, a managing director at the financial services firm Stephens. "Once that freight left, there was nothing left to really restructure," he added. "It was really too late to save the company."
Yellow's risk of bankruptcy
Yellow has been teetering on the brink of bankruptcy for several years. Tensions between the company and the Teamsters have escalated with each side pointing fingers at the other for the company's financial troubles.
In an effort to cut costs and refinance its debt, Yellow attempted to restructure its operations earlier this year. However, the Teamsters opposed the plan, leading to a lawsuit filed by Yellow, which the union labeled as "baseless." The blame game continued with the Teamsters accusing Yellow of gross mismanagement, including depleting the $700 million bailout loan it received as part of a COVID-19 rescue package in 2020.
The loan from the government came with a 30% stake in Yellow's shares but the company's stock value has plummeted to less than a dollar each. A congressional probe later revealed that the Treasury Department's loan disbursement to Yellow was a mistake as the freight company did not meet the criteria for qualifying for the business loan as its survival was not deemed "critical to maintaining national security." With $1.3 billion in loan debt due in fall 2024, including $729 million owed to the federal government, Yellow's financial situation became increasingly dire.
According to the Congressional Oversight Commission report, prior to the Covid-19 pandemic, Yellow faced financial challenges and had a non-investment grade rating. The company had also experienced previous brushes with bankruptcy. The report emphasized that the pandemic did not create Yellow's underlying issues, and the loan from the Treasury Department was unlikely to provide a lasting solution to its long-standing problems.